Rollins
Annual Report 2013

Plain-text annual report

connecting people to places Annual Report For year ended 30 November 2013 Contents Rotala at a Glance Directors, Secretary & Advisers Financial Highlights Review of Operations & Statutory Reports Chairman’s Statement & Review of Operations Strategic Report Directors’ Report Independent Auditor’s Report Financial Statements Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Balance Sheet Notes to the Company Financial Statements Shareholder Information Notice of Annual General Meeting Notes to Members Explanatory Notes to Notice of Annual General Meeting 04 05 08 12 18 22 27 28 29 30 32 34 66 67 76 78 80 Rotala Plc Beacon House, Long Acre, Birmingham B7 5JJ Telephone: 08458 382 382 Website: www.rotalaplc.com This document was designed by Alison Webber, Graphic Designer for the Rotala Group. 02 Rotala Plc // Annual Report 2013 Rotala at a Glance 03 Rotala at a Glance 04 Rotala Plc // Annual Report 2013 Rotala at a Glance 05 Directors, Secretary & Advisers Financial Highlights Country of incorporation of parent company England and Wales Company registration number 5338907 A glance at the highlights of the financial year ended 30 November 2013. Legal form Directors Registered Office Public Limited Company John Gunn (Non-Executive Chairman) Simon Dunn (Chief Executive) Robert Dunn (Executive Director) Geoffrey Flight (Non-Executive Director) Kim Taylor (Group Finance Director) Beacon House, Long Acre, Birmingham B7 5JJ Telephone: 0121 322 2222 Fax: 0121 322 2718 Revenue £53,303,000 2.8% Profit before Taxation £2,058,000 0.9% Dividend 1.60p 14.3% Company Secretary Kim Taylor 2012 £54,813,000 2012 £2,076,000 2013 £53,303,000 2013 £2,058,000 2013 2012 1.60p 1.40p Nominated Adviser and Broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square Auditor Solicitors Registrars Bankers London EC4M 7LT Grant Thornton UK LLP Chartered Accountants Registered Auditor Colmore Plaza 20 Colmore Circus Birmingham B4 6AT Massers Solicitors Rossell House Tudor Square West Bridgford Nottingham NG2 6BT Capita Asset Services 34 Beckenham Road Beckenham BR3 4TU RBS/Natwest 1 St. Philips Place Birmingham B3 2PP 2011 £56,077,000 2011 £1,878,000 2011 1.20p 2010 £44,644,000 2010 £1,650,000 2010 0.90p Contracted Revenue £20.6m 8.5% Commercial Revenue £29.9m 1.0% Charter Revenue £2.8m 4% 2013 £20.6m 2013 £29.9m 2013 £2.8m 2012 £22.5m 2012 £29.6m 2012 £2.7m 2011 £21.9m 2011 £30.9m 2011 £3.3m 2010 £18.8m 2010 £21.8m 2010 £4.0m 06 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 07 Review of Operations & Statutory Reports 08 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 09 Chairman’s Statement and Review of Operations I am pleased to be able to make this report to the shareholders of Rotala Plc for the year ended 30 November 2013. Revenue £53,303,000 2.8% 2013 £53,303,000 2012 £54,813,000 2011 £56,077,000 2010 £44,644,000 Revenue by Stream 39% Contracted 56% Commercial 5% Charter Review of trading Rotala continues to hold a leading market position in Preston and be the number two bus operator in Bristol and Bath. In the West Midlands (the second largest bus market in the country after London), where we are also the number two bus operator, the addition of depots in Kidderminster and Redditch, acquired from First Group Plc (“First”) in the year, undoubtedly strengthened our position in the region. We are furthermore one of the leading providers of private bus networks in the country, especially to the aviation industry around Heathrow. Contracted Services Revenues in Contracted Services overall fell by 8.5% to £20.6 million (2012: £22.5million). The cause of almost all of this reduction in revenue was the loss in April 2013 of the two route diagrams we operated up to that time for National Express Limited (“NEL”). In our view NEL breached their contract with us by their actions. Therefore we have commenced legal proceedings against NEL to recover our losses. This case is expected to come to trial in the last quarter of 2014. In these accounts we have written off as an exceptional item £364,000 of our losses, which form part of our claim against NEL. Looking beyond this exceptional event, we experienced continuing strong growth in our private bus networks business. Revenues from these contracts have increased by some 50% over the last two years and we remain positive about this part of our activities. As might be expected from the drive of government policy, local authority transport budgets have continued to be under pressure. Revenues from the local authorities we deal with in the South West and West Midlands have therefore declined when compared to those of 2012, though we have not yet seen any similar pattern in Preston. The overall effect of these market changes over the last few years has been to re-position our Contracted Services business away from such a considerable exposure to the ebbs and flows of local government finance to be more focused on privately contracted bus services with major corporate customers. Commercial Services Revenues in Commercial Services rose by 1.2% to £29.9 million (2012: £29.6million). Part of the reason for this rise is the contribution of the Redditch and Kidderminster depots which we acquired from First on 3 March 2013. It is however impossible to say what exactly that contribution has been in 2013, because the acquired businesses were immediately folded into our existing operations in those localities and so ceased to have a separate existence. I would estimate however that the acquired revenue was between £1 million and £2 million. Thus the acquisition of this business from First masked to some degree the full effect of the actions we took in 2012 to cut route mileage and pull out of services which we felt were unlikely to be economic in the longer term. The reduction in the reimbursement rates for concessionary fares is also a significant contributory factor in this area of business. Against that we continue to experience strong growth from the continuing wider introduction of our own network cards. Revenues from this source have increased by 70% in the last two years. Revenues from Centro’s own Network Card also made an increased contribution to our revenues. During the year Centro introduced an updated multi-operator card with a lower fare premium relative to single operator Contracted Revenue £20.6m 8.5% 2013 £20.6m 2012 £22.5m 2011 £21.9m 2010 £18.8m Commercial Revenue £29.9m 1.2% tickets and better zonal coverage. We believe that this new card is slowly having an effect on our business and opens out, both to ourselves and other competing smaller operators in the West Midlands, the opportunity to achieve better penetration of the available market share. Charter Services Revenues in Charter Services were much the same as they were in 2012 at £2.8 million. In line with group policy we have progressively reduced the exposure of the group to this area of business in recent years. Airline related chauffeur car services (which we sub-contract in their entirety) saw some increase in movements and revenues when compared to those of 2012 but revenues from private hire work were very little different from those of the previous year. Strategy and acquisitions At the beginning of March 2013 we acquired from First certain of their bus operations in Worcestershire. For a cash consideration of £1.6 million, we bought two freehold depots, one in Kidderminster and the other in Redditch, 36 vehicles, and various items of plant and equipment. These depot acquisitions added about 100 staff to our workforce. Initially the Office of Fair Trading opened an enquiry into the acquisition but finally announced on 23 August 2013 that this enquiry was at an end and that there would be no reference of the acquisition to the Competition Commission. 2013 £29.9m 2001. It can accommodate up to 60 vehicles. The Redditch depot, built about 35 years The Kidderminster depot comprises a site of some two acres and was purpose built in 2012 £29.6m ago, has a slightly smaller useable area and can accommodate about 50 vehicles. The two depots enable us to extend our existing route networks on the western side of the Birmingham conurbation. 2011 £30.9m The integration of these depots into our current depot network was quickly completed 2010 £21.8m Charter Revenue £2.8m 4% 2013 £2.8m 2012 £2.7m 2011 £3.3m 2010 £4.0m and some benefits were felt in 2013. I am sure that in 2014 the positive impact of the acquisition will become fully visible. Since making the acquisition we have in Redditch deployed 20 replacement vehicles, some brand new, some from our existing fleet, in order to be able to take out of service the non-low floor and step entrance vehicles which not only did not comply with the provisions of the Disability Discrimination Act which begin to come into force in 2014, but also produced, in our view, unacceptably high emission levels for a town service. A certain amount of further investment will be required in replacement vehicles and depot resources to complete the work that is required. Fuel prices and fuel usage Fuel cost remains a significant factor to the business. The policy of the board is to take out fuel hedges or obtain fuel fixes whenever it seems prudent to do so. At the current time, using that combination of fuel fixes and fuel hedges via derivative instruments, we have covered all of the fuel requirements of the group for the whole of 2014 and 2015 at a combined rate of about 110p per litre. This control over the remaining variable cost in the business gives considerable certainty to the board when it considers its budgets and forecasts over the foreseeable future. 10 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 11 Chairman’s Statement and Review of Operations (continued) Fuel prices and fuel usage (continued) At the same time board policies in other areas have aided the reduction in overall levels of fuel consumption. Over the last two years I Financial review (continued) The gross loans and borrowings of the group increased by £1.7 million largely because of acquisitions described above; HP obligations have drawn your attention to two areas of policy in this regard. First we have taken advantage of government initiatives under the heading fell by £1.8 million year on year to £9.1 million (2012: £10.9 million). Finally there was a positive movement in the Preston pension fund as of the Green Bus Fund to acquire a total of 23 hybrid diesel-electric vehicles. These have certainly performed well in service and have all at 30 November 2013 as the funding outlook for the Scheme improved on an accounting basis. The gross liabilities of the group therefore achieved or exceeded the targeted 30% fuel saving, when compared to a similar diesel bus. Second we are steadily deploying throughout stood slightly higher than the previous year at £27.3 million at 30 November 2013 (2012: £26.3 million). Net assets reached £23.6 million the fleet the “EcoManager” fuel saving software which I described to you in detail last year. The roll-out of this system is further helping at the year end (2012: £21.9million). to reduce the fuel demands of the existing fleet, and so reduce costs. Finally, when acquiring any vehicle new to the fleet we are acutely conscious of its relative fuel consumption and certainly favour those marques which have demonstrable advantages in this regard. Whilst this is not a completely like for like statistic the board has noted that, where once our annualised consumption of diesel reached a maximum of about 12 million litres, this figure has now fallen to about 10 million litres. Fleet management Over the year we have replaced vehicles in the operating fleet as and when we thought appropriate so that by the end of the year the average age of the fleet stood at 7.64 years, slightly below the average fleet age at the end of 2012. This figure is low in industry terms. In the current year we foresee very little need to replace vehicles unless specific requirements are issued by new contract customers or existing customers request upgrades, which would of course carry with them the requisite price increases. We believe that having a modern and efficient bus fleet is a key aspect of customer service. Older vehicles also emit a greater level of emissions and we are keen to minimise this aspect of bus operation. The board monitors each vehicle in the fleet for relative fuel consumption, reliability and maintenance cost. Those vehicles that fall outside of acceptable parameters are designated for disposal. As a result of this policy about 10% of the vehicle fleet was replaced in the year. These replacements are a judicious mix of the new and the second hand, chosen so as to meet the criteria which we have set. The objective, to possess an efficient and effective fleet of the right age profile, continues to be met. Banking facilities and finance No new banking facilities were arranged in the year. The existing facilities of the group were used to finance both the acquisition of the freehold of the depot at Avonmouth, Bristol in January 2013 and the acquisition of the Redditch and Kidderminster depots of First in March 2013. At 30 November 2013 we have undrawn about £2.5 million of our available £11million facility with our principal bankers, RBS/NatWest. In addition we possess unused vehicle financing facilities totalling approximately £10 million. In the opinion of the board these facilities are ample for the current needs of the group. Financial review The Consolidated Income Statement is set out on page 27. This section of the review addresses the results before the gain on acquisition, Cash flows from operating activities before changes in working capital, at £5.8 million (2012: £6.3 million), were a little down on those generated in the previous year. However, instead of the heavy absorption of working capital seen in 2012, there was a small release, and so Cash Generated from Operations was greatly improved, at £6.0 million (2012: £2.3 million). Investment in property, plant and equipment rose this year to £2.6 million (2012: £1.6 million), but the bulk of this (£2.0 million) was represented by the freehold of the Avonmouth depot. Sale of vehicles, after taking account of the related hire purchase settlements, produced £1.2 million for the group (2012: £3.1 million). The acquisition of the business from First (£1.7 million) and the Avonmouth purchase accounted for almost all of the draw downs in bank loans. In addition the capital element of payments on hire purchase agreements was somewhat lower in 2013 at £4.5 million (2012: £5.0 million). After taking account of rising dividends and bank interest payments, the group benefited from a positive cash inflow of £196,000 for the year, and so a closing overdraft net of cash and cash equivalents of £1,214,000 at the end of 2013, in line with management’s plans and expectations. Dividend The company paid an interim dividend of 0.55 pence per share in December 2012. At the forthcoming Annual General Meeting the board will recommend a final dividend in respect of 2013 of 1.05p per share, making 1.60p for the year as a whole. As the company matures I expect the dividend to be progressive. The board is conscious of the importance of dividend flows to shareholders and has set a target dividend cover of 2.5 times earnings, to which it will move as underlying earnings and free cash flows improve. Outlook The acquisition of the Redditch and Kidderminster depots from First has expanded the commercial bus revenues of the group in line with our stated strategy. But, as I remarked last year, the bus industry is still going through a period of considerable change. The reduction of government financial support for transportation by bus over the last four years is a continuing issue. The government, whether at local or national level, has reduced the funding for subsidised services, reimbursements for concessionary fares and the levels of rebate available to bus operators on fuel taxes. At the same time more onerous mandatory specifications for new buses continue to be introduced and are the cause of the increasing cost of new vehicles. These policies, unless halted or reversed, will lead inevitably to a steep drop in the provision of bus services in many of the less populated areas of the country away from the major urban conurbations. This is in turn acquisition expenses and exceptional items. I have already highlighted the 3% decrease in revenues year on year and the reasons for putting a great deal of pressure on all bus service providers but particularly on the operators rather smaller than ourselves, who are this variance. Cost of Sales also fell by 3%; the principal business reasons for this have been described above. Gross Profits were almost finding continued existence a considerable struggle. exactly the same when compared to the previous year, but the gross profit margin improved somewhat to 17.1% from the 16.5% of 2012, as gross profits increased but revenues declined slightly. Administrative Expenses were a little lower than those of the previous year, mostly because the Avonmouth property moved from being rented to owned. The Profit from Operations at £3.56 million was therefore some 5% higher than that seen in 2012. Finance expense was overall much the same as in the previous year. Hire purchase debt fell by some 16% year on year and so did the associated interest expense. But, since the acquisitions of freeholds and of the business from First were financed by debt, debt levels overall rose by some 9%, and interest on bank borrowings rose commensurately. Profit before taxation therefore rose by 5% when compared to the previous year to £2.19 million (2012: £2.09 million). Basic earnings per share in 2013, after taking into account the gain on acquisition, acquisition expenses and exceptional items, at 5.42p benefited from a low tax charge, as in 2012. The low tax charge resulted from a number of prior year adjustments, just as in the previous year. Basic earnings for 2012 were 5.29p per share. The gross assets of the group stood at £50.8 million at 30 November 2013 (2012: £48.2 million). Holdings of Property, Plant and Equipment rose largely as a result of the business acquisition from First and the acquisition of the freehold of the Avonmouth depot. Trade Debtors fell in the year as management focused on this aspect of working capital but there was a compensating rise in Other Receivables. The movement in the Green Bus Grant debtor and creditor affected both receivables and payables in equal measure. The increase in Trade Payables explains the rest of the movement in Trade and Other Payables overall. For all operators the discontinuities and inconsistencies in government transport policy make long term planning difficult, but the main effect on our business is that the great technological improvements being made in reducing costs or improving operating efficiencies (for example with vehicle tracking and mobile phone apps) are not flowing through to you as shareholders. Instead these gains are in effect being used in their totality to plug the financial gaps created by the changes in the government’s transport policy. Despite these, and other, headwinds, we have continued to improve our services, our vehicle fleet and our financial results. Thus we remain confident that our strong management team will continue to increase the value of the business, albeit at a slower pace than we would have wished. Our dividend policy reflects this confidence and will enable shareholders to share in our financial success as we move forward. John Gunn Non-Executive Chairman Date: 24 April 2014 12 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 13 Strategic Report For the year ended 30 November 2013 Rotala Plc is an AIM listed company operating commercial and subsidised bus routes for businesses, local authorities, the public and private individuals. Rotala was formed in 2005 and has grown through the acquisition and amalgamation of local coach and bus operations and is now one of the largest operators in its chosen geographical locations. Our Goals Rotala Plc pursues three key strategic goals: To achieve sustainable growth in shareholder value; To improve continually the operational capability of the group; To deliver a consistent quality of service to customers. Rotala aims to develop sustainable revenue streams through the expansion of its commercial bus and contracted activities and by being an active participator in transport business trends in the UK. Our transport management expertise has taken us throughout the country, These goals are measured by: organising and delivering turn-key solutions to events and areas requiring many different types and capacities of transport. Areas of Operation M6 Blackpool Wigan North West Trading Brands M6 M1 M6 Midlands Trading Brands Wolverhampton Walsall M42 West Bromwich Leicester Stourbridge Ludlow Solihull M42 Coventry Worcester Warwick M5 Stratford -upon-Avon Evesham M40 Northampton M1 a focus on earnings per share and the resultant share price; the level of new investment in infrastructure, technology and training; continually monitoring the timeliness and completeness of service delivery and levels of customer complaint. Our Core Values Our commitment is to conduct business in an ethical manner; our core values convey our organisational beliefs: Professional in our approach to business, with expert presence; Innovative in creating new solutions; Agile quick to respond and make decisions; Collaborative working together with all stakeholders; Commercially orientated delivering what clients require; Results focused focusing on the delivery of value and the job in hand; Risk aware assessing options for alternative strategies. Our brands signify consistency, reliability and employee commitment. A1(M) M11 Our Mission South West Trading Brands Wooton-under-Edge M4 Chipping Sodbury Kingswood Bath Bristol M5 Radstock M25 M4 M25 M20 M3 London Trading Brands Key Operational Depot Places of Operation (Not all are shown at this scale) Motorways Country Border M4 The commitment is to the delivery of a consistent quality of service in accordance with the service level requirements of all stakeholders. Continuous improvement is sought; close monitoring of service levels identifies areas for improvement. Well-planned, clearly focused training supports an improved quality of service. (5338907) Rotala aims to become the first choice supplier for bus operations in its target regions. Having grown through acquisition in key areas, Rotala has put itself into a position from which it can take advantage of future developments in the transport industry. The possession of substantial operations in the North West, the West Midlands, the South West and Heathrow areas ensures that the company is well positioned for future contract wins and organic commercial growth. Rotala is committed to providing service excellence to stakeholders, by offering value for money and continuous improvement without compromising on the quality of service. By working closely with other businesses, councils and educational institutions, we ensure that flexibility and proactive management are key strengths in which Rotala invests. Our commitment to all stakeholders makes it possible to offer value to all sizes of organisation from the largest corporate to the smallest individual daily user. The focus of the business is to build profitable and sustainable revenue. The business is composed largely of contracted or predictable commercial revenue streams which equate to more than 90% of current revenue levels. To achieve this level of predictability the business focuses on the development of its three principal revenue streams: contract, commercial and charter. 14 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 15 Strategic Report For the year ended 30 November 2013 Contract The key aspect of Contracted Operations is that the service is delivered under contract, to specified standards, with the price for the service determined by the contract alone. Contracted operations service two types of customer: 1. Individual organisations: These can have specific transport needs. Private bus networks are designed on a bespoke basis around these needs. We have Key performance indicators (KPIs) The key performance indicators of the group (before gains on acquisition, acquisition expenses and exceptional items) are considered to be: Gross profit margin 2013 17.1% £3,557,000 £2,190,000 2012 16.5% £3,392,000 £2,086,000 contracts of this type with British Airways and National Grid. One of the key factors which drives this customer need comes from Profit from operations before exceptional items the increasing prevalence of planning restrictions on new developments. These restrict car usage and available car parking facilities. There has been much growth in this area of business in recent years and government policy continues to drive change. Profit before taxation 2. Local authorities: Since bus denationalisation in 1986 the bus market has evolved and the dominant operators are now more focused on creating profitable route networks, in contrast to the pre-1986 approach when size and breadth of service were the sole concerns. Thus commercial bus groups have, over time, either curtailed or withdrawn services and Local Authorities have made decisions that there is a social need to subsidise the on-going provision of bus services to locations which would not support a commercial bus route. Contracts for these subsidised services operate on a variety of different bases but the contracted element of the revenue is included under this heading. Major examples of these types of services during this accounting year were operated under contract to Centro, Bristol City Council, Worcestershire County Council, South Gloucestershire County Council, and Bath and North East Somerset Council together with many smaller entities. Commercial These key performance indicators are used as follows: 1. Gross profit margin: It is fundamental to the longer term sustainability of the group that it attains a suitable level of gross profit in all of its activities. In any contracted business the gross profit margin is computed as part of the pricing process. Actual margin is then monitored in relation to the contract and service delivery targets. Gross profit margin will vary depending on the type, location and duration of the contract. Where the revenue is variable and derived from passengers, routes are constantly monitored for gross profit margin. Passenger loadings are also analysed and, in concert with margin analysis, frequencies and routes adjusted to maximise revenue yields. In these instances margins will vary in acceptability depending upon the length, locality and maturity of the route and the extent of competition; 2. Profit from operations before exceptional items: On a purely commercial bus service, the company takes all the risk of operation. Where a contracted service obliges the operator to take Profit from operations before exceptional items is a very important determinant of the long term success of the whole business. an element of revenue risk (the proportion of which can vary considerably), the variable element of the revenue is also included under this Because this indicator is calculated before interest it represents the theoretical debt-free performance of the group and is thus a heading. Since its foundation Rotala has considerably expanded the number of commercial services it operates in the West Midlands and key measure of value. It is also a measure of how effectively and efficiently the group is using its operating assets, particularly in South West. Furthermore early in 2011 the group acquired Preston Bus Limited, setting up a new hub of commercial bus operations in relation to its peers. Therefore this metric is monitored monthly and progress is frequently reviewed; the North West. Charter Besides the main business streams above, Rotala also provides a transport management service to a variety of customers. Typically this covers business or service disruption and bespoke large event management. 3. Profit before taxation: This indicator is a key determinant of return to shareholders. Therefore it is monitored through the prism of the monthly management accounts and reviewed by the board at its monthly meetings. The board places particular emphasis upon the target that this indicator should grow constantly because in this manner it can be confident that it is serving the interests of shareholders and providing the group thereby with the means to sustain its ambitions to increase its overall levels of business. Trading results and Statement of financial position A review of the group’s activities, using its key performance indicators, and a review of its future prospects are contained in the Chairman’s Statement and Review of Operations on pages 8 to 11. The group’s results for the year are set out on page 27. The results of the year and the financial position as at 30 November 2013 are considered by the directors to be satisfactory. 16 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 17 Strategic Report For the year ended 30 November 2013 Principal risks and uncertainties The Directors consider that the following factors may be considered to be material risks and uncertainties facing the group: Risk Potential impact Management or mitigation Variations in the price of fuel. Fuel is a significant cost to the business. If fuel increases in price in circumstances where sales prices cannot be increased, then profitability will be affected. The availability of sufficient capital and leasing facilities to finance the growth in the group's businesses. The group may miss growth opportunities. Repayment of the group’s convertible debt. The group may not be able to meet its debt repayment obligations. Management monitors fuel prices closely, negotiates fuel escalator clauses where possible and increases fares if input costs rise in a sustained pattern. Management enters into fuel price fixing arrangements as described in the Chairman’s Statement. Management also monitors fleet fuel efficiency and uses technological aids to optimise fuel usage. Management maintains close contact with actual and potential shareholders. Relationships with the providers of the group’s asset financing and banking facilities are dealt with centrally in order to keep them fully briefed about the progress of the group. All bank account and treasury management is conducted at group level. The debt is due for conversion or repayment on 31 December 2014. Management forecasts encompass the need to repay this debt, if not converted into ordinary shares by that date. New government legislation or industry regulation. Significant unplanned or unforeseen costs may be imposed on the business. Management continually monitors regulatory and legal developments and participates keenly in industry forums. Management also ensures that it responds to requests for information and insight from governmental bodies. Availability of management resources of the appropriate quality. Lack of appropriate management skills damages the business and its prospects. Fleet insurance and cover and level of vehicle insurance rates – particularly in the event of a major accident involving passenger fatality. The group may not be able to obtain adequate levels of insurance cover. The board continually assesses skill requirements, management and structures as the business grows. Appropriate recruits are brought into the business and any necessary management development courses are instituted. The group is self-insured for high frequency claims of low value. (See Accounting Policy on page 38). Claims above a certain level are comprehensively insured in the normal way. Driver training emphasises a risk - averse culture. Accident rates are monitored centrally. Claims are managed by a claims handler who works closely with the group’s insurance adviser and insurers. Relationships with insurance brokers and providers are considered to be key and are managed centrally by the group. Financial instruments Details of financial instruments, including information about exposure to financial risks and the financial risk management objectives and policies, are given in note 29. Going concern The board has examined its strategy and considered its profit and loss and cash flow projections over the two years to 30 November 2015. It has also evaluated the hire purchase, loan and overdraft facilities available to the group in connection with that period. After due enquiry, the board has judged the cash flow forecasts, asset financing and banking resources of the group to be adequate to support its continued operations for the foreseeable future and has adopted the going concern basis in preparing the financial statements. Corporate governance As the company’s shares are traded on AIM, the company is not required to comply with the UK Corporate Governance Code (‘the Code’) nor has it done so. However, the company is committed to high standards of corporate governance and draws upon best practice available, including those aspects of the Code considered appropriate. The directors support the recommendations of the UK Corporate Governance Code. The board is responsible for the management and successful development of the group by: • setting the strategic direction; • monitoring and guiding operational performance; • establishing policies and internal controls to safeguard the group’s assets The composition of the board provides a blend of skills and experience that ensures it operates as a balanced team. The board meets regularly to review trading performance, to ensure adequate funding is available, to set and monitor strategy, and when appropriate, to report to shareholders. To enable the board to discharge its duties, all directors receive appropriate and timely information. The board is responsible for maintaining a strong system of internal control to safeguard shareholders’ investments and the group’s assets. The system of internal financial control is designed to provide reasonable, but not absolute, assurance against material misstatement or loss. The directors are responsible for the group’s system of financial control and for reviewing its effectiveness. As the group continues to grow, the directors will review their compliance with the Code from time to time and will adopt such of the provisions as they consider to be appropriate. Relationships with shareholders The company values the views of its shareholders and recognises their interest in the company’s strategy and performance. The Annual General Meeting is used to communicate with shareholders and they are encouraged to participate. The directors will be available to answer questions at the Annual General Meeting. By order of the Board Kim Taylor Secretary Date: 24 April 2014 18 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 19 Directors’ Report For the year ended 30 November 2013 The directors present their statutory report for the group for the year ended 30 November 2013. Directors’ interests (Continued) At 1 December 2012 Price At 30 November 2013 Date Exercisable Date of Expiry Directors The following Directors have held office during the year: J H Gunn R A Dunn S L Dunn F G Flight K M Taylor Directors’ interests The beneficial interests of the directors and their families in the company’s shares were as follows: J H Gunn R A Dunn S L Dunn F G Flight K M Taylor Beneficial Beneficial Beneficial Beneficial Beneficial 2013 Ordinary shares of 25p each 2013 Options over ordinary shares of 25p each 2012 Ordinary shares of 25p each 2012 Options over ordinary shares of 25p each 5,526,616 909,454 686,880 1,325,055 357,500 400,000 422,471 467,471 220,000 565,000 5,526,616 909,454 686,880 1,325,055 357,500 400,000 422,471 467,471 220,000 565,000 J H Gunn is also a director of and shareholder in The 181 Fund Limited: see note 30 – Related Parties and Transactions. J H GUNN R A DUNN S L DUNN F G FLIGHT K M TAYLOR 80,000 120,000 200,000 400,000 400,000 22,471 422,471 80,000 80,000 200,000 85,000 22,471 467,471 80,000 140,000 220,000 80,000 160,000 240,000 85,000 565,000 125p 37.5p 62.5p 50.0p 40.05p 162.5p 37.5p 62.5p 50.0p 40.05p 37.5p 62.5p 125p 37.5p 62.5p 50.0p 80,000 120,000 200,000 400,000 400,000 22,471 422,471 80,000 80,000 200,000 85,000 22,471 467,471 80,000 140,000 220,000 80,000 160,000 240,000 85,000 565,000 29/03/2008 30/03/2009 06/09/2010 28/03/2015 29/03/2016 05/09/2017 05/09/2011 24/09/2015 04/09/2018 24/03/2016 30/08/2008 30/03/2009 06/09/2010 05/09/2011 24/09/2015 29/08/2015 29/03/2016 05/09/2017 04/09/2018 24/03/2016 30/03/2009 06/09/2010 29/03/2016 05/09/2017 29/03/2008 30/03/2009 06/09/2010 05/09/2011 28/03/2015 29/03/2016 05/09/2017 04/09/2018 2013 Convertible Unsecured Loan Stock 2012 Convertible Unsecured Loan Stock The remuneration of the directors is set out in note 7 of these financial statements. Contracts existing during, or at the end of the year, in which a director was or is materially interested, other than employment contracts, are disclosed in note 30 – Related Parties and S L Dunn K M Taylor Beneficial Beneficial £260,000 £25,000 £260,000 £25,000 The terms of the Convertible Unsecured Loan Stock are described in note 22. Transactions. The company’s share price at 30 November 2013 was 56.5p. The high and low prices in the year were 58.5p and 42.5p respectively. Dividends The directors will propose to the Annual General Meeting a distribution, by way of a final dividend, of 1.05p per share for the year ended 30 November 2013 (2012: 0.9p per share). An interim dividend of 0.55p per share (2012: 0.5p per share) was paid on 9 December 2013. 20 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 21 Directors’ Report For the year ended 30 November 2013 Financial instruments Details of financial instruments, including information about exposure to financial risks and the financial risk management objectives and Directors’ responsibilities statement The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and policies, are given in note 29. regulations. Future developments Likely future developments in the business of the group are dealt with in the Chairman’s Statement and Review of Operations set out on pages 8 to 11. Employment policies and employee involvement and communication The group’s employment policies are regularly reviewed to ensure they remain effective. These policies promote a working environment which underpins the recruitment and retention of professional and conscientious employees, and which improves productivity in an atmosphere free of discrimination. The group is committed to giving full and fair consideration to all applications for employment from those who are disabled and to continuing the employment of those who become disabled while employed. It is a key policy of the group to consider the health and welfare of employees by maintaining safe places and methods of work. The group employs a Health and Safety Auditor, who assesses regularly all places of work under a standardised testing scheme. Reports of these tests are communicated to the board. Training is also a priority task and is a focus of considerable effort, especially in the field of dealing with passengers. All drivers are issued with a handbook at the commencement of their employment which sets out in detail the standards which they are expected to meet. Employees are briefed regularly about the performance and prospects of the group and their individual depots; they are also Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The directors have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company and group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • for the group financial statements, state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; • for the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. consulted about and involved in the development of the group in a number of ways, which include regular briefings, team updates and The directors are responsible for keeping adequate accounting records which are sufficient to show and explain the company’s announcements. transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the An SAYE scheme exists for the benefit of all employees. The details of the scheme are set out in note 27 to these financial statements. group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Political contributions No political contributions were made by the group during the year ended 30 November 2013 (2012: £Nil). Substantial shareholdings As at 24 April 2014 the company had been notified that the following were interested in 3% or more of the ordinary share capital of the company: Name Mr J H Gunn Mr Nigel Wray The 181 Fund Limited Mr F G Flight Link Traders (Aust) Pty Limited Mr Graham Peacock Mrs Susan Tobbell Number of Ordinary Shares 5,526,616 5,339,400 1,980,221 1,325,055 1,300,000 1,075,000 1,075,000 % 15.67 15.14 5.61 3.76 3.69 3.05 3.05 The directors confirm that: • so far as each director is aware, there is no relevant audit information of which the company’s auditors are unaware; and • the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Auditors Grant Thornton UK LLP were re-appointed as auditors at the last Annual General Meeting and have expressed their willingness to continue in office as auditor. A resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting. For the year ended 30 November 2013, the group has taken advantage of the exemption offered in sections 479A – 479C of the Companies Act 2006 and certain of its subsidiaries have not been subject to an individual annual audit. Rotala Plc has given a statutory guarantee to each of these subsidiaries guaranteeing their liabilities, a copy of which will be filed at Companies House. By order of the Board Kim Taylor Secretary Date: 24 April 2014 22 Rotala Plc // Annual Report 2013 Review of Operations & Statutory Reports 23 Independent Auditor’s Report To the members of Rotala Plc We have audited the financial statements of Rotala Plc for the year ended 30 November 2013 which comprise the consolidated income Matters on which we are required to report by exception statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of financial position, the consolidated statement of cash flows, the company balance sheet and the related notes. The financial We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: reporting framework that has been applied in the preparation of the group financial statements is applicable law and International • 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. David P. White Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Birmingham Date: 24 April 2014 Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement on page 21, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/ apb/scope/private.cfm. Opinion on financial statements 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 30 November 2013 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 24 Rotala Plc // Annual Report 2013 Financial Statements 25 Financial Statements 26 Rotala Plc // Annual Report 2013 Financial Statements 27 Consolidated Income Statement For the year ended 30 November 2013 2013 £’000 Gain on acquisition, acquisition expenses and exceptional items (note 11) £’000 Results before gain on acquisition, acquisition expenses and exceptional items £’000 2012 £’000 Gain on acquisition, acquisition expenses and exceptional items (note 11) £’000 Results before gain on acquisition, acquisition expenses and exceptional items £’000 Results for the year £’000 53,303 (44,210) 9,093 (5,536) 3,557 44 (1,411) 2,190 (264) 1,926 - - - (132) (132) - - (132) 119 (13) 54,813 (45,790) 9,023 (5,631) 3,392 15 (1,321) 2,086 (210) 1,876 - - - - - - (10) (10) - (10) 53,303 (44,210) 9,093 (5,668) 3,425 44 (1,411) 2,058 (145) 1,913 5.42 5.17 Results for the year £’000 54,813 (45,790) 9,023 (5,631) 3,392 15 (1,331) 2,076 (210) 1,866 5.29 5.18 Note 4 8 9 10 11 12 Revenue Cost of sales Gross profit Administrative expenses Profit from operations Finance income Finance expense Profit before taxation Tax expense Profit for the year attributable to the equity holders of the parent Earnings per share for profit attributable to the equity holders of the parent during the year: Basic (pence) Diluted (pence) 13 13 The accompanying notes form an integral part of these financial statements. 28 Rotala Plc // Annual Report 2013 Financial Statements 29 Consolidated Statement of Comprehensive Income For the year ended 30 November 2013 Consolidated Statement of Changes in Equity For the year ended 30 November 2013 Note 25 24 Profit for the year Other comprehensive income: Items that will not subsequently be reclassified to profit & loss: Actuarial gain / (loss) on defined benefit pension scheme Deferred tax on actuarial gain/(loss) on defined benefit pension scheme Other comprehensive income for the year (net of tax) Total comprehensive income for the year attributable to the equity holders of the parent 2013 £’000 1,913 355 (75) 280 2,193 2012 £’000 1,866 (1,009) 242 (767) 1,099 At 1 December 2011 Profit for the year Other comprehensive income Total comprehensive income Transactions with owners: Dividends paid or declared Share based payment Release of warrant reserve to retained earnings Transactions with owners Share capital £'000 8,818 - - - - - - - Share premium reserve £'000 Merger reserve £'000 Warrant reserve £'000 Retained earnings £'000 7,828 2,567 245 - - - - - (245) - - - - - - - - - - - - - - At 30 November 2012 8,818 7,828 2,567 Profit for the year Other comprehensive income Total comprehensive income Transactions with owners: Dividends paid or declared Share based payment Transactions with owners - - - - - - - - - - - - - - - - - - At 30 November 2013 8,818 7,828 2,567 The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements. Total £'000 21,058 1,866 (767) 1,600 1,866 (767) 1,099 1,099 (283) 2 245 (283) 2 - (245) (36) (281) - - - - - - - - 2,663 1,913 280 21,876 1,913 280 2,193 2,193 (494) 9 (494) 9 (485) (485) 4,371 23,584 30 Rotala Plc // Annual Report 2013 Financial Statements 31 Consolidated Statement of Financial Position As at 30 November 2013 Note 14 15 24 17 18 19 20 21 22 23 22 23 25 Assets Non-current assets Property, plant and equipment Goodwill and other intangible assets Deferred taxation Total non-current assets Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Loans and borrowings Obligations under hire purchase contracts Total current liabilities Non-current liabilities Loans and borrowings Obligations under hire purchase contracts Defined benefit pension obligation Total non-current liabilities Total liabilities TOTAL NET ASSETS 2013 £’000 30,930 9,482 424 40,836 1,826 7,863 3 317 10,009 50,845 6,304 5,462 3,318 15,084 5,712 5,793 672 12,177 27,261 23,584 2012 £’000 27,509 9,482 521 37,512 1,892 8,454 - 351 10,697 48,209 6,228 3,550 3,931 13,709 4,216 6,945 1,463 12,624 26,333 21,876 Shareholders’ funds Share capital Share premium reserve Merger reserve Retained earnings TOTAL EQUITY Note 26 2013 £’000 8,818 7,828 2,567 4,371 2012 £’000 8,818 7,828 2,567 2,663 23,584 21,876 The financial statements were approved by the Board of Directors and authorised for issue on 24 April 2014 Simon Dunn Chief Executive Kim Taylor Group Finance Director The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements. 32 Rotala Plc // Annual Report 2013 Financial Statements 33 Consolidated Statement of Cash Flows For the year ended 30 November 2013 Cash flows from operating activities Profit before taxation Adjustments for: Depreciation Gain on acquisition Acquisition expenses Finance expense Gain on sale of property, plant and equipment Contribution to defined benefit pension scheme Equity settled share-based payment expense Cash flows from operating activities before changes in working capital and provisions Increase in trade and other receivables Decrease/(increase) in inventories Increase/(decrease) in trade and other payables Cash generated from operations Interest paid on hire purchase agreements Net cash flows from operating activities carried forward 2013 £’000 2,058 3,253 (387) 155 1,367 (283) (333) 9 5,839 (95) 66 147 118 5,957 (671) 5,286 2012 £’000 2,076 3,742 - - 1,316 (417) (400) 2 6,319 (2,663) (620) (721) (4,004) 2,315 (862) 1,453 Cash flows from operating activities brought forward Investing activities Purchases of property, plant and equipment Acquisition of business Sale of public service vehicles Net cash (used in) / from investing activities Financing activities Dividends paid Proceeds of mortgage and other loans Loan stock repaid Repayment of bank and other borrowings Loan stock and bank loan interest paid Capital settlement payments on vehicles sold Capital element of lease payments Net cash used in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2013 £’000 5,286 (2,564) (1,714) 1,941 (2,337) (494) 3,927 - (289) (706) (702) (4,489) (2,753) 196 (1,410) (1,214) 2012 £’000 1,453 (1,562) - 5,656 4,094 (423) 3,735 (1,337) (1,756) (501) (2,535) (5,009) (7,826) (2,279) 869 (1,410) The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements. 34 Rotala Plc // Annual Report 2013 Financial Statements 35 Notes to the Consolidated Financial Statements For the year ended 30 November 2013 1. General information Rotala Plc is incorporated and domiciled in the United Kingdom. 2. Accounting policies (continued) (d) Self insurance The financial statements for the year ended 30 November 2013 (including the comparatives for the year ended 30 November 2012) were approved by the Board of Directors on 24 April 2014. Amendments to the financial statements are not permitted after they have been approved. 2. Accounting policies Basis of preparation The group’s financial statements have been prepared in accordance with applicable International Financial Reporting Standards (“IFRS”) as adopted by the European Union and IFRS as issued by the International Accounting Standards Board. The financial statements have been prepared on a going concern basis as described on page 16. Overall considerations The significant accounting policies that have been used in the preparation of these financial statements are summarised below. The financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. Critical accounting estimates and judgements Certain estimates and judgements need to be made by the directors of the group which affect the results and position of the group as reported in the financial statements. Estimates and judgements are required if, for example, as at the reporting date not all liabilities have been settled, and certain assets and liabilities are recorded at fair value which require a number of estimates and assumptions to be made. Estimates The major areas of estimation within the financial statements are as follows: (a) Impairment of goodwill The group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary. More information about the impairment review is included in note 16. (b) Share based payment The group has an equity-settled share-based remuneration scheme for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options is estimated by using the Black-Scholes valuation model on the date of grant based on certain assumptions. Those assumptions include, among others, the dividend growth rate, expected volatility, and the expected life of the options. Management then apply the fair value to the number of options expected to vest. (c) Pension scheme valuation The liabilities in respect of defined benefit pension schemes are calculated by qualified actuaries and reviewed by the group, but are necessarily based on subjective assumptions. The principal uncertainties relate to the estimation of the life expectancies of scheme members, future investment yields and general market conditions for factors such as inflation and interest rates. The specific assumptions adopted are disclosed in detail in note 25 to the consolidated financial statements. Profits and losses in relation to changes in actuarial assumptions are taken directly to Other Comprehensive Income and therefore do not impact on the profitability of the business, but the changes do impact on net assets. The estimation of insurance costs, under the group’s self insurance scheme, is based on premiums paid and cash paid into the scheme’s bank account. The actual outcome of claims made is determined over the five years following each period end; no rebate of premium is accounted for until each insurance period is closed. The directors regularly review claims made and, should insurance premiums paid to date be considered inadequate in the light of claims, appropriate provision would be made. (e) Fixed price diesel contracts The fair value of the fixed price diesel contracts is based on the future cash flows arising under the contract, compared to the expected cash flows that would have arisen had the contract not been in place. No discounting is applied as none of the contracts are for a period greater than 12 months and therefore any impact of discount rates is not considered material. More details in respect of these contracts are included in note 29. Judgements The major areas of judgement within the financial statements are as follows: (a) Useful lives of property, plant and equipment Property, plant and equipment is depreciated over its useful life. Useful lives are based on the management’s estimates of the periods within which the assets will generate revenue and which are periodically reviewed for continued appropriateness. Changes to judgements can result in significant variations in the carrying value and amounts charged to the Consolidated Income Statement in specific periods. More details about carrying values are included in note 14. (b) Deferred tax assets In determining the deferred tax asset to be recognised, management carefully review the recoverability of these assets on a prudent basis and reach a judgement based on the best available information. Basis of consolidation The group financial statements consolidate the results of the company and all its subsidiary undertakings at 30 November 2013. The results of subsidiary undertakings acquired are included from the date on which control passed to the group. Intercompany transactions and balances between group companies are therefore eliminated in full. Business combinations Where the acquisition method is used, the results of the subsidiary are included from the date of acquisition. The purchase consideration is allocated to assets and liabilities on the basis of fair value at the date of acquisition. Acquisition costs are expensed as incurred. Goodwill Goodwill represents any excess of the cost of the business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is tested annually for any impairment and carried at cost less accumulated impairment losses. Any impairment charge would be included within administrative expenses in the Consolidated Income Statement. Goodwill impairment charges cannot be reversed. As the group has taken advantage of the exemption from restating all pre-transition period acquisitions under IFRS 3 ‘Business Combinations’, goodwill includes intangibles arising on those acquisitions that are not separately identifiable prior to the date of the change of policy. Where the fair value of identifiable assets, liabilities and contingent liabilities exceeds the fair value of consideration paid, the excess is credited in full in profit or loss on the acquisition date. 36 Rotala Plc // Annual Report 2013 Financial Statements 37 2. Accounting policies (continued) 2. Accounting policies (continued) Other intangible assets - brands Purchased brands, which are controlled through custody or legal rights and which could be sold separately from the rest of the Property, plant and equipment Items of property, plant and equipment are initially recognised at cost, which includes both the purchase price and any directly business, are capitalised, where fair value can be reliably measured. Where intangible assets are regarded as having a limited attributable costs. Following initial recognition property, plant and equipment is carried at depreciated cost. useful economic life, the cost is amortised on a straight-line basis over that life in administrative expenses in the Consolidated Income Statement. Other intangible assets - contracts Where an acquisition is made which contains within it rights to contracted revenue, the present value of the profits inherent in The useful lives and residual values of property, plant and equipment are reviewed at least annually and adjusted, where applicable. When disposed of, property plant and equipment is derecognised. Where an asset continues to be used by the group but is expected to provide reduced or no future economic benefits, it is considered to be impaired. Profits and losses on disposal are calculated by comparing the disposal proceeds with the carrying value of the asset, and the resultant gains or losses are included in profit or loss. those contracts is capitalised as an intangible asset. This asset is then amortised over the remaining life of those contracts in A gain or loss incurred at the point of derecognition is also included in profit or loss at that point. administrative expenses in the Consolidated Income Statement. Impairment The group’s goodwill and intangible assets are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash- generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related Repairs and maintenance are charged to profit or loss in the financial period in which they are incurred. Where probable future economic benefits, in excess of the current standard of performance of the existing asset, are considered to be derived from its major renovation, the cost of that major renovation is added to the carrying value of that asset. Major renovations are then depreciated over the remaining useful life of the asset. Grants Grants relating to property, plant and equipment are netted off the assets to which they relate and the net investment in the asset business combination and represent the lowest level within the group at which management controls the related cash flows. is depreciated as set out above. Other grants are held in trade and other payables until credited to the income statement as the Individual intangible assets or cash-generating units that include goodwill with an indefinite useful life are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged related expenditure is expensed. Revenue Revenue represents sales to external customers excluding value added tax. Passenger revenue is recognised when payment is received in cash. Subsidy revenue from local authorities is recognised on an accruals basis, based on actual passenger numbers. Contracted and charter services revenues are recognised when services are delivered, based on agreed contract rates. Inventories Inventories are initially recognised at cost on a first in first out basis, and subsequently at the lower of cost and net realisable value. pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for Cost comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. indications that an impairment loss previously recognised may no longer exist. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised as income immediately. Depreciation is provided to write off the cost, less estimated residual values, of all property, plant and equipment, except freehold land, over their expected useful lives. It is calculated at the following rates: Freehold land Freehold buildings - Not depreciated - Fifty years straight line Short leasehold property - Over the period of the lease Plant and machinery - Between ten and four years straight line Public Service Vehicles (“PSVs”) - Between 10% and 25% per annum on a reducing balance basis Fixtures and fittings - Three years straight line Exceptional Costs Exceptional costs are items which the directors consider to be outside of the normal trading transactions of the group. They are highlighted separately on the Consolidated Income Statement to enable the underlying trading results of the group to be identifiable. Taxation The charge for current taxation is provided at rates of corporation tax that have been enacted or substantively enacted by the reporting date. Current tax is based on taxable profits for the year and any adjustments to tax payable in respect of previous years. Deferred tax is provided, using the balance sheet method, on all temporary differences which result in an obligation at the reporting date to pay more tax, or a right to pay less tax, at a future date, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Temporary differences arise between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The exceptions, where deferred tax assets are not recognised nor deferred tax liabilities provided, are: • On initial recognition of goodwill; • The initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • Taxable temporary differences associated with investments in subsidiary undertakings where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. 38 Rotala Plc // Annual Report 2013 2. Accounting policies (continued) Leased assets In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the Financial Statements 39 2. Accounting policies (continued) Pension costs Defined contribution scheme Contributions to the group’s defined contribution pension scheme are charged in profit or loss in the year in which they lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if become payable. any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to profit or loss on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. Where the group enters into sale and leaseback transactions, the accounting treatment depends on the type of lease involved and the economic and commercial substance of the arrangement. Where the group retains the majority of the risks and rewards of ownership of the assets they are accounted for as finance leases and any excess of sales proceeds over the carrying amount of the asset is deferred and amortised over the lease term. Where the group transfers substantially all the risks and rewards of ownership to the lessor they are accounted for as operating leases and any excess of sales proceeds over the carrying value of the asset is recognised in the income statement as a gain on disposal. Convertible debt The proceeds (which equate to fair value) received on issue of the group’s convertible debt are allocated into their liability and equity components and presented separately in the balance sheet. The equity component is included in the warrant reserve. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that did not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost. The difference between the net proceeds of the convertible debt and the amount allocated to the debt component is credited direct to equity through the warrant reserve and is not subsequently re-measured. On conversion, the debt and equity elements are credited to share capital and share premium as appropriate. Transaction costs that relate to the issue of the instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Where there is an exchange of debt instruments with different terms, the group considers whether the discounted cash flows differ from those of the original liability by more than 10%. Where the difference is more than 10%, then the modification of the terms is accounted for as an extinguishment. Where the difference is less than 10%, then it is not accounted for as an extinguishment. Self insurance The group’s policy is to self-insure high frequency claims such as those for traffic accidents. Under this scheme, premiums are paid to QBE Insurance Limited (“QBE”) in respect of each accounting period. Premiums paid are held in a fund by QBE in a trust separate from the assets of the company in order to meet claims as and when they are settled. The company has no control over the assets of this trust. Claims can be made for a period of up to five years after the accounting period to which they relate. Should a year of insurance be in surplus, no rebate is recognised until the claim period has expired. Should a year of insurance be calculated at any time to be in deficit, an appropriate provision is made immediately. Any provision made is discounted to take account of the expected timing of future payments. Diesel pricing contracts The group has entered into agreements to purchase agreed quantities of diesel over a period of time at a fixed price. Fixed price Defined benefit pension schemes Scheme assets are measured at fair values. Scheme liabilities are measured on an actuarial basis using the projected unit method and are discounted at appropriate high quality corporate bond rates that have terms to maturity approximating to the terms of the related liability. Appropriate adjustments are made for unrecognised actuarial gains or losses and past service costs. Any actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income. Past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that benefits are already vested the group recognises past service cost immediately. Financial assets The group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The group has not classified any of its financial assets as held to maturity or available for sale. Loans and receivables: these assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in profit or loss. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Financial assets are de-recognised when the contractual rights to the cash flows from the asset expire or when the financial asset and all substantial risks and rewards are transferred. The group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less and bank overdrafts. Financial assets include derivative financial instruments held at fair value through profit and loss (“FVTPL”). These assets are, if they meet the relevant conditions, designated at FVTPL upon initial recognition. All of the group’s derivative financial instruments currently fall into this category. Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of these financial assets are determined by reference to active market transactions or using a valuation technique where no active market exists. Financial liabilities The group classifies its financial liabilities in a manner which depends on the purpose for which the liability was acquired: • Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the agreements with suppliers do not meet the definitions of a financial instrument under IAS 39 ‘Financial Instruments: Recognition instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest and Measurement’ as the contracts represent executory contracts to buy a non-financial asset for the use of the group. Therefore rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of no financial asset or liability is recognised in respect of these contracts. The group has entered into a diesel commodity forward contract with a bank. The agreement does not meet the definitions of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding; hedging transactions under IAS 39 ‘Financial Instruments: Recognition and Measurement’, but is accounted for as a derivative and • Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at is recorded at fair value through profit and loss. amortised cost, using the effective interest method. A financial liability is de-recognised when it is extinguished, cancelled or it expires. The group has not classified any of its financial liabilities at fair value through profit or loss. 40 Rotala Plc // Annual Report 2013 2. Accounting policies (continued) Financial Statements 41 Equity Share capital is determined using the nominal value of shares that have been issued. Premiums received on the initial issuing of All of the activities of the group are conducted in the United Kingdom within the operating segment of provision of bus services. share capital are credited to the share premium reserve. Any transaction costs associated with the issuing of shares are deducted Management monitors revenue across the following streams: contracted, commercial and charter: 4. Segmental analysis and revenue from share premium, net of any related income tax benefits. Retained earnings include all current and prior period results. The merger reserve represents the difference between the issue price and the nominal value of shares issued as consideration for the acquisition of a subsidiary undertaking. Share based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged in profit or loss over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged in profit or loss over the remaining vesting period. A decrease in fair value is not recognised. Segmental reporting IFRS 8 requires the identification of operating segments on the basis of internal reports that are regularly reviewed by the entity’s chief operating decision maker (“CODM”). The CODM has been determined to be the executive directors. The group has three main revenue streams: contracted, commercial and charter. All operate within a single operating segment, that is the provision of bus services. The activities of each revenue stream are as described in the Chairman’s Statement. 3. Standards and interpretations not yet applied by Rotala Plc At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published, but are not yet effective, and have not been adopted early by the group. Management anticipates that all of the relevant pronouncements will be adopted in the group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the group’s financial statements is provided below. Certain other new standards and interpretations have been issued, the impact of which has yet to be established by the directors. • • • • • • • • IFRS 9 Financial Instruments (no mandatory effective date) IFRS 10 Consolidated Financial Statements (effective 1 January 2014) IFRS 11 Joint Arrangements (effective 1 January 2014) IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2014) IFRS 13 Fair Value Measurement (effective 1 January 2013) IAS 19 Employee Benefits (Revised June 2011) (effective 1 January 2013) IAS 27 (Revised), Separate Financial Statements (effective 1 January 2014) IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2014) • Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (effective 1 January 2013) • Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (effective 1 January 2014) • Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9 and IFRS 7 (effective 1 January 2015) • Annual Improvements 2009-2011 Cycle (effective 1 January 2013) • Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12 (effective 1 January 2014) • Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) (effective 1 January 2014) Based on the group’s current business model and accounting policies, management does not expect a material impact on the group financial statements when these standards and interpretations become effective. Contracted Commercial Charter Total Revenue 2013 £’000 20,602 29,937 2,764 53,303 2012 £’000 22,513 29,569 2,731 54,813 The group consists of a number of operational depots arranged around and reliant on a central core, in concept a hub and spoke arrangement. All the services that the group performs are similar and every depot in the group delivers services in each of the three sub-headings set out above. Furthermore, as a matter of management practice, the business of the group is managed by contract (for Contracted Revenue) or by route (for Commercial Revenue) or in certain circumstances by both contract and route, depending on the type of business. Charter business is typically delivered by short term contracts. Contracted and Charter Services are usually delivered against an agreed service level agreement. Detailed costs for that individual contract are monitored against those modelled in the original bid calculation. Management then takes appropriate action to correct variances as necessary whilst maintaining the agreed level of service. In Commercial Business, where the revenue is variable and derived from passengers, individual routes are constantly monitored for loadings and revenues and trends in passenger revenues and loadings. Passenger loadings are analysed, often by fare stage, to establish usage and appropriate routes. In concert with margin analysis, individual frequencies and routes are adjusted to maximise revenue yields. In certain parts of the business revenues can be derived from a complex combination of a variable passenger revenue underpinned by a fixed revenue base delivered by contract. These types of service are managed by individual contract and route and so require a combination of management techniques and analyses to ensure that loadings and revenues are maximised whilst delivery to the service agreement is maintained. In these circumstances it is impractical to allocate local and central overhead to individual routes and contracts. Costs and Operating Profits by revenue stream are therefore not calculated. By the very nature of the business the operating assets are also interchangeable and the vehicles used in particular localities or on specific routes are frequently changed. Thus it is also not practicable to calculate figures for revenue stream assets. Other information such as capital expenditure, depreciation and impairment is also not analysed separately for this reason. In 2013 and 2012 no customer constituted more than 10% of Revenues. 42 Rotala Plc // Annual Report 2013 5. Other gains Financial assets at fair value through profit or loss (note 29) 6. Staff costs Staff costs (including directors) comprise: Wages and salaries Employer’s national insurance contributions Defined contribution pension costs Share-based payment expense The average number of employees, including directors, during the year was as follows: Management and administrative Direct 7. Directors’ and key management personnel remuneration Salaries and other short term employee benefits Social security costs Contribution to defined contribution pension scheme Share based payment expense 2013 £’000 3 2013 £’000 24,139 2,072 158 26,369 9 26,378 2013 £’000 92 981 1,073 2013 £’000 433 32 8 2 475 2012 £’000 - 2012 £’000 24,776 2,309 156 27,241 2 27,243 2012 £’000 86 1,003 1,089 2012 £’000 446 36 6 - 488 One director (2012: 1) is a member of the group’s defined contribution pension scheme. Emoluments of the highest paid director were £149,160 (2012: £149,160). Pension contributions of £8,400 (2012: £5,600) were made on his behalf. Financial Statements 43 7. Directors’ and key management personnel remuneration (continued) The directors’ remuneration was as follows: 2013 £’000 Share based payment expense Remuneration 2012 £’000 Share based payment expense Total Remuneration 149 103 81 75 25 433 1 1 - - - 2 150 104 81 75 25 435 149 112 85 75 25 446 - - - - - - Total 149 112 85 75 25 446 Executive S L Dunn R A Dunn K M Taylor Non- Executive J H Gunn F G Flight The services of John Gunn, Geoffrey Flight and Robert Dunn are provided respectively by Wengen Limited, Central Coachways Limited and motorBus Limited under contracts with those companies. The board considers the directors of the company to be the key management personnel of the group. 8. Profit from operations This is arrived at after charging/(crediting): Depreciation of property, plant and equipment Operating lease expense: - property - plant and machinery Profit on disposal of property, plant and equipment Auditor’s fees: - parent company - subsidiaries 2013 £’000 3,253 299 1,941 (283) 52 3 2012 £’000 3,742 474 1,602 (417) 43 3 44 Rotala Plc // Annual Report 2013 Financial Statements 45 9. Finance income 12. Tax expense Interest receivable on bank deposits Net finance gain on pension scheme (note 25) 10. Finance expense Bank borrowings and overdraft interest Interest payable on loan notes Hire purchase contracts Other interest 11. Profit before taxation Profit before taxation includes the following: Acquisition costs (note 31) Gain arising on acquisition (note 31) Contract exit costs Loss within profit from operations Finance expense - amortisation of debt component of convertible debt Loss within profit before taxation 2013 £’000 8 36 44 2013 £’000 521 185 699 6 2012 £’000 15 - 15 2012 £’000 272 229 825 5 1,411 1,331 2013 £’000 2012 £’000 Gain arising on acquisition, acquisition expenses and exceptional items Gain arising on acquisition, acquisition expenses and exceptional items (155) 387 (364) (132) - (132) - - - - (10) (10) Current tax Current tax on profits for the year Total current tax Deferred tax Origination and reversal of temporary differences Change in rate of tax Adjustments in respect of prior periods Total deferred tax (note 24) Income tax expense 2013 £’000 - - 448 22 (325) 145 145 The tax assessed for the year is different to the standard rate of corporation tax in the U.K. for the following reasons: Profit before taxation Profit at the standard rate of corporation tax in the UK of 23% Expenses not taxable Adjustments in respect of prior periods Total tax expense 2013 £’000 2,058 473 (25) (303) 145 2012 £’000 - - 451 26 (267) 210 210 2012 £’000 2,076 498 (47) (241) 210 46 Rotala Plc // Annual Report 2013 13. Earnings per share Basic Profit attributable to ordinary shareholders Weighted average number of ordinary shares in issue Basic earnings per share 2013 £’000 1,913 35,270,888 5.42p 2012 £’000 1,866 35,270.888 5.29p The calculation of the basic and diluted earnings per share is based on the earnings attributable to the ordinary shareholders divided by the weighted average number of shares in issue during the year. Profit attributable to ordinary share holders Interest expense of convertible loan notes Profit for the purposes of diluted earnings per share 2013 £’000 Diluted 1,913 185 2,098 2012 £’000 Diluted 1,866 229 2,095 Weighted average number of shares in issue 35,270,888 35,270,888 Adjustments for: - assumed conversion of convertible loan notes - exercise of options 5,146,333 162,362 5,146,333 49,331 Weighted average number of ordinary shares for the purpose of diluted earnings per share 40,579,583 40,466,552 Basic diluted earnings per share 5.17p 5.18p In order to arrive at the diluted earnings per share, the weighted average number of ordinary shares has been adjusted on the assumption of conversion of all dilutive potential ordinary shares. The company has in issue two sources of potential ordinary shares: convertible loan notes and share options. The convertible loan notes are assumed to have been converted into ordinary shares (where dilutive), but the associated interest expense has been added back to the profit attributable to shareholders. In respect of the options a calculation has been carried out to determine the number of shares, at the average annual market price of the company’s shares, which could have been acquired, based on the monetary value of the rights attached to those shares. This number has then been subtracted from the number of shares that could be issued on the assumption of full exercise of the outstanding options, in order to compute the necessary adjustments in the above table. Financial Statements 47 14. Property, plant and equipment Short Freehold land leasehold Plant and Public service Fixtures and and buildings property machinery £’000 £’000 £’000 vehicles £’000 fittings £’000 Cost At 1 December 2011 Additions Acquisition Disposals 5,046 43 185 - 1,087 - (185) - 1,727 946 - (17) 36,717 5,779 - (8,929) 784 32 - - Total £’000 45,361 6,800 - (8,946) At 30 November 2012 5,274 902 2,656 33,567 816 43,215 Acquisition Additions Transfers Disposals 1,939 1,996 (283) - - - (2) - 61 463 285 342 3,474 - - 56 - 2,342 5,989 - (1,336) (3,765) (582) (5,683) At 30 November 2013 8,926 900 2,129 33,618 290 45,863 Depreciation At 1 December 2011 Charge for the year Transfers Disposals At 30 November 2012 Charge for the year Transfers Disposals At 30 November 2013 Net book value At 30 November 2013 At 30 November 2012 245 132 54 - 431 95 (107) - 419 8,507 4,843 147 13 (54) - 106 21 - - 1,196 273 - - 13,544 3,225 - (3,707) 539 99 - - 15,671 3,742 - (3,707) 1,469 13,062 638 15,706 316 107 2,726 - 95 - 3,253 - (1,336) (2,108) (582) (4,026) 127 556 13,680 151 14,933 773 796 1,573 19,938 1,187 20,505 139 178 30,930 27,509 The net book value of public service vehicles at 30 November 2013 held under hire purchase agreements was £13,998,000 (2012: £20,177,000). Depreciation of £1,649,000 (2012: £3,138,000) was charged against assets falling into this category in the year. 48 Rotala Plc // Annual Report 2013 Financial Statements 49 15. Goodwill and other intangible assets 16. Goodwill and impairment (continued) Purchased brands £’000 Contracts £’000 Goodwill £’000 Total £’000 The recoverable amount of the goodwill of the business has been determined from value in use calculations based on cash flow projections from formally approved budgets covering a two year period to 30 November 2015. Other major assumptions are as Cost At 1 December 2011 and 2012 and at 30 November 2012 and 2013 Amortisation At 1 December 2011 Charge for the year At 30 November 2012 Charge for the year At 30 November 2013 Net book value At 30 November 2013 At 30 November 2012 250 250 - 250 - 250 - - 312 197 115 312 - 312 - - 9,482 10,044 - - - - - 9,482 9,482 447 115 562 - 562 9,482 9,482 16. Goodwill and impairment The group consists of a number of operational depots arranged around and reliant on a central core, in concept a hub and spoke arrangement. The complex matrix of management of the group’s business is set out in detail in note 4 to these financial statements. In summary, the group’s businesses are managed at their lowest levels by contract and by bus route, or sometimes by both methods. They are not managed by revenue stream. Moreover the manner in which the group has expanded, with the addition, integration and transformation of a number of businesses and entities, has obscured the formal breakdown of the total amount of goodwill. The directors consider that, in the light of these factors, the group’s business represents a single cash generating unit for the purposes of evaluating the carrying value of goodwill. Accordingly, the evaluation calculations have been carried out on this basis. follows: Discount rate Operating margin Growth rate Inflation CGU 2013 % 12 8 2 3 CGU 2012 % 12 8 2 3 Operating margins have been based on past experience and future expectations in the light of anticipated economic and market conditions. Discount rates are based on the group’s weighted average cost of capital. Growth rates, beyond the first two years, are based on management estimates and on the historic achievements of the group. This rate does not exceed the average long term growth rate for the relevant markets. Inflation has been based on management’s expectation given historic trends. After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management is satisfied that it is highly improbable that there would be such change in a key assumption that it would reduce recoverable amount to below book value. 17. Inventories Fuel and spares 2013 £’000 1,826 2012 £’000 1,892 There is no material difference between the replacement cost of stocks and the amounts stated above. The amount of inventories recognised as an expense during the year was £14,622,000 (2012: £15,488,000). No inventory has been written down to fair value in 2013 or 2012 and therefore no associated expense was incurred. 18. Trade and other receivables Trade receivables Tax and social security Prepayments and accrued income Vehicle order deposit placed 2013 £’000 2,948 337 4,578 - 7,863 2012 £’000 3,660 371 3,740 683 8,454 50 Rotala Plc // Annual Report 2013 Financial Statements 51 18. Trade and other receivables (continued) 20. Cash and cash equivalents The carrying values of trade and other receivables are considered to be a reasonable approximation of fair value. The effect of discounting trade and other receivables has been assessed and is deemed to be immaterial to the results. All trade and other receivables have been reviewed for indicators of impairment. During the year no trade receivables were found to be impaired and no provision was created (2012: provision of £33,000 was released). In addition, some of the unimpaired trade receivables are past due as at the reporting date. The ages of trade receivables past due but not impaired are as follows: Not more than 3 months overdue More than 3 months but not more than 1 year Movements in the group trade receivables provision in the year are as follows: Balance brought forward at 1 December Released Balance carried forward at 30 November 19. Derivative Financial Instruments Fuel commodity forward contract (note 29) 2013 £’000 24 121 145 2013 £’000 - - - 2013 £’000 3 2012 £’000 45 189 234 2012 £’000 33 (33) - 2012 £’000 - Financial assets at fair value through profit or loss are presented within Operating Activities as part of changes in working capital in the statement of cash flows. Changes in fair values of financial assets at fair value through profit or loss are recorded within Other Gains in the income statement. The fair value of the commodity forward contract is determined in accordance with the procedure described in note 29. Cash at bank Bank overdraft 21. Trade and other payables - current Trade payables Taxation and social security Other creditors Accruals and deferred income Grant payable 2013 £’000 317 (1,531) (1,214) 2013 £’000 4,592 475 281 956 - 6,304 2012 £’000 351 (1,761) (1,410) 2012 £’000 3,720 536 261 1,028 683 6,228 The directors consider that the carrying amount of trade and other payables approximates to their fair value. The effect of discounting trade and other payables has been assessed and is deemed to be immaterial to the group’s results. During 2012 the group had placed an order for 8 hybrid diesel electric buses. The group received from the Government’s Green Bus Fund a related grant for the acquisition of these vehicles. As a condition of its receipt, the grant had to be passed immediately to the manufacturer and the vehicles had to be in operation by 31 March 2013. As at 30 November 2012 none of the vehicles had been delivered and therefore the grant was treated as a payable in those accounts as not all of the criteria were met, with the related deposit placed with the manufacturer treated as a receivable. There were no such amounts received in the year ended 30 November 2013. 22. Loans and borrowings Current: Overdrafts Bank loans Non-current Convertible loan stock Bank loans 2013 £’000 1,531 3,931 5,462 2,316 3,396 5,712 2012 £’000 1,761 1,789 3,550 2,316 1,900 4,216 52 Rotala Plc // Annual Report 2013 Financial Statements 53 22. Loans and borrowings (continued) Analysis of maturity 2013 £’000 2013 £’000 2013 £’000 2013 £’000 2013 £’000 Convertible debt and overdrafts hire purchase payables Total Bank loans Obligations under Trade and other In one year or less or on demand In more than one year but not more than two years In more than two years but not more than five years Later than five years 185 2,331 - - 5,632 3,132 406 - 3,776 3,420 2,614 125 4,873 14,466 - - - 8,883 3,020 125 2,516 9,170 9,935 4,873 26,494 2012 £’000 2012 £’000 2012 £’000 2012 £’000 2012 £’000 23. Obligations under hire purchase contracts Future lease payments are due as follows: Not later than one year More than one but less than two years More than two but less than five years Later than 5 years Convertible debt and overdrafts hire purchase payables Total Bank loans Obligations under Trade and other Not later than one year More than one but less than two years In one year or less or on demand In more than one year but not more than two years In more than two years but not more than five years 185 2,330 - 3,678 384 1,711 4,525 3,373 4,100 4,664 13,052 More than two but less than five years - - 6,087 5,811 Later than 5 years 2,515 5,773 11,998 4,664 24,950 The present values of future lease payments are analysed as: Convertible debt A convertible unsecured loan stock was issued on 3 March 2008 in connection with the acquisition of The Diamond Bus Company Limited. The convertible loan stock was originally redeemable at par on 31 December 2011 or convertible into 25p ordinary shares of the company at a price of 67.5p per share. However, with effect from 31 August 2011, holders of £2,315,850 of the stock agreed to defer the redemption date to 31 December 2014. For these holders conversion may take place on or before 31 December 2014 at a price of 45p per share. The loan stock continues to bear a coupon of 8%. Bank borrowings The group entered into a Senior Term and Revolving Facilities Agreement with its bankers on 20 November 2012. This agreement provides a revolving £5m facility combined with a mortgage facility of up to £3.4m. It is for an initial three year term, renewable at 20 November 2015. There is a separate mortgage facility with the same bank, which expires on 20 December 2016, for a sum of £620,000. The group entered into a cross-guarantee and floating charge agreement on 27 May 2010 covering its overdraft facilities. The bank loans are secured on the group’s freehold property. The annual mortgage repayments are calculated such that the mortgage facilities amortise in a straight line over a term of 15 years which is considered to give a reasonable approximation to the effective interest rate. Current liabilities Non-current liabilities Obligations under hire purchase contracts are secured on the assets to which they relate. 2013 £’000 Minimum lease payments 3,776 3,420 2,614 125 9,935 2012 £’000 Minimum lease payments 4,525 3,373 4,100 - 2013 £’000 Interest 458 231 132 3 824 2012 £’000 Interest 594 342 186 - 2013 £’000 Present value 3,318 3,189 2,482 122 9,111 2012 £’000 Present value 3,931 3,031 3,914 - 11,998 1,122 10,876 2013 £’000 3,318 5,793 9,111 2012 £’000 3,931 6,945 10,876 54 Rotala Plc // Annual Report 2013 Financial Statements 55 24. Deferred taxation 25. Pensions (continued) The deferred tax asset included in the Statement of Financial Position is analysed as follows: WMITAPF defined benefit pension scheme Accelerated capital allowances Arising on fair value adjustments on acquisition Arising on defined benefit pension scheme Losses Asset The movements in the deferred tax asset in the year are as follows: Balance brought forward at 1 December Recognised in business combination Recognised in profit or loss Recognised in other comprehensive income Balance carried forward at 30 November 2013 £’000 (275) 173 170 356 424 2013 £’000 521 123 (145) (75) 424 2012 £’000 (396) (302) 351 868 521 2012 £’000 489 - (210) 242 521 The calculations of the IAS 19 disclosures for the WMITAPF have been based on the most recent actuarial valuations, which have been updated to 30 November 2013 by an independent professionally qualified actuary to take account of the requirements of IAS 19. The principal actuarial assumptions used were as follows: Rate of increase in salaries Rate of increase of pensions in payment Discount rate Inflation Expected long-term rate of return - Equities - Government bonds - Other bonds - Cash - Property 30 November 2013 % 30 November 2012 % n/a 2.2 4.3 2.2 7.0 3.4 4.4 0.5 n/a n/a 2.0 4.0 2.0 7.0 2.7 3.6 0.5 n/a The expected return on plan assets is based on expectations at the beginning of the period for returns over the entire life of the benefit obligation. The expected returns are set in conjunction with external actuaries and take account of market factors, fund At 30 November 2013 there were no (2012: £nil) temporary differences or unused tax losses for which deferred tax has not been managers views and targets for future returns and where appropriate historical returns. The life expectancy assumptions used for the scheme are periodically reviewed and as at 30 November were: provided. 25. Pensions Group companies operate defined contribution pension schemes. The assets of the schemes are held separately from those of the group in independently administered funds. The pension charge amounted to £158,000 (2012: £156,000). Contributions amounting to £22,789 (2012: £22,841) were payable to the funds at the balance sheet date. Another group company operates a defined benefit pension scheme within the West Midlands Integrated Transport Authority Pension Fund (“WMITAPF”), governed by the Local Government Superannuation Regulations 1986. The group accounts for pensions in accordance with IAS 19 “Employee Benefits”. Contributions amounting to £66,667 (2012: £nil) were payable to the fund at the balance sheet date. Current pensioner aged 65 - male Current pensioner aged 65 - female Future pensioners at aged 65 (aged 45 now) - male Future pensioners at aged 65 (aged 45 now) - female 30 November 2013 Years 30 November 2012 Years 21.8 24.6 23.9 27.0 20.9 23.7 22.3 25.2 Since the scheme has been closed for a number of years, there is no current service cost to be charged to operating profits. Discount rate Inflation Life expectancy Change in assumption Impact on overall liability Increase/decrease by 0.1% Increase/decrease of 1.25% Increase/decrease by 0.1% Increase/decrease of 1.27% Increase by 1 year Increase of 2.1% 56 Rotala Plc // Annual Report 2013 Financial Statements 57 25. Pensions (continued) 25. Pensions (continued) The amounts recognised in the statement of financial postion were determined as follows: Actuarial (losses)/gains as a percentage of scheme assets and liabilities at 30 November 2013 were as follows: Actual return less expected return on pension scheme assets as a percentage of scheme assets Total actuarial gain/(loss) recognised in statement of total comprehensive income as a percentage of the present value of scheme liabilities 2013 2012 2011 3.2 2.1 4.2 (5.9) (0.7) (3.6) The cumulative amount of actuarial gains and losses on defined benefit schemes recognised in the statement of total comprehensive income since 25 January 2011 (the date at which the pension scheme entered the group) is a loss of £1,302,000. The amount of contribution to be paid by the group to the scheme during the next financial year is £350,000. The actual return on plan assets was £1,327,000 (2012: £1,372,000). The movement in deficit during the year under IAS 19 was: Deficit in scheme at 30 November Movement in period - Contributions - Actuarial gain/(loss) - Expected return on assets - Interest cost Deficit in scheme at the end of the year 2013 £’000 (1,463) 400 355 693 (657) (672) 2012 £’000 (854) 400 (1,009) 734 (734) (1,463) Equities Bonds Total market value of assets Present value of scheme liabilities Pension liability before tax Related deferred tax asset Net pension liability 2013 £’000 7,248 8,858 16,106 (16,778) (672) 141 (531) The equity investments and bonds which are held in plan assets are quoted and are valued at the current bid price. The total charge to profit and loss for pensions is as follows: Finance cost - expected return on assets - interest cost on pension liabilities Net finance gain Total defined benefit gain Defined contribution costs Total profit and loss charge Analysis of amount included within the group’s statement of total comprehensive income: Actual return less expected return on pension scheme assets Changes in assumptions underlying the present value of the scheme liabilities 2013 £’000 693 (657) 36 36 (158) (122) 2013 £’000 510 (155) 2012 £’000 6,959 8,506 15,465 (16,928) (1,463) 351 (1,112) 2012 £’000 734 (734) - - (156) (156) 2012 £’000 638 (1,647) 355 (1,009) 58 Rotala Plc // Annual Report 2013 Financial Statements 59 25. Pensions (continued) 27. Share options and warrants The movement in assets during the year under IAS 19 is as follows: As at 30 November 2013 the following share options had been issued and were outstanding under the company’s employee share At 30 November Expected return on plan assets Actuarial gains Employer contributions Benefits paid At end of year The movement in liabilities during the year under IAS 19 is as follows: At 30 November Interest cost Actuarial loss - changes in assumptions Benefits paid At end of year 26. Share capital 2013 £’000 15,465 693 510 400 (962) 16,106 2013 £’000 (16,928) (657) (155) 962 2012 £’000 14,557 734 638 400 (864) 15,465 2012 £’000 (15,411) (734) (1,647) 864 option schemes: Date of grant 29 March 2005 30 August 2005 30 March 2006 24 July 2007 6 September 2007 5 September 2008 Number of options granted Earliest exercise date Date of expiry Exercise price 240,000 93,333 520,000 208,000 880,000 695,000 29 March 2008 28 March 2015 30 August 2008 29 August 2015 30 March 2009 29 March 2016 24 July 2010 23 July 2017 6 September 2010 5 September 2017 5 September 2011 4 September 2018 125.0p 162.5p 37.5p 62.5p 62.5p 50.0p 24 September 2012 319,165 24 September 2015 24 March 2016 40.05p The Rotala Plc SAYE Share Option Scheme (the “Scheme”) is an HM Revenue & Customs approved share option scheme, administered by the Yorkshire Building Society (“YBS”), open to all employees. The issue of share options of 24 September 2012 is at present the only issue in relation to this Scheme. The Scheme runs for an initial three year period. Employees will subscribe, through payroll deductions, a monthly sum which will accumulate in their individual savings accounts at YBS. At the end of the three year period the employee will have the option to purchase ordinary shares of 25 pence in the company (“Ordinary Shares”) at a price fixed at the start of each three year period. Under the rules of the Scheme, the board is free to price the share option at a discount to the market price of the Ordinary Shares, at the time the option is granted. Opportunities to subscribe for further options under the Scheme will arise every six months, within a period of approximately 42 days after the announcement of the Interim and Annual Results of the company. In the initial phase of the Scheme the board has decided that it is prepared to allocate up to 1 million options over Ordinary Shares of the company for this purpose. (16,778) (16,928) The company also operates an unapproved equity-settled share based remuneration scheme for group executive directors and senior management. The only vesting condition is that the individual remains an employee of the group until the option is exercised. Authorised and called up and fully paid 2013 Number 2013 £’000 2012 Number Ordinary shares of 25p each 35,270,888 8,818 35,270,888 2012 £’000 8,818 As at 1 December 2011 and 2012 and 30 November 2012 and 2013 Number Nominal Value £’000 35,270,888 8,818 Ordinary shares participate fully in the rights to vote, receive dividends and take part in any distribution of capital. There are no restrictions on ordinary shares nor are there any redeemable shares of any kind. 2013 Weighted average exercise price (p) 2012 Weighted average Number exercise price (p) Number Outstanding at the beginning of the year Forfeited during the year Issued during the year 60.21 (40.05) - 3,067,399 (111,901) - 63.34 (58.00) 40.05 2,714,333 (78,000) 431,066 Outstanding at the end of the year 60.97 2,955,498 60.21 3,067,399 The exercise price of options outstanding at the end of the year ranged between 37.5p and 162.5p (2012: 37.5p and 162.5p) and their weighted average remaining contractual life was 3.28 years (2012: 4.23 years). Of the outstanding options at the reporting date 2,636,333 (2012: 2,636,333) were exercisable. The weighted average exercise price was 63.50p (2012: 63.50p). 60 Rotala Plc // Annual Report 2013 Financial Statements 61 28. Commitments under operating leases 29. Financial instruments - risk management (continued) The group had total commitments under non-cancellable operating leases as set out below: Operating lease commitments payable: Within one year In two to five years In more than five years 2013 £’000 2012 £’000 Land and buildings Other Land and buildings 282 532 1,441 1,924 5,463 875 337 565 1,488 Other 1,833 5,113 587 2,255 8,262 2,390 7,533 29. Financial instruments - risk management The group holds or issues derivative financial instruments to finance its operations and manage its operating risks. The Board agrees and reviews policies and financial instruments for risk management. Financial assets are classified as loans and receivables or designated at fair value through profit and loss (“FVTPL”); all financial liabilities are measured at amortised cost. The principal financial assets and liabilities on which financial risks arise are as follows: Financial assets - loans and receivables Trade and other receivables Cash and cash equivalents Financial assets - FVTPL Fuel commodity forward derivative contract Financial liabilities - at amortised cost Trade and other payables Loans and borrowings 2013 £’000 2012 £’000 Carrying value Carrying value 2,948 317 3,265 3 4,873 11,174 16,047 4,343 351 4,694 - 4,664 7,766 12,430 Financial assets and liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. This grouping is determined based on the lowest level of significant inputs used in fair value measurement, as follows: • Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs) The fair values of the group’s financial assets are classified as Level 2. The group’s diesel forward contracts are not traded in active markets. The fair value of the diesel forward contracts has been measured by the contracting bank using inputs obtained from forward pricing curves corresponding to the maturity of the contract. The reconciliation of the carrying amounts of financial instruments classified within Level 2 is as follows: Balance at 1 December 2012 Gain recognised in operating profit 2013 £’000 - 3 3 Gains or losses related to these financial instruments are recognised within profit from operations in profit or loss and all amounts recognised in the current period relate to financial assets held at 30 November 2013. Changing inputs to Level 2 valuations to reasonably possible alternative assumptions would not change significantly amounts recognised in profit or loss, total assets, total liabilities or total equity. Financial risk management The principal financial risks to which the group is exposed are liquidity, credit, interest rate, commodity and capital risk. Each of these is managed as set out below. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the group’s competitiveness and flexibility. Liquidity risk The group has a policy of ensuring that sufficient funds are always available for its operating activities. The Board continually monitors the group’s cash requirements, as disclosed on page 16. Interest rate risk The group seeks to obtain a favourable interest rate on its cash balances through the use of bank treasury deposits. The interest rate profile of the financial liabilities of the group, all of which are in Sterling, was as follows: 2013 £’000 2012 £’000 Financial liabilities Financial liabilities Financial liabilities Financial liabilities on which a floating on which a fixed rate on which a floating on which a fixed rate rate is paid is paid rate is paid 8,346 11,938 4,444 is paid 13,766 The group’s derivative financial instruments relate to fuel commodity forward contracts, which help to mitigate the group’s exposure UK Sterling to fluctuations in diesel prices. There are a number of contracts in place at the reporting date which, taken together with diesel fixed price contracts give the group certainty on a substantial proportion of its projected diesel expenditure up to November 2015. In the year the group paid interest at a rate of between 3.5% and 4% (2012: between 3% and 4.5%) on the liabilities subject to floating rates of interest set out above. The financial liabilities set out above subject to fixed rates of interest (fixed for the whole year) were at rates between 4.4% and 8% (2012: between 5% and 11%) in the year. If floating rates of interest changed by 1%, the group’s interest expense would not change by a material sum. 62 Rotala Plc // Annual Report 2013 Financial Statements 63 29. Financial instruments - risk management (continued) 30. Related parties and transactions Credit risk The group is exposed to credit risk on cash and cash equivalents, and trade and other receivables. Cash balances, all held 1. The services of J H Gunn were provided by Wengen Limited, a company controlled by J H Gunn, and invoiced by that company to Rotala, as set out in note 7. At the year end £nil (2012: £nil) of the amount charged was unpaid and included within in the UK, are placed with the group’s principal bankers. The client base of the group lies mainly in government and semi- creditors. During the year J H Gunn received from Rotala a total of £77,373 (2012: £66,669) in dividends on ordinary shares. government bodies and substantial blue chip organisations. As a result the group rarely needs to carry out credit checks, but does do so if it judges this to be appropriate. Provisions for doubtful debts are established in respect of specific trade and other receivables where it is deemed they are impaired. Commodity risk The group is exposed to risk in the fluctuating price of diesel. It mitigates this risk through entering fixed price purchase contracts and fuel commodity forward derivative contracts.. Capital risk The group considers its capital to comprise its ordinary share capital, share premium, other reserves and accumulated retained earnings. The group manages its capital to ensure that entities in the group will be able to continue as going concerns, while maximising the return to shareholders. The board closely monitors current and forecast cash balances to allow the group to maximise returns to shareholders by way of dividends, whilst maintaining suitable amounts of liquid funds to allow continued investment in the group. The group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. For example, in the past two years the board has undertaken refinancing of debt to optimise the position. In order to maintain or adjust the capital structure, the group may also adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Capital for the reporting period under review is as follows: Share capital Share premium reserve Merger reserve Retained earnings At end of year 2013 £’000 8,818 7,828 2,567 4,371 23,584 2012 £’000 8,818 7,828 2,567 2,663 21,876 2. The services of R A Dunn were provided by motorBus Limited, a company controlled by R A Dunn, and invoiced by that company to a subsidiary undertaking of Rotala, as set out in note 7. At the year end £8,466 (2012: £10,570) of the amount charged was unpaid and included within creditors. During the year R A Dunn received from Rotala a total of £12,732 (2012: £10,913) in dividends on ordinary shares. 3. The services of F G Flight were provided by Central Coachways Limited, a company controlled by F G Flight, and invoiced by that company to Rotala, as set out in note 7. At the year end £7,500 (2012: £7,891) of the amount charged was unpaid and included within creditors. During the year F G Flight received from Rotala a total of £18,551 (2012: £15,901) in dividends on ordinary shares and £nil (2012: £2,000) in interest on convertible unsecured loan stock. 4. During the year S L Dunn received from Rotala a total of £9,616 (2012: £8,083) in dividends on ordinary shares and £20,800 (2012: £20,800) in interest on convertible unsecured loan stock. 5. During the year K M Taylor received from Rotala a total of £5,005 (2012: £4,290) in dividends on ordinary shares and £2,000 (2012: £2,000) in interest on convertible unsecured loan stock. 6. J H Gunn is a director of The 181 Fund Limited (“The Fund”), a company incorporated in Jersey. The Fund held an interest in 1,980,221 ordinary shares of Rotala as at 30 November 2013 (2012: 1,730,221 ordinary shares). The Fund also held £55,000 of the convertible loan stock of Rotala as at that date (2012: £400,000). Under Jersey law, Mr Gunn, as a non-resident of that state, is unable to exercise his vote at board meetings of The Fund. At 30 November 2013 Mr. Gunn and his beneficial interests held 28.2% (2012: 25.02%) of the ordinary share capital of The Fund. During the year The Fund received from Rotala a total of £26,473 (2012: £20,763) in dividends on ordinary shares and £18,200 (2012: £40,234) in interest on convertible unsecured loan stock. 64 Rotala Plc // Annual Report 2013 Financial Statements 65 31. Acquisition 32. Capital commitments As at 30 November 2013 the group had placed orders for undelivered vehicles with a capital value of £602,000 (2012: £1,677,000). 33. Contingent liabilities The group in 2011 and 2012 received grants totalling of £2,347,000 from the Government’s Green Bus Fund for the acquisition of 23 hybrid diesel electric vehicles. The principal condition of the grants is that the vehicles should be retained by the group for at least three years. If this condition is not observed the grants become repayable. The group has no intention of not meeting this condition of the grants. 34. Audit exemption for subsidiary undertakings For the year ended 30 November 2013, the group has taken advantage of the exemption offered in sections 479A – 479C of the Companies Act 2006 and, with the exception of Preston Bus Limited, its subsidiary undertakings have not been subject to an individual annual audit. Rotala Plc has given a statutory guarantee to each of these subsidiary undertakings guaranteeing their liabilities, a copy of which will be filed at Companies House. The companies which have taken this exemption are as follows: Name Flights Hallmark Limited Central Connect Limited The Diamond Bus Company Limited Flights Corporate Transfers Limited Hallbridge Way Property Limited Diamond Bus Company Holding Limited Company Number 4327651 3506681 2531054 4390228 6504654 6504657 As set out in the Chairman’s Statement, on 3 March 2013 the group acquired certain businesses and assets in Kidderminster and Redditch from First Group plc. The Chairman’s Statement describes the reasons for the acquisition and should be consulted for a detailed description of all the relevant factors. The consideration for the acquisition was £1.559 million in cash. The book value and fair value of the assets acquired are set out below. Book value Fair value adjustment Fair value on acquisition Fixed assets Vehicles Freehold land and buildings Other fixed assets Total fixed assets Current assets Deferred taxation Current liabilities Creditors due within one year Gain on acquisition (note 11) Acquisition costs (note 11) Total cash consideration paid £’000 250 1,248 61 1,559 - - - £’000 92 691 - 783 123 (519) (396) £’000 342 1,939 61 2,342 123 (519) (396) (387) 155 1,714 1,714 Because the acquired business was immediately folded in to the existing operations of the group in the same localities, it is not possible to distinguish revenues and profits for the acquired business in the period to 30 November 2013. The fair value adjustments relate to the buses and freehold properties acquired, together with the liabilities assumed with the business purchase. The deferred taxation asset arises from the purchased goodwill, emanating from the acquisition of the business, recorded in the subsidiary undertaking which acquired that business. Pre-acquisition book values were determined based on applicable IFRS, immediately prior to the acquisition. The values of assets recognised on acquisition are their estimated fair values. For the buses acquired this is based on the directors’ assessment of the age and condition of each of the vehicles and their knowledge of disposal values for equivalent vehicles. The buildings were valued by professional valuers on an existing use basis. The fair value of liabilities brings the accounting policies in line with those of the group for items such as claims. The acquisition expenses incurred by the group amounted to £155,000 and have been expensed in the Consolidated Income Statement in Administrative Expenses. 66 Rotala Plc // Annual Report 2013 Financial Statements 67 Company Balance Sheet As at 30 November 2013 Fixed assets Investments Current assets Debtors Creditors: amounts falling due within one year Net current (liabilities) Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Capital and reserves Called up share capital Share premium account Profit and loss account Shareholders’ funds Note 3 4 5 6 8 10 10 11 2013 £’000 25,539 5,001 5,001 (5,573) (572) 24,967 (5,712) 19,255 8,818 7,828 2,609 19,255 2012 £’000 25,539 1,870 1,870 (5,148) (3,278) 22,261 (4,216) 18,045 8,818 7,828 1,399 18,045 The financial statements were approved by the Board of Directors and authorised for issue on 24 April 2014 Simon Dunn Chief Executive Kim Taylor Group Finance Director The accompanying notes form an integral part of these financial statements. Notes to the Company Financial Statements For the year ended 30 November 2013 1. Accounting policies The following principal accounting policies have been applied in the preparation of the financial statements: Basis of preparation The financial statements have been prepared under the historical cost convention and are in accordance with United Kingdom applicable accounting standards. Investments Investments held as fixed assets are stated at cost less any provision for impairment. Where possible, advantage is taken of the merger relief rules and shares issued for acquisitions are accounted for at nominal value. Deferred taxation Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date except that the recognition of deferred tax assets is limited to the extent that the company anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are measured on an undiscounted basis at tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Convertible debt The proceeds received on issue of the company’s convertible debt are allocated into their liability and equity components and presented separately in the balance sheet. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that did not include an option to convert. The difference between the net proceeds of the convertible debt and the amount allocated to the debt component is credited direct to equity and is not subsequently re-measured. On conversion, the debt and equity elements are credited to share capital and share premium account, as appropriate. Transaction costs that relate to the issue of the instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Share based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the profit and loss account over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the profit and loss account over the remaining vesting period. Where equity instruments are granted to persons other than employees, the profit and loss account is charged with the fair value of goods and services received. Related party disclosures The company has taken advantage of the exemption conferred by Financial Reporting Standard 8 ‘Related Party Disclosures’ not to disclose transactions with members of the group headed by Rotala Plc on the grounds that 100% of the voting rights in the company are controlled within that group and that the company is included in the consolidated financial statements. 68 Rotala Plc // Annual Report 2013 Financial Statements 69 2. Profit/(loss) for the financial year 5. Creditors: amounts falling due within one year The company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own profit and loss account in these financial statements. The group’s profit for the year includes a profit after taxation of £1,695,000 (2012: loss £149,000) which is dealt with in these parent company financial statements. 3. Investments Cost and net book value At 1 December 2012 & 30 November 2013 Bank loans and overdrafts (note 6) Amounts due to subsidiary undertakings Grant payable Trade creditors Other creditors Subsidiary undertakings £’000 25,539 The principal undertakings (all held directly except where indicated), in which the company’s interest at the year end is 20% or more, 6. Creditors: amounts falling due after more than one year are as follows: Flights Hallmark Limited Hallbridge Way Property Limited Central Connect Limited The Diamond Bus Company Limited* Preston Bus Limited * Held indirectly 4. Debtors Prepayments and accrued income Vehicle order deposit place (see note 5) Amounts due from subsidiary undertakings Country of Proportion of voting incorporation or rights and ordinary share registration capital held Nature of business England England England England England 100% 100% 100% 100% 100% Transport Property holding Transport Transport Transport 2013 £’000 166 - 4,835 5,001 2012 £’000 79 683 1,108 1,870 All amounts shown under debtors fall due for payment within one year. Convertible loan stock Bank loan Convertible debt A convertible unsecured loan stock was issued on 3 March 2008 in connection with the acquisition of The Diamond Bus Company Limited. The convertible loan stock was originally redeemable at par on 31 December 2011 or convertible into 25p ordinary shares of the company at a price of 67.5p per share. However, with effect from 31 August 2011, holders of £2,315,850 of the stock agreed to defer the redemption date to 31 December 2014. For these holders conversion may take place on or before 31 December 2014 at a price of 45p per share. The loan stock continues to bear a coupon of 8%. Bank loan This loan is secured upon three freehold properties held by subsidiary undertakings of the company, Flights Hallmark Limited, Preston Bus Limited and Hallbridge Way Property Limited. The company entered into a Senior Term and Revolving Facilities Agreement with its bankers on 20 November 2012. This agreement provides a revolving £5m facility combined with a mortgage facility of up to £3.4m. It is for an initial three year term, renewable at 20 November 2015. There is a separate mortgage facility with the same bank, which expires on 20 December 2016, for a sum of £620,000. The company entered into a cross-guarantee and floating charge agreement on 27 May 2010 covering its overdraft facilities. The bank loans are secured on the group’s freehold property. The annual mortgage repayments are calculated such that the mortgage facilities amortise in a straight line over a term of 15 years. 2013 £’000 5,076 - - 90 407 5,573 2013 £’000 2,316 3,396 5,712 2012 £’000 2,401 1,635 683 57 372 5,148 2012 £’000 2,316 1,900 4,216 70 Rotala Plc // Annual Report 2013 Financial Statements 71 6. Creditors: amounts falling due after more than one year (continued) 9. Share options and warrants Analysis of maturity As at 30 November 2013 the following share options had been issued and were outstanding under the company’s employee share In one year or less, or on demand In more than one year but not more than two years In more than two years but not more than five years In one year or less, or on demand In more than one year but not more than two years In more than two years but not more than five years Convertible debt 2013 £’000 - 2,316 - 2,316 Convertible debt 2012 £’000 - 2,316 - 2,316 Bank loan 2013 £’000 5,076 3,008 388 8,472 Bank loan 2012 £’000 2,401 289 1,611 4,301 Total 2013 £’000 5,076 5,324 388 10,788 Total 2012 £’000 2,401 2,605 1,611 6,617 7. Deferred tax No closing deferred tax provision is required for the company for 2013. The potential deferred taxation assets not provided are: Losses 2013 £’000 - - The deferred tax asset above was not recognised in accordance with the company’s accounting policies. 8. Share capital Ordinary shares of 25p each 35,270,888 2013 Number Allotted and called up and fully paid 2013 £’000 8,818 2012 Number 35,270,888 Issued Share Capital Number As at 1 December 2011 and 2012 and 30 November 2012 and 2013 35,270,888 2012 £’000 16 16 2012 £’000 8,818 Value 8,818 Ordinary shares participate fully in the rights to vote, receive dividends and take part in any distribution of capital. There are no restrictions on ordinary shares nor are there any redeemable shares of any kind. option schemes: Date of grant 29 March 2005 30 August 2005 30 March 2006 24 July 2007 6 September 2007 5 September 2008 Number of options granted Earliest exercise date Date of expiry Exercise price 240,000 93,333 520,000 208,000 29 March 2008 28 March 2015 30 August 2008 29 August 2015 30 March 2009 29 March 2016 24 July 2010 23 July 2017 880,000 6 September 2010 5 September 2017 695,000 5 September 2011 4 September 2018 125.0p 162.5p 37.5p 62.5p 62.5p 50.0p 40.05p 24 September 2012 319,165 24 September 2015 24 March 2016 The Rotala Plc SAYE Share Option Scheme (the “Scheme”) is an HM Revenue & Customs approved share option scheme, administered by the Yorkshire Building Society (“YBS”), open to all employees. The issue of share options of 24 September 2012 is at present the only issue in relation to this Scheme. The Scheme runs for an initial three year period. Employees will subscribe, through payroll deductions, a monthly sum which will accumulate in their individual savings accounts at YBS. At the end of the three year period the employee will have the option to purchase ordinary shares of 25 pence in the company (“Ordinary Shares”) at a price fixed at the start of each three year period. Under the rules of the Scheme, the board is free to price the share option at a discount to the market price of the Ordinary Shares, at the time the option is granted. Opportunities to subscribe for further options under the Scheme will arise every six months, within a period of approximately 42 days after the announcement of the Interim and Annual Results of the company. In the initial phase of the Scheme the board has decided that it is prepared to allocate up to 1 million options over Ordinary Shares of the company for this purpose. The company also operates an unapproved equity-settled share based remuneration scheme for group executive directors and senior management. The only vesting condition is that the individual remains an employee of the group until the option is exercised. Outstanding at beginning of the year Forfeited during the year Issued during the year 2013 Weighted average exercise price (p) 60.21 (40.05) - 2013 Number 3,067,399 (111,901) - 2012 Weighted average exercise price (p) 63.34 (58.00) 40.05 2012 Number 2,714,333 (78,000) 431,066 Outstanding at the end of the year 60.97 2,955,498 60,21 3,067,399 The exercise price of options outstanding at the end of the year ranged between 37.5p and 162.5p (2012: 37.5p and 162.5p) and their weighted average remaining contractual life was 3.28 years (2012: 4.23 years). Of the outstanding options at the balance sheet date 2,636,333 (2012: 2,636,333) were exercisable. The weighted average exercise price was 63.50p (2012: 63.50p). 72 Rotala Plc // Annual Report 2013 Financial Statements 73 10. Reserves 15. Contingent liabilities Share premium account 2013 £’000 Profit and loss account 2013 £’000 7,828 - - - 7,828 2013 £’000 1,695 9 (494) 1,210 18,045 19,255 1,399 1,695 9 (494) 2,609 2012 £’000 (149) 2 (283) (430) 18,475 18,045 At 1 December 2012 Profit for the year Employee share schemes Dividends paid At 30 November 2013 11. Reconciliation of movements in shareholders’ funds Profit/(loss) for the year Share based payment charge credited to reserves Dividends paid Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 12. Pensions The company does not have a pension scheme of any nature. The company has entered into a cross-guarantee and floating charge agreement with its subsidiaries. At 30 November 2013 the contingent liability amounted to £387,000 (2012: £717,000). The company has guaranteed the hire purchase obligations of its subsidiaries. At 30 November 2013 the contingent liability amounted to £9,111,000 (2012: £10,876,000). The company in 2011 and 2012 received grants totalling of £2,347,000 from the Government’s Green Bus Fund for the acquisition of 23 hybrid diesel electric vehicles. The principal condition of the grants is that the vehicles should be retained by the group for at least three years. If this condition is not observed the grants become repayable. The company has no intention of not meeting this condition of the grants. 16. Related parties and transactions 1. The services of J H Gunn were provided by Wengen Limited, a company controlled by J H Gunn, and invoiced by that company to Rotala. At the year end £nil (2012: £nil) of the amount charged was unpaid and included within creditors. During the year J H Gunn received from Rotala a total of £77,373 (2012: £66,669) in dividends on ordinary shares. 2. The services of R A Dunn were provided by motorBus Limited, a company controlled by R A Dunn, and invoiced by that company to a subsidiary undertaking of Rotala. At the year end £8,466 (2012: £10,570) of the amount charged was unpaid and included within creditors. During the year R A Dunn received from Rotala a total of £12,732 (2012: £10,913) in dividends on ordinary shares. 3. The services of F G Flight were provided by Central Coachways Limited, a company controlled by F G Flight, and invoiced by that company to Rotala. At the year end £7,500 (2012: £7,891) of the amount charged was unpaid and included within creditors. During the year F G Flight received from Rotala a total of £18,551 (2012: £15,901) in dividends on ordinary shares and £nil (2012: £2,000) in interest on convertible unsecured loan stock. 4. During the year S L Dunn received from Rotala a total of £9,616 (2012: £8,083) in dividends on ordinary shares and £20,800 (2012: £20,800) in interest on convertible unsecured loan stock. 5. During the year K M Taylor received from Rotala a total of £5,005 (2012: £4,290) in dividends on ordinary shares and £2,000 (2012: £2,000) in interest on convertible unsecured loan stock. 6. J H Gunn is a director of The 181 Fund Limited (“The Fund”), a company incorporated in Jersey. The Fund held an interest in 1,980,221 ordinary shares of Rotala as at 30 November 2013 (2012: 1,730,221 ordinary shares). The Fund also held £55,000 of the convertible loan stock of Rotala as at that date (2012: £400,000). Under Jersey law, Mr Gunn, as a non-resident of that state, is unable to exercise his vote at board meetings of The Fund. At 30 November 2013 Mr. Gunn and his beneficial interests held 28.2% (2012: 25.02%) of the ordinary share capital of The Fund. During the year The Fund received from Rotala a total of £26,473 (2012: £20,763) in dividends on ordinary shares and £18,200 (2012: £40,234) in interest on convertible unsecured loan 13. Capital commitments stock. As at 30 November 2013 the company had placed orders for undelivered vehicles with a capital value of £602,000 (2012: £1,677,000). 14. Commitments under operating leases The company had the following operating lease commitments: Expiry date - up to one year - between two and five years Other 2013 £’000 22 45 Other 2012 £’000 - 31 74 Rotala Plc // Annual Report 2013 Shareholder Information 75 Shareholder Information 76 Rotala Plc // Annual Report 2013 Shareholder Information 77 Notice of Annual General Meeting NOTICE IS HEREBY given that the Annual General Meeting (“AGM”) of Rotala plc Special Resolutions (the “Company”) will be held at 12 pm on 29 May 2014 at the offices of the Company at Beacon House, Long Acre, Birmingham, B7 5JJ for the purpose of considering, 8. THAT, in substitution for all existing such authorities and subject to the passing of Resolution 7, the directors be generally empowered pursuant to section 570 of CA 2006 to allot equity securities (within the meaning of section 560 of CA 2006) for cash pursuant to the authority conferred by Resolution 7 or by way of sale of treasury shares as if section 561 of CA 2006 did not apply to and if thought fit, passing the following Resolutions with or without modifications and the allotment or sale provided that this power:- of which Resolutions 1 to 7 (inclusive) will be proposed as ordinary resolutions and 8.1 is limited to the allotment of equity securities:- Resolutions 8 to 9 will be proposed as special resolutions. Ordinary Resolutions 8.1.1 where such securities have been offered (whether by way of a rights issue, open offer or otherwise) to holders of ordinary shares of 25 pence each in the capital of the Company (“Ordinary Shares”) in proportion (as nearly as may be) to their existing holdings of Ordinary Shares but subject to the directors having a right to make such exclusions or other arrangements in connection with the offer as they deem necessary or expedient to deal with equity securities representing fractional entitlements and/or to deal with legal and/or practical problems under the laws 1. THAT, the accounts of the Company for the financial period ended 30 November 2013, together with the directors’ report and the of any territory, or the requirements of any regulatory body or stock exchange in any territory; and auditor’s report on those accounts, be received and considered. 2. THAT, upon recommendation of the directors, a dividend of 1.05p per ordinary share be declared as a final dividend in respect of the approximately 10 per cent. of the issued ordinary share capital of the Company as at 24 April 2014); 8.1.2 otherwise than pursuant to paragraph 8.1.1 up to an aggregate nominal value of £881,772 (representing financial year ended 30 November 2013. 3. THAT, Grant Thornton UK LLP be and are hereby re-appointed as auditors of the Company to hold office until the conclusion of the authority shall extend to the making of an offer or agreement which would or might require equity securities to be allotted next general meeting of the Company before which statutory accounts are laid and that the directors of the Company be and are after such expiry date and the directors may allot equity securities in pursuance of that offer or agreement as if the power hereby authorised to fix the auditors’ remuneration from time to time. conferred by this Resolution had not expired; 8.2 shall expire at the earlier of the conclusion of the next annual general meeting of the Company and 31 May 2015, but such 4. THAT, John Gunn who is retiring by rotation in accordance with the Company’s articles of association and, being eligible, offers 9. THAT the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of CA 2006 to make himself for re-election as a director of the Company, be re-elected as a director of the Company. market purchases (within the meaning of section 693(4) of CA 2006) of Ordinary Shares provided that:- 5. THAT, Robert Dunn who is retiring by rotation in accordance with the Company’s articles of association and, being eligible, offers 9.1 the maximum number of Ordinary Shares which may be purchased is 3,527,088 (representing ten per cent of the Company’s himself for re-election as a director of the Company, be re-elected as a director of the Company. issued ordinary share capital as at 24 April 2014); Special Business 6. THAT, in accordance with section 366 of the Companies Act 2006 (“CA 2006”), the Company and its subsidiaries are hereby authorised to:- 6.1 make political donations to political organisations or independent election candidates, as defined in sections 363 and 364 of CA 2006, not exceeding £25,000 in total; and 6.2 incur political expenditure, as defined in section 365 of CA 2006, not exceeding £25,000 in total, during the period commencing on the date of this Resolution and ending on the earlier of the conclusion of the next annual general meeting of the Company and 31 May 2015. 7. THAT, in substitution for all existing such authorities, the directors be and are hereby generally and unconditionally authorised pursuant to section 551 of CA 2006 to exercise all powers of the Company to allot shares in the Company or to grant rights to subscribe for, or to convert any security into shares in the Company up to an aggregate nominal amount of £2,939,240 (being approximately one-third of the issued ordinary share capital of the Company as at 24 April 2014 being the last working day prior to the publication of the notice convening the meeting) provided that such authority, unless renewed or revoked by the Company in general meeting, shall expire on the earlier of the conclusion of the next annual general meeting of the Company and 31 May 2015 but the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted or rights to be granted after such expiry and the directors may allot shares or grant rights in pursuance of that offer or agreement as if the authority conferred by this Resolution had not expired. 9.2 the minimum price (exclusive of expenses) which may be paid for each Ordinary Share is 25 pence; 9.3 the maximum price (exclusive of expenses) which may be paid for each Ordinary Share is an amount equal to 105 per cent of the average of the middle market quotations of an Ordinary Share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the share is contracted to be purchased; 9.4 this authority shall expire on the earlier of the conclusion of the next annual general meeting of the Company after the passing of this Resolution and 31 May 2015 (unless previously renewed, varied or revoked by the Company in general meeting); and 9.5 the Company may, before such expiry, enter into one or more contracts to purchase Ordinary Shares under which such purchases may be completed or executed wholly or partly after the expiry of this authority and may make a purchase of Ordinary Shares in pursuance of any such contract or contracts. By Order of the Board Kim Taylor Company Secretary Date: 24 April 2014 78 Rotala Plc // Annual Report 2013 Notes to Members Shareholder Information 79 1. A member entitled to attend and vote at the meeting is also entitled to appoint one or more proxies to attend, speak and vote 10. In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to instead of him/her. A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to the exclusion of the votes of the other joint holders. For this purpose seniority is determined by the order in which the names of the exercise the rights attached to a different share or shares held by that member. The proxy need not be a member of the Company. holders stand in the register of members in respect of the joint holding. Please refer to the notes to the form of proxy for further information on appointing a proxy, including how to appoint multiple proxies (as the case may be). 2. In the absence of instructions, the person appointed proxy may vote or abstain from voting as he/she thinks fit on the specified Resolutions and, unless otherwise instructed, may also vote or abstain from voting on any other matter (including amendments to Resolutions) which may properly come before the meeting. 3. Shareholders may appoint a proxy or proxies:- 11. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 12. Copies of the directors’ service contracts and the terms and conditions of appointment of non-executive directors will be available for inspection at the registered office of the Company during usual business hours from the date of this notice until the date of the meeting and at the venue of the meeting for at least 30 minutes prior to and at the meeting. 13. The Company, pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those members 3.1 by completing and returning a form of proxy by post or by hand to the offices of the Company’s registrars, Capita Asset Services, entered on the register of members of the Company at the close of business on 27 May 2014 shall be entitled to attend and vote at PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU; or 3.2 in the case of CREST members, through the CREST electronic proxy appointment service. the meeting or, if the meeting is adjourned, the close of business on such date being not more than two days prior to the date fixed for the adjourned meeting. Changes to entries on the register of members after such time shall be disregarded in determining the right of any person to attend or vote at the meeting. 4. To be effective, the appointment of a proxy, or the amendment to the instructions given for a previously appointed proxy, must be received by the Company’s registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU by one of the methods in note 3 above not less than 48 hours before the time for holding the meeting. In addition, any power of attorney or other authority under which the proxy is appointed (or a notarially certified copy of such power or authority) must be deposited at the offices of the Company’s registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours before the time for holding the meeting. Any such power of attorney or other authority cannot be submitted electronically. 5. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider, should refer to their CREST sponsor or voting service provider who will be able to take the appropriate action on their behalf. 6. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (“Euroclear UK & Ireland”) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA 10) by the specified latest time(s) for receipt of proxy appointments. 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 Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 7. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 8. 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. 9. Completion and return of the Form of Proxy will not preclude a shareholder from attending and voting in person at the meeting. 80 Rotala Plc // Annual Report 2013 Shareholder Information 81 Resolution 9 – Authority to purchase own shares The directors believe that it is in the interests of the Company and its members to continue to have the flexibility granted to the directors at the last AGM to purchase its own shares and this resolution seeks continued authority from members to do so. The directors intend only to exercise this authority where, after considering market conditions prevailing at the time, they believe that the effect of such exercise would be to increase the earnings per share and be in the best interests of shareholders generally. The outcome of such purchases would either be to cancel that number of shares or the directors may elect to hold them in treasury pursuant to the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the “Regulations”). This resolution would be limited to 3,527,088 ordinary shares, representing approximately 10 per cent of the issued share capital as at 24 April 2014. The directors intend to seek renewal of this power at each Annual General Meeting. Explanatory Notes to Notice of Annual General Meeting At the Annual General Meeting the following will be proposed as explained below: Resolution 2 – Declaration of a final dividend Shareholder approval is required for the payment of a final dividend as recommended by the board of directors. Subject to shareholder approval this dividend will be paid on 27 June 2014 to those shareholders on the Company’s register of members as at close of business on 6 June 2014. Resolution 6 – Authority to make donations to political organisations and to incur political expenditure Part 14 of the Companies Act 2006 (“CA 2006”), amongst other things, prohibits the Company and its subsidiaries from making donations of more than £5,000 to an EU political party or other EU political organisation or to an independent election candidate in the EU in any 12 month period unless they have been authorised to make donations by the Company’s shareholders. CA 2006 defines ‘political organisations’, ‘political donations’ and ‘political expenditure’ widely. It includes organisations which carry on activities which are capable of being reasonably regarded as intended to affect public support for a political party or an independent election candidate in any EU Member State or to influence voters in relation to any referendum in any EU Member State. As a result, it is possible that the definition may include bodies, such as those concerned with policy review and law reform, which the Company and/or its subsidiaries may see benefit in supporting. Accordingly, and as proposed to Shareholders at the Company’s annual general meeting in 2013, the Company wishes to ensure that neither it nor its subsidiaries inadvertently commits any breaches of CA 2006 through the undertaking of routine activities, which would not normally be considered to result in making political donations or incurring political expenditure. Neither the Company nor any of its subsidiaries has any intention of making any particular political donations under the terms of this Resolution. Resolution 7 – Authority to allot relevant securities Under section 549 of CA 2006, the directors of a company may not allot shares in the Company, or grant rights to subscribe for, or to convert any security into, shares in the Company unless authorised to do so. This resolution, if passed, will continue the directors’ flexibility to act in the best interests of shareholders, when opportunities arise, by issuing new shares, and renews the authority given at the last AGM. This authority will allow the directors to allot new shares and to grant rights in respect of shares up to a nominal value of £2,939,240 which is equivalent to one third of the total issued ordinary share capital as at 24 April 2014. The directors have no current intention of exercising this authority. This authority will expire at the conclusion of the next AGM, or 31 May 2015, whichever is the earlier. Resolution 8 – Authority to disapply pre-emption rights If equity securities (within the meaning of section 560 of CA 2006) are to be allotted for cash, section 561 of CA 2006 requires that those equity securities are offered first to existing shareholders in proportion to the number held by them at the time of the offer and otherwise in compliance with the technical requirements of CA 2006. However, it may be in the interests of the Company for the directors to allot shares and/or sell treasury shares other than to shareholders in proportion to their existing holdings or otherwise than strictly in compliance with those requirements. A special resolution will be proposed to renew the authority of the directors to allot equity securities for cash without first being required to offer such securities to existing shareholders. This authority is limited to the allotment of equity securities and/or sale of treasury shares for cash up to a maximum nominal amount of £881,772 which is equivalent to 10 per cent of the total issued ordinary share capital of the Company as at 24 April 2014 and allotments of equity securities and/or sale of treasury shares in connection with a rights issue or other offer to shareholders, subject to the directors ability to make arrangements to deal with certain legal or practical problems arising in connection with such offer. This power will expire at the conclusion of the next AGM, or 31 May 2015, whichever is the earlier. Rotala Plc Beacon House, Long Acre, Birmingham B7 5JJ Telephone: 08458 382 382 Website: www.rotalaplc.com 

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