Superior Gold
Annual Report 2016

Plain-text annual report

242519 Stanley Gibbons RA Cover 05/10/2016 23:22 Page 2 The Stanley Gibbons Group plc Annual Report and Accounts for the year ended 31 March 2016 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 1 Group Annual Report and Financial Statements for the year ended 31 March 2016 Year ended 31 March 2016 Year ended 31 March 2015 restated 59.1 (10.1) (28.9) (4.9) (62.17) (10.06) – 20.4 81.5 22.0 60.0 5.4 1.8 5.1 1.54 10.28 5.0 11.7 143.2 n/a Financial Highlights Group Turnover (£m) Trading profits (£m) (Loss)/Profit before taxation (£m) Adjusted (loss)/profit before taxation (£m) Basic earnings per share (p) Adjusted earnings per share (p) Dividend per share (p) Net borrowings (£m) Net assets per share (p) Adjusted Net assets per share (p)* *(as at 1 April 2016) Contents Page 2 3-5 Directors and Advisers Chairman’s Statement 6-13 Business Review 14-16 Operating Review 17-18 Financial Review 19-20 Corporate Governance 21-23 Report on Remuneration 24-29 Directors’ Report 30 32 33 34 35 Independent Auditors’ Report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows 36-77 Notes to the Financial Statements 78-79 Directors’ Biographical Details 80-84 Notice of Annual General Meeting Financial Calendar Annual General Meeting 27 October 2016 The Stanley Gibbons Group plc 1 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 2 Directors Company Secretary Registered Office Company Registration Nominated Adviser and Broker Auditors Legal Advisers Bankers Registrars Directors and Advisers Executive Chairman Chief Finance Officer Director Non-Executive Director* Non-Executive Director H G Wilson A Cook C P Whiley M P Magee H A J Turcan * Independent R K Purkis 2nd Floor Minden House, Minden Place St. Helier Jersey JE2 4WQ Tel: 01534 766711 Registered in Jersey Number 13177 finnCap Limited 60 New Broad Street London EC2M 1JJ BDO Limited Windward House La Route de la Liberation St Helier Jersey JE1 1BG Mourant Ozannes 22 Grenville Street St Helier Jersey JE4 8PX Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU NatWest 71 Bath Street St Helier Jersey JE4 8PJ The Royal Bank of Scotland Group PLC 3 Hampshire Corporate Park Templars Way Chandlers Ford SO53 3RY Capita Registrars (Jersey) Limited Shareholder Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0871 664 0300; from overseas +44 20 8639 3399 Website Further financial, corporate and shareholder information is available in the investor relations section of the Group’s website: www.stanleygibbons.com The Stanley Gibbons Group plc 2 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 3 Chairman’s Statement Introduction As the newly appointed Chairman of Stanley Gibbons this is my first annual report for the Group. I joined the Board in May 2016 during a very difficult period for the Group which encompassed the appointment of corporate restructuring specialists to undertake a comprehensive review of all operational aspects of the Group, a subsequent profit warning and a fundraising designed to nurse the Group through a liquidity squeeze. In short, things had gone badly adrift and urgent action was required to recover the situation. The 43% fall in net asset value, reflected in the table in the Financial Review on page 17, has resulted from a combination of both the inadequately integrated and managed acquisitions and internet development activities of recent years alongside the more pervasive impact of the reinvestment profile of the Groups investment contracts which had an element of contractual buy-back. These contracts were sold between 2005 and 2013 and have resulted in a restatement of prior year earnings relating to all open contracts as at 1 April 2014. Although much remains to be done, substantial progress has been made over the last nine months with a reconstituted Board and relocation of Executive Directors to the UK, together with significant operational changes which are described in detail in the Business Review below. Trading and Operations As announced today trading conditions have remained difficult since we forecast an adjusted loss before tax of between £1m and £2m, for the year ended 31 March 2016, on 23 February 2016, with: • • • • a 43% reduction in net assets as a result of a restatement of prior years’ results and a significant reduction in the carrying value of certain other assets. Turnover at £59.1m, being 28% below budget and 15% lower than the prior year; Gross Margin at 40% (2015: 52%) was also lower, partly due to high margins on major collections in the previous year and a reduced auction schedule in both Baldwin’s and Dreweatts; the adjusted loss before tax, excluding exceptional charges, was £4.9m (after a prior year adjustment of £1.2m) largely attributable to a loss of £2.0m at The Marketplace and a loss of £1.3m at Mallett; As a consequence of the poor performance outlined above bank debt rose over the year to £21.9m (31 March 2015: £11.7m), with actual debt peaking at £24m in March 2016 and currently at £18m. The intention is to reduce the long-term gearing of the business through a sharp focus on increasing sales and in particular reducing the level of stock held which has grown disproportionately in recent years. Following the appointment in February 2016 of our new auditors, BDO Limited (“BDO”), the Board has revisited the accounting treatment previously adopted in connection with certain transactions and has concluded that it was not in accordance with the applicable accounting standards. Accordingly the Board has decided to adopt the appropriate accounting policies in these accounts. This has resulted in a restatement of prior years’ results and a substantial write-down of balance sheet assets. These changes stem largely from fundamental errors in the accounting treatment previously adopted, most notably of investment product sales in previous years, and adjust for all open contracts in existence as of 1 April 2014. Although the underlying products were conceived in 2005, these changes do not affect the reported cash position at 31 March 2016 and we have not sought to restate earlier accounting periods. In addition to these adjustments, the Board has also reduced the carrying value of certain other assets, in particular goodwill relating to the acquisition of Noble Investments and capitalised IT costs relating to the development of The Marketplace which, following a decision that it was not economically viable, was closed on 7 September 2016. Furthermore, given the distorting effect of the March fundraising completed on 1 April 2016, we have shown adjusted loss per share and net asset per share figures too. The Stanley Gibbons Group plc 3 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 4 Chairman’s Statement continued The restructuring programme, initiated in late December 2015, is progressing to plan with annualised operating cost savings of some £10m identified to date where full benefits will be seen in the financial year to 31 March 2018. The main elements of the cost rationalisation have involved the reduction of office/retail premises, a dramatic down- sizing of the Interiors division together with a relocation of the remaining website development activities for the on-line trading from the USA to the UK. Cessation of the development of The Marketplace accounts for £1.5m of the identified cost savings. The Board remains confident that the Group is now on track to deliver further progress in accordance with the restructuring plan following a year of substantial transition. Dividend Given the results for the year, the Board is not recommending the payment of a final dividend for the year to 31 March 2016 (12 months ended 31 March 2015: 5.00p inclusive of a final dividend of 1.75p paid on 17 August 2015). The Board will review the dividend policy regularly taking into account trading conditions, opportunities for reinvestment in future growth and working capital requirements. Management and Board Changes The restructuring review identified the need for dramatic changes across the Group which were long overdue and have now been initiated. We remain committed to providing a top quality service to our customers primarily through our world-class experts in their respective fields. Within the internationally recognised brand names the specialists differentiate us from our peers and we will look to grow these teams. All Executive Directors are now London based where they can provide ongoing support to the individual teams as we rebuild the business. As part of the review, there has been a significant reduction in the head-count at both the Interiors division and The Marketplace with further initiatives underway to reduce central overheads. At Baldwins we have recently appointed a new managing director to galvanise the restoration of the coins division following the departure of a number of staff. In light of the above I would like to thank all of our staff, on behalf of the Board, for their hard work and support over what has been a difficult time for the Group. The Group is fortunate to have a dedicated workforce, with a great depth of historic knowledge, commitment and expertise, and it is our intention to recognise this contribution and loyalty through the issue of share options to staff to align their interests with our shareholders. There has been an almost complete change in the Board over the last year. Martin Bralsford, Mike Hall, Donal Duff, Simon Perrée and Clive Jones have all stepped down whilst Clive Whiley, Henry Turcan, Andrew Cook and I have joined the Board. I would particularly like to thank Martin Magee who has remained on the Board during this transitional period and has chaired the Audit Committee very diligently. Martin has indicated that he plans to step down at the AGM. Strategy for the Future The objectives of our revised strategy are to ensure that we build long-term relationships with our clients across a wide range of international markets where we can provide differentiated offerings and build brand recognition. By focusing investment on our core businesses and providing premium service to our customers we will seek to deliver long-term value to shareholders in the process. We have already achieved significant progress with the integration of the acquisitions made in recent years, to derive the benefits which should have been gained. This will be a key part of our plans over the coming months as we endeavour to establish a sustainable and profitable business model for the Group. The Stanley Gibbons Group plc 4 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 5 Chairman’s Statement continued The Board believes that only by re-focusing on Stanley Gibbons core branded activities, whilst maintaining disciplined capital allocation, will the fortunes of the Group be restored and along with it shareholder value. Investment customers will continue to be a key customer focus for our business, but we will also build on the collector part of our trade which has historically been the foundation of the Company. Outlook The market for rare collectibles and fine art remains buoyant for collectors and given the low interest rate environment continues to offer an attractive alternative for investment. The Brexit vote has added a degree of uncertainty over the macro environment but quality collectibles have traditionally maintained their value and appeal over the long- term and particularly in times of uncertainty. The restructuring of Stanley Gibbons has been unsettling for all concerned with the business, and the Directors would like to thank all our stakeholders for their ongoing support during this transitional period. There will inevitably be more challenges ahead but we have taken definitive action with a view to restoring the business and reputation of the Group. Harry Wilson Chairman 3 October 2016 The Stanley Gibbons Group plc 5 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 6 Business Review The March 2016 fundraising Circular highlighted that the year to 31 March 2016 had been an exceptionally difficult year for the business with a marked downturn in like-for-like revenue, gross margin and trading profits which, amongst other factors, had led to a severely constricted cash position. In late December 2015, the Board had appointed corporate restructuring specialists to undertake an assessment of the banking and fundraising options and to oversee a root and branch review of every facet of the Group’s business, targeting annualised operating cost savings of £5m. Clive Whiley, who has been overseeing the restructuring programme, joined the Board as a director following the successful conclusion of the fundraising on 31 March 2016. The net proceeds of £12.4m, raised in March, were used to repay a temporary bank overdraft, which had been taken out in January 2016 to support the rationalisation exercise, to facilitate the integration of previous acquisitions and to provide additional working capital. Restructuring Update Summary The restructuring process has required a number of difficult decisions including a reduction in headcount, rationalisation of premises and other overhead costs, the closure of cash-consuming business lines and the down- sizing of non-core businesses in order to concentrate resources on supporting activities deemed core to the Group’s future. There have also been changes to the senior Board executives. Harry Wilson was appointed as Chairman, in a non-executive capacity, in May 2016 and as an executive following the board departures in July 2016 of Mike Hall (Chief Executive) and Donal Duff (Chief Financial Officer). At the same time, Andrew Cook, who had been recruited to be the London-based Managing Director, joined the board as Chief Financial Officer. Significant progress has been made with the restructuring plan including the closure of The Marketplace and the re-scoping and scaling back of our Interiors division, with a view to better aligning revenue and costs before the end of the current financial year, as we completed the rationalisation and integration of the Noble and Mallett acquisitions. As a result, annualised operating cost reductions already exceed the initial target of £5m, with a total of £10m of cost savings now identified. The full cash benefit will be seen in the full year results to March 2018. The projects requiring wholesale change have either been completed or are currently underway however the rationalisation and continued drive for more efficient correlation between costs and revenue growth will be an ongoing process. The dramatic changes were necessary and overdue and, notwithstanding the continuing challenges confronting the business, there has been strong internal recognition of the need for change. Significant accounting changes and balance sheet adjustments Revenue Recognition On 30 June 2016 we announced our intention to release results for the year ended 31 March 2016 later than in previous years, reflecting the additional complexity of the audit due to the ongoing restructuring and the appointment of new auditors. There have been some significant adjustments in this year’s accounts and these are summarised below: The Board has revisited the accounting treatment previously adopted in connection with certain transactions and has concluded that it was not in accordance with the applicable accounting standards. Accordingly the Board has decided to adopt some, significantly changed, accounting policies in the presentation of the accounts. These have resulted in a restatement of prior years’ results and a substantial write-down of balance sheet assets. These changes The Stanley Gibbons Group plc 6 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 7 Business Review continued stem largely from fundamental errors in the accounting treatment previously adopted, most notably of investment product “sales” recognised in previous years. In conjunction with the audit the Board has reviewed its accounting policy and past accounting treatment with regard to the recognition of revenue in the philatelic trading business, specifically in relation to the contractual terms of certain of the investment plans which had been offered by the Group in earlier years and the requirements of International Financial Reporting Standards. The Board concluded that the recognition of revenue in relation to certain of the investment plans had not been in accordance with accounting standards and elected to adopt a new policy in the 31 March 2016 financial statements and to correct the accounting treatment in the financial statements for the period from 1 April 2014 through to 31 March 2016 by way of a prior year adjustment (“PYA”). The consequences of this correction of accounting policy for revenue recognition have been: • • • an increase in the amount of creditors at 31 March 2015, by £33.5m, to reflect the revenues that have been written back but some of which is expected to be recognised in future years upon maturity of the plans, and an increase in stock by £18.6m to include those items where the Group has a contractual obligation to repurchase them from clients at the end of the investment plan term (notwithstanding that, historically, the majority of clients have not exercised this option at the end of their contract); a reduction of £3.6m in the carrying value of stock, in order to reflect stock which has previously been repurchased from maturing investment plans at original cost instead of at its repurchase price; depending on subsequent events, the value of outstanding investment plans, which offer clients an option at the end of the contract term to sell back to Stanley Gibbons (Guernsey) Limited, will fall to be recognised as revenue in later financial periods, including £7.0m in the year ended 31 March 2016; It is emphasised that there has been no change to the cash position of the Group as a result of the above change in accounting policy and consequential PYA’s. Whilst these and other accounting adjustments discussed elsewhere have resulted in a reduction in the Group’s underlying net asset value, to £38.4m, as at 31 March 2016, the Board considers that it is fundamental to the future of the Group that all sales efforts are focused on selling stock on a profitable basis and reducing the average stockholding period. The above changes ensure that the historic inflated carrying value of certain stock items is reversed and will hopefully provide a new basis from which to generate profitable cash sales going forward. Impairment of Goodwill and intangibles In addition to the revenue recognition adjustments, the Board has also reviewed the carrying value of certain other assets, in particular goodwill relating to some of its recent investments and capitalised IT costs. This has resulted in a write down, of £13.9m, against the value of intangible assets during the year ended 31 March 2016 although, again, it is emphasised that this has had no impact on the reported cash position of the Group. Provisions against trade Debtors and Stock Similarly, following a review of the trade debtor balances, which amount to £12.9m and some of which originate from over 2 years ago, the Board has considered that it would be prudent to make some provision against these amounts due to the Group. Accordingly, it has taken a total provision of £3.0m in the year ended 31 March 2016 but has commenced an active debt collection programme designed to both validate the substance of the debtors and generate cash for the Group. Additionally, following a review of the stock carrying values certain items had been carried at above their net realisable value, while it should be stressed that this was limited to a small group of items. There was also an issue in physically locating certain stock items particularly within the interiors division, which had accumulated within stocks over several years. The total impact of these provisions was £1.4m The Stanley Gibbons Group plc 7 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 8 Business Review continued The Marketplace Notwithstanding the substantial allocation of Group resource since its inception, a full review of the E-Commerce strategy, initiated in February 2016, determined that The Marketplace had failed to deliver the platform hoped for at the outset and was still someway short of doing so. Accordingly, having consumed £10m over the last three years, in order to significantly reduce the cash-burn, the Board took the decision to: • • cease development in the USA, as per the transition plan outlined earlier, and to decouple all links between The Marketplace and the continuing Stanley Gibbons website, which was transferred contemporaneously to a new UK based platform in September the Board continues to believe there is an opportunity to grow online revenues and will now refocus resources upon selling the Group’s own proprietary assets of high quality collectibles and world renowned publications. The closure of The Marketplace on 7 September finally brings to an end an ill conceived, badly managed project which was allowed to severely over-run budgeted expenditure. We will now seek to retrieve as much of the embedded development IP as possible to kick-start our revitalised E-Commerce strategy at Stanley Gibbons. Litigation Following its acquisition of Mallett plc in October 2014, the Company learned that government regulators in the United States were investigating transactions that had occurred since 1 January 2010 involving a former client of Mallett Inc., Mallett’s New York-based subsidiary. The former client is not a related person or affiliate of the Group. This issue had not been disclosed to the Company by the directors of Mallett plc during the due diligence process prior to the acquisition. The Group continues to cooperate fully with the U.S. Securities and Exchange Commission (the “SEC”) and the Department of Justice (“DOJ”), including responding to a subpoena from the SEC requesting documents and providing information to the Government regulators as requested. Both the SEC and DOJ are aware that Mallett’s new owners were not involved in the events underlying the investigation, and there have been discussions with the SEC regarding resolution of these matters. On 25 August 2015, the DOJ filed criminal charges against the former client, arising in part out of his dealings with Mallett Inc. As it relates to the Group, the former client was alleged to have conspired with a then unnamed New York based employee of Mallett Inc. to defraud a court-appointed receiver and to obstruct the administration of justice in the United States. On 19 May 2016, the DOJ filed criminal charges against Henry Neville, a former director of Mallett plc and the previously unnamed New York based employee of Mallett Inc., arising out of his dealings with the former client, the court-appointed receiver, and the Government’s investigation into his conduct. On the same date, Mr Neville pleaded guilty to all criminal charges against him. Mr Neville awaits sentencing, as does the former client who has also pleaded guilty to certain charges against him. Whilst the investigations are ongoing, no criminal or civil charges have been filed against Mallett Inc. or any Mallett group company to date. The Group continues to retain the services of US legal counsel to advise it in these matters. The investigations are not being conducted in public, and the Directors cannot predict with certainty whether Mallett Inc. or any other company or person in the Mallett group will be named in civil or criminal claims or litigation as a result of the investigations. Though the transactions pre-dated the acquisition there was no provision in the financial accounts of Mallett plc or its subsidiaries for any costs relating to them. A fair value adjustment was made subsequent to the acquisition as at The Stanley Gibbons Group plc 8 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 9 Business Review continued that point the costs in responding to the subpoena from the SEC and/or assisting the US authorities with their investigations were unavoidable. The estimate made at the time was £0.9m. Subsequently, with the involvement of the DOJ, this estimate has proved to be inadequate. At present the Board’s best estimate of the subsequent costs as at 31 March 2016 total an additional £1.1m. This amount is the total accrual at the year end. Any further potential costs cannot be estimated with any degree of accuracy and could have a material adverse effect on the Group. Funding The existing borrowings and facilities, all of which are secured and guaranteed by various members of the Group, comprise: • a £8.3m loan facility, originally £10m, taken out to enable the acquisition of Noble in 2013 and currently benefitting from a moratorium on capital repayments, which will recommence at £500,000 per quarter from 31 March 2017 but subject to earlier part-repayment in the event of a major asset disposal; and • a £10m revolving credit/overdraft facility, which is available until 31 May 2018. The Group’s bank continues to be supportive as reflected in both the moratorium on loan repayments and in the revision of the ongoing banking covenants, at the time of the fundraising, in order to accommodate the sharp decline in trading performance. Furthermore on 20 September 2016 the bank agreed a variation in the asset cover covenants, necessary as a result of the PYA, whilst the restructuring programme is given time to take effect. What went wrong? Shareholders deserve an explanation of the combination of events leading to the severely disappointing trading result and significant diminution in shareholder value reflected in these financial statements. The commercial logic behind the acquisition of Noble, for £46m in November 2013, appeared compelling: • • • the creation of a group of companies offering synergistic goods and services; integration and diversification opportunities; a complementary, experienced management team with highly incentivised key executives. The subsequent build-up of debt, from a net cash position post the Noble acquisition, peaked at some £22m in March 2016 and included a number of significant outflows, as follows: • • • a £10m loan taken out to fund the acquisition of Mallett in October 2014; £10m of cash spend incurred in developing The Marketplace on-line trading platform, a significantly higher amount than budgeted, over the last 3 years; and some £8m of additional working capital build-up in the business, partly offset by the receipt of over £4m from the post-acquisition sale of Noble’s London premises, at a time when trading was slowing down. In fact, whilst the new management team has already acted swiftly to resolve the first two cash outflows detailed above, it is the last element which has both proved more complex to isolate and represents a more fundamental deterioration in the Groups core business. It is now clear that the non-cash sale/reinvestment profile of the Stanley Gibbons Investment division’s investment contracts, sold between 2005 and 2013, which also retained an element of contractual buy-back, also fuelled the worsening net debt position. The Stanley Gibbons Group plc 9 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 10 Business Review continued The Group no longer offers investment plans with contractual buy back options of any kind. Current management believes that the integration process, following the acquisitions of Noble and Mallett, was poorly managed and as a result failed to instil a cohesive, UK based management structure with adequate challenge and competition for capital. In our opinion this in turn led to: • • • • • a failure to integrate and derive synergies and opportunities from the acquisitions; an over-investment in an the e-trading platform with no tangible return; an over-dependence on too few clients; an over-investment in illiquid assets as management time was diverted; a Group increasingly leveraged as a consequence of retaining existing customers by novating the customer from one investment product into another alongside the recognition of non-cash revenue; resulting in a loss of confidence in the management and brands, client and earnings erosion, cash outflows and a materially impaired balance sheet. In consequence, the rationale for the relocation of the Executive Directors to London, in July 2016, as reinforced with specialist directors with change management, financial, retail and collectibles experience, was to introduce a robust, cash-driven, UK based backbone to the business. Restructuring Timeline The key actions addressed in the implementation of the restructuring plan, which encompassed a wide bandwidth, were: • • January: commencement of a 90 day review of the Interiors division, alongside stabilization of the financial position, where £6m of additional bank facilities were needed to bridge liquidity through to bank covenant tests due on 31 March 2016; February: initiation of a review of The Marketplace, based in the USA, and addressing the vacuum created by the untimely resignation of the former auditors, necessitating the appointment of new auditors and professional advisors ahead of a fundraising; • March: issued Circular to shareholders seeking to raise additional funds through the issue of new equity, to allow us to extinguish the £6m temporary bank overdraft and agree a lending package consistent with the difficult trading conditions, extending the bank facilities through to 31 May 2018; • April: receipt of £12.4m (net of costs) from the fundraising, repayment of the temporary bank overdraft, implementation of the restructuring of the Interiors division in parallel with completing the protracted integration of the Noble and Mallett acquisitions; • May: appointments of Harry Wilson, Henry Turcan and Andrew Cook and exchange of contracts for the sale of the Group’s Mayfair property leases (net consideration of £2.4m) as well as the sub-letting of a substantial part of the Manhattan, New York premises at a premium; • June: commencement of a review of the investment plans offered by Stanley Gibbons (Guernsey) Limited in earlier years. We also announced a delay in the publication of the preliminary results for the year ended 31 March 2016 owing to the additional complexity of the audit due to the ongoing restructuring and the appointment of new auditors; The Stanley Gibbons Group plc 10 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 11 Business Review continued • • • July: announcement of the relocation of the Executive Directors to London, the departure of Mike Hall (CEO), Donal Duff (CFO), Martin Bralsford & Simon Perrée as directors and that the Board was reviewing its accounting policy and past accounting treatment with regard to the recognition of revenue in the philatelic trading business, specifically in relation to certain of the investment plans offered in earlier years; August: the phased closure of the US based activities associated with The Marketplace, together with the decoupling of all links to the continuing Stanley Gibbons website, which was transferred contemporaneously to a new, UK based, e-commerce platform. We also completed on the lease of new premises, in Pall Mall, London for the Interiors division, providing a fulcrum from which the business can resume growth; September: commencement of the restructuring of the philatelic and coin businesses, announcement of the departure of Clive Jones as a director, consolidation of the security available to support bank facilities and the start to the unwinding of the working capital squeeze. Finally, following the successful completion of the initial phase of the restructuring plan a formal independent review of the business over recent years has been initiated to identify potential avenues of redress for the Group. Whilst significant progress has been made over the last nine months, as highlighted above, there is no room for complacency as the new management team seeks to: • • • • complete the realignment of total operating overheads to our sustainable, brand-driven, revenue streams, to ensure that the Company becomes both cash-generative and profitable, providing a financially secure platform upon which to build the less predictable, but incrementally profitable, one-off high value sales or major auction consignments; actively manage the investment plan profile in a manner which generates sound returns for both the customer and company; exploit product gaps, within the core stamp and coin divisions, alongside harnessing any increased interest in rare collectibles as an alternative investment; and identify a capital-light method of tapping into the increasing interest in collectibles in parts of the world outside of the Group’s existing areas of operation, principally the UK and the USA, in particular the growing interest from the Asian markets, in all types of high quality collectibles. The Stanley Gibbons Group plc 11 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 12 Business Review continued Current Corporate Structure As part of the rationalisation and repositioning of the business the Board is reconsidering the benefits of off-shore status for the Group as a whole, recognising that a majority of the Group’s activities, following the acquisitions of recent years, and the closure of the US activities in September, are located in the UK. The above diagram highlights the business entities within our Group structure, as at 30 September, which: • • • • preserves the Interiors division as a standalone legal entity and aggregates the UK activities associated with the investment business within the philatelic and coins head office at The Strand, London; recognises that the UK philatelic and numismatic businesses should remain separate from the Interiors division in order to provide a well-balanced allocation of executive resource; protects the current location of the Channel Islands based, client investment plan activities which are ring- fenced in Guernsey; and consolidates the Group assets in order to optimise the security available to support the UK based bank facilities. Operating Structure Whilst the Group’s registered office remains in Jersey, the decision was taken to relocate the Executive Directors to the London head office. This decision was driven by the detailed review of the businesses which identified that performance had deteriorated with an absence of executive direction at the London head office. The new operating structure will enable: • • • more effective and cohesive use of existing executives and see Board and Executive Committee costs reduced by over 40%; the proposed flat management structure which will see a move to a separate Interiors division operating board, alongside an SG Executive Committee, including embedded stamps/coins representation co-opted from within the business, based in London; and marketing support, to be formed on an ad hoc basis, across the various disciplines to support high-level, targeted pitches for large estates, specialist collections and other opportunities. Finally the Board has elected to follow best practice with all Directors to be re-elected annually. The Stanley Gibbons Group plc 12 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 13 Business Review continued Interiors Division The interiors division was formed from the acquisitions of Noble and Mallett, in 2013 and 2014 respectively, and comprises The Fine Art Auction Group (“TFAAG”), the holding company for the sub-group, Dreweatt and Bloomsbury, both auction companies for paintings, books, jewellery, decorative arts, etc and Mallett (UK and US), which is a historically respected firm of fine and decorative art and antiques dealers specialising in 18th Century English Furniture. There were several senior level departures in 2015, as a result of both management friction and the ongoing Regulatory matters in the USA, and the division was comprehensively restructured in the first half of 2016. Accordingly, of the initial £5m of annualised operating cost savings, most were achieved by premises and staffing rationalisation in this division leading to a significantly reduced cost base, including the disposal of the leasehold interests in New York and London in order to accommodate a more realistic sales budget. Interiors was first to enter the restructuring phase, in January 2016, and the division has recently stabilised at the operating level, will move into the new Pall Mall premises before the end of the year and management is hopeful that, as the effects of the cost-cutting come through, it will be better positioned to trade profitability by the end of the financial year. The Stanley Gibbons Group plc 13 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 14 Operating Review Investments Philatelic Publishing AH Baldwin Interiors Other Corporate overheads Finance charges Trading sales and Profits Amortisation of customer lists Pension service and share option charges Finance charges related to pensions Exceptional operating charges Group total sales and (loss)/profit before tax 12 months to 31 March 2016 2016 Profit Sales £’000 22,447 7,545 3,039 8,213 16,961 932 – – 59,137 – – – – 59,137 £’000 1,151 (113) 320 1,987 (7,545) (1,819) (3,734) (392) (10,145) (364) (437) (176) (17,769) (28,891) 12 months to 31 March 2015 2015 Profit Sales restated restated £’000 £’000 20,628 9,394 2,937 9,204 14,861 3,022 – – 60,046 – – – – 60,046 4,604 984 773 2,532 1,135 (1,146) (3,228) (255) 5,399 (360) (518) (170) (2,530) 1,821 Overview Group turnover for the year ended 31 March 2016 was £59.1m (2015: £60.0m as restated) turnover was £0.9m, 2% lower than the prior year. The gross margin percentage for the year ended 31 March 2016 was 40.3% (2015: 51.5% as restated). Trading losses, before accounting adjustments including exceptional operating charges and finance charges related to pensions, were £10.1m for the year ended 31 March 2016 (2015: trading profit of £5.4m as restated). The substantial decline in trading profits compared to the prior year was the result of a decline in trading performance in all trading divisions in the Group, particularly investments, philatelic trading and retail operations and the Interiors division (comprising Mallett Antiques and Dreweatts & Bloomsbury Auctions). Philatelic and investment trading performance suffered from a material reduction in revenues generated from sales of high value philatelic rarities to high net worth clients compared to the prior year. The Interiors division experienced a very challenging second half trading during a period of substantial restructuring and reorganisation. Loss before tax for the year ended 31 March 2016 was £28.9m (2015: profit before tax of £1.8m as restated). Losses incurred in the year can broadly be attributed to the expenditure on the development of the online marketplace of £2.0m and exceptional charges of £24.0m relating primarily to the write-off of The Marketplace and the impairment of goodwill arising from historic acquisitions. Investments Investments sales were £1.8m (9%) higher than last year with profit contribution down by £3.5m (75%). Our offices in Asia (Hong Kong and Singapore) experienced a strong second half performance following a difficult first half contributing sales for the year of £3.4m (2015: £2.3m). The recovery in trading performance in the second half of the year vindicates our strategy to continue to focus on high-value investment sales business. The Stanley Gibbons Group plc 14 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 15 Operating Review continued Philatelic Trading and Retail Operations Philatelic trading and retail sales were £1.8m (20%) lower than last year with profit contribution down by £1.1m (111%). The decline in sales was primarily in the GB stamp market where sales continue to be sluggish. Publishing and Philatelic Accessories Publishing and philatelic accessory sales for the year ended 31 March 2016 were £0.1m (3%) higher although profit contribution was down by £0.5m (59%). The reduction in profit contribution, despite increased sales, was due to lower gross margins, following the decision to outsource distribution of a substantial proportion of our catalogues, albums and accessory stock ranges at the beginning of the financial year. The full cost savings from outsourcing have not yet been fully realised and further overhead reductions planned will increase profit contribution in subsequent financial periods. As a result of outsourcing, the cost of inventories of catalogues, albums and accessories reduced from £1.2m at 31 March 2015 to £0.3m at 31 March 2016. A H Baldwin Sales of coins and military medals, through Baldwin’s, for the year ended 31 March 2016 were £1.0m (11%) lower and profit contribution was down by £0.5m (22%). The second half trading performance of Baldwin’s suffered to some extent as a result of the unexpected resignation of its Managing Director, who left the business in November 2015 and has now been replaced. Trading performance was specifically held back by lower levels of auction consignments compared to the prior year, but still delivered a reasonable trading performance through stronger retail and trade sales, reflecting the strength of the market for rare coins at this time. Interiors Sales of antiques and other collectibles for the year ended 31 March 2016 were £17.0m (2015: £14.9m) incurring a loss of £7.5m (2015: profit of £1.1m). This deterioration was mainly caused by restructuring and exceptional costs mainly through the areas highlighted below. Dreweatts & Bloomsbury results were lower than anticipated during a period of substantial restructuring and the departure of senior executives within the team. As part of the fundamental review of this part of the business, the fixed cost base has been substantially reduced in terms of salary and property costs to enable the business to operate profitably on reduced forecast revenue assumptions. The Mallett business underwent a fundamental restructuring in the year, including the departure of the executives and senior management team. Similarly to Dreweatts & Bloomsbury, the fixed cost base has been substantially reduced and there is now a credible business plan in place, which is based on a significantly scaled back business and revenue assumptions. Corporate Overheads Corporate overheads for the year ended 31 March 2016 were £3.7m (2015: £3.2m). Corporate overheads include Board costs, executive management and support functions in managing the Group including Finance, HR, Marketing The Stanley Gibbons Group plc 15 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 16 Operating Review continued and Customer Services. Corporate overheads will be materially lower going forward following completion of restructuring plans. Other Accounting Adjustments & Finance Charges related to pensions Pension service and share option charges, amortisation of customer lists and finance charges related to pensions for the year ended 31 March 2016 were £0.9m (2015: £1.0m). In the opinion of the Directors, such accounting charges do not form part of the operating performance of the Group. Exceptional Operating Charges Exceptional operating charges/(income) can be further analysed as follows: Impairment of intangible assets Marketplace intangible asset written off Loss on sale of business Pension scheme (recovery)/costs Professional fees for corporate activity Restructuring costs Stock provisions Profit on disposal of tangible fixed assets Deferred consideration Impairment of tangible fixed assets Impairment of receivables Other exceptional operating charges Legal costs in relation to SEC investigation Year ended 31 March 2016 £’000 Year ended 31 March 2015 £’000 13,895 5,986 – (1,968) 819 1,156 1,373 (189) – 230 1,618 – 1,074 23,994 – – 2,331 895 1,161 – 225 (1,543) (363) – 500 49 – 3,255 The exceptional income of £2.0m recognised in the year relates to the net recovery settlement in respect of legal action against the professional advisers of the Company’s defined benefit pension scheme. The impairment of intangibles comprises Baldwins (£11.0m), Apex (£1.5m goodwill, £0.1m brands and £0.1m customer list) Bid for Wine (£0.2m) and Mallett customer lists and computer software (£0.8m). As an integral element of the fund raising completed in March 2016, the Board initiated a rationalisation exercise as part of a review of the Group’s fixed cost base and effective utilisation of properties and other resources. Exceptional one-off restructuring costs incurred in the year were £1.2m. Clive Whiley Director 3 October 2016 The Stanley Gibbons Group plc 16 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 17 Financial Review Statement of Financial Position As previously highlighted, there have been several historic and current year accounting adjustments required to be processed in these accounts. The impact of these adjustments on the consolidated net assets is summarised below. Adjustment due to incorrect revenue recognition – previous years Adjustment due to incorrect revenue recognition – current year Adjustment to correct incorrect fair value calculation for Mallett Impairment of goodwill and customer list of Noble Group Marketplace intangible asset written off Stock higher than net realisable value, and written off Provisions against historic bad debts Consolidated net assets before adjustment listed above Final consolidated net assets as at 31 March 2016 31 March 2016 £’000 (15,892) 679 974 (13,895) (5,986) (1,373) (1,618) (37,111) 75,503 38,392 The total adjustments of £37.1m include £19.9m of intangible assets write-downs. The net assets at the balance sheet date of £38.4m equates to 81p per share. On the 1 April, immediately after the issue of new shares and the receipt of the net proceeds of £12.4m, the net assets per share were 22p. Despite these adjustments the Group continues to own some valuable assets. Apart from the heritage brands, which are not wholly recognised within the balance sheet, as only acquired brands can be recognised, the most significant asset of the Group is its stock which is summarised below. Philatelic rarities Philatelic stock (general) Coins and medals Autographs, historical documents and related memorabilia Antiques Publications, albums and accessories 31 March 2016 £’000 44,019 4,973 6,987 3,027 2,472 326 61,804 31 March 2015 restated £’000 50,839 4,226 6,553 5,397 4,807 1,226 73,048 Cash Resources As at the balance sheet date the Group had a net overdraft facility of £6.0m, a short term loan of £0.1m, a revolving credit facility of £10.0m (the “RCF”) and an additional loan facility of £9.0m, totalling £25.1m. At the same date the utilised amounts were £5.0m, £0.1m, £8.0m and £9.0m respectively totalling £22.1m. On the 1 April 2016 the Company received net proceeds from the issue of new shares of £12.4m and £5.0m was applied in repaying the overdraft facility that was subsequently cancelled. In June 2016 the Group sold a leasehold property for £2.5m and part of these proceeds were used to repay the £9.0m loan facility, which subsequently remained at £8.3m. As at 27 September 2016 the Group had £1.1m of headroom on the £10.0m revolving credit facility and the loan A Facility was £8.3m. The Stanley Gibbons Group plc 17 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 18 Financial Review continued Following the reduction in the Group’s net assets as detailed above the bank covenant relating to net assets, which was a minimum of £75.0m has now been reduced to £40.0m. Whilst the net assets in the balance sheet as at 31 March were £38.4m, the share issue in April 2016 increased this figure by approximately £12.4m so this covenant will be met. The other covenants in the bank facilities relate to stock cover ratios and our forecast show these will continue to be met for the foreseeable future. Finance costs Finance costs of £611,000 (2015: £428,000) comprise loan interest and charges on the finance facilities with RBS of £435,000 (2015: £258,000) plus a cost of £176,000 (2015: £170,000), representing the interest on net defined benefit liabilities under IAS19 (Amendment) “Employee Benefits”. Taxation The tax charge for the year to 31 March 2016 (excluding deferred taxation & capital gains tax) was £0.3m (2015: £0.4m) incurred on UK and overseas profits. Profits from Channel Island trading companies are currently subject to tax at 0%. Dividend In light of current trading and liquidity considerations, the Board is not proposing the payment of a dividend in respect of the year ended 31 March 2016 (2015: 5.00p). Prior year adjustment These financial statements reflects two prior year adjustments, one in respect of the incorrect fair value exercise on the acquisition of Mallett reflected in the previous year’s financial statements and one in respect of the previously highlighted issues regarding the treatment of revenue for some investment products. Details of these prior year adjustments are detailed in note 31 a and b. Accounting Policies Accounting policies are detailed in Note 1 to the Financial Statements on pages 36 to 44. Andrew Cook Chief Finance Officer 3 October 2016 The Stanley Gibbons Group plc 18 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 19 Corporate Governance So far as is appropriate, the Board aims to apply the underlying principles of the UK Corporate Governance Code, having regard to the size of the Group. The principal areas where these are applied in the running of the Group are set out below. The Company holds board meetings regularly throughout the period at which operating and financial reports are considered. The Board is responsible for formulating, reviewing and approving the Group’s strategy, budgets, major items of capital expenditure and senior personnel appointments. Audit Committee The Audit Committee comprises only independent Non-Executive Directors. Following the resignation of C S Jones as a Director on 13 September 2016 the Board has resolved to vest, as a temporary measure, the powers of the Audit Committee in M P Magee, the sole independent Non-Executive Director and Chairman of the Audit Committee, until further non-executive appointments to the Committee are made. The Committee met four times during the period since approval of the previous financial statements. It has written terms of reference, which were updated in March 2014, setting out its responsibilities that include: • • • • • monitoring the financial reporting process, the integrity of the company’s financial statements and announcements relating to financial performance and reviewing significant financial judgements contained in them; keeping under review the company’s internal controls and risk management systems; considering annually the need for a separate internal audit function and making recommendations to the Board; making recommendations to the Board regarding the appointment, re-appointment or removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor; and reviewing and monitoring the external auditor’s independence and the effectiveness of the audit process. In addition, following the publication of the revised version of the UK Corporate Governance Code, the Board requested that the Committee advise them on whether they believe the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s performance, business model and strategy. M P Magee has concluded that this is the case and has reported this to the Board. As announced on 23 February 2016, BDO Limited were appointed as auditors following the resignation of Smith & Williamson Audit Limited because they considered the risks and uncertainties associated with the audit to exceed the level that they were willing to accept. Non-audit services are reviewed on a case by case basis and also in terms of materiality of the fee. Note 4 to the Financial Statements details the quantum and split of auditor fees. In the course of its work the Audit Committee meets with the external auditors and reviews the reports from them relating to the financial statements. It also reviews the likely significant issues in advance of publication both of the half and full year results and in particular any critical accounting judgements identified by both the Company and the external auditors most of which are disclosed in Note 2 to the Financial Statements (Critical Accounting Estimates and Judgements). A number of significant accounting policy changes and balance sheet adjustments were applied in arriving at the final figures in the financial statements and these have been extensively covered elsewhere in this document. The Stanley Gibbons Group plc 19 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 20 Corporate Governance continued Nomination Committee A separate Nomination Committee is in operation. It comprises the Executive Chairman and a Non-Executive Director. The committee considers appointments to the Board and is responsible for nominating candidates to fill Board vacancies and for making recommendations on Board composition. A Company wide policy exists on diversity. The board recognises such benefits of and will continue to appoint Executive and Non-Executive Directors to ensure diversity of background and on the basis of their skills and experience. Members of the Nomination Committee at the date of this report were HG Wilson and M P Magee. The Stanley Gibbons Group plc 20 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 21 Report on Remuneration The Remuneration Committee comprises only Non-Executive Directors. It reviews the performance of the Executive Directors and sets the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of shareholders. The Remuneration Committee has responsibility for making recommendations to the Board on the Group’s general policy on remuneration and also specific packages for individual Directors. It carries out the policy on behalf of the Board. Members of the Remuneration Committee at the date of the report were M P Magee and HAJ Turcan. M P Magee is a shareholder and H A J Turcan is employed by Henderson Group plc, a significant shareholder in the Company. Neither of the members of the committee have day to day involvement in the running of the business. Policy on Executive Directors’ Remuneration The Committee reviews remuneration of Executive Directors and senior management each year. The main aim of the Group’s executive pay policy is to provide an appropriate reward for their work which is sufficient to attract and retain the Directors needed to meet the Group’s objectives and satisfy shareholder expectations. The Committee has given full consideration to the provisions of Schedule A of the UK Corporate Governance Code. Options Executive Share options are granted to Directors and other employees on a phased basis. The value of those options ensures that this spreads any reward over a number of years, allied to growth in shareholder value over the long term. Options granted under the Group Share Option Plan 2010, Inland Revenue approved 2000 UK Executive Share Option Scheme and the 2000 Jersey Executive Share Option Scheme are exercisable between the third and tenth anniversaries of the date of grant. Options granted are not normally exercisable unless the performance target is satisfied. Options issued in 2010 had the target of a minimum EPS of 17.3 pence for the year ended 31 December 2012. 25% of the granted options vest if this target is reached, rising on a straight line basis to 100% of options granted to vest if an EPS of 21.5 pence is achieved. Options issued in 2011 had the target of a minimum EPS of 19.2 pence for the year ended 31 December 2013. 25% of the granted options vest if this target is reached, rising on a straight line basis to 100% of options granted to vest if an EPS of 22.7 pence is achieved. Options issued in 2012 had the target of a minimum EPS of 21.8 pence for the year ended 31 December 2014. 25% of the granted options vest if this target is reached rising on a straight line basis to 100% of options granted to vest if an EPS of 25.7 pence is achieved. Options issued in 2014 require that the Company’s compound average Total Shareholder Return (“TSR”) growth over the performance period must match or exceed 8% per annum. The options shall vest over a number of shares determined as follows: Compound average annual TSR growth over the performance period Less than 8% 8% 15% or more Percentage of Option which vests (with straight line vesting between each point) 0% 25% 100% The Stanley Gibbons Group plc 21 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 22 Report on Remuneration continued On 30 September 2014 the following members of the Company’s Board were granted nil cost options awards over ordinary shares of 1 pence each (“Ordinary Shares”) under the Stanley Gibbons Group plc Value Creation Plan (the “VCP”) as noted below: Executive Director Michael Hall John Byfield Donal Duff Maximum number of Ordinary Shares under option 559,174 559,174 372,782 Under the terms of the VCP, the number of Ordinary Shares comprised within the awards that shall vest (if any) will ordinarily be determined based on the level of total shareholder return (“TSR Growth”) achieved over a three year performance period (that commenced on the grant of the awards) in excess of a threshold level of TSR Growth of 7% per annum. To the extent an award vests it shall be deemed to comprise three distinct tranches (“Tranche A”, “Tranche B” and “Tranche C”) each relating to a distinct one-third of the total number of vested Ordinary Shares (if any) determined for the award. The earliest dates from which each tranche may ordinarily become exercisable are as follows: • • • in respect of Tranche A, the later of the date on which the number of vested Ordinary Shares subject to the award is determined and the third anniversary of the grant date; in respect of Tranche B, the fourth anniversary of the grant date; and in respect of Tranche C, the fifth anniversary of the grant date. Once a tranche becomes exercisable, it shall ordinarily remain exercisable until the eve of the sixth anniversary of the grant date of the awards. Awards shall ordinarily be forfeited prior to vesting in the event of the grantee’s departure from the Company, subject to the terms of the VCP. No consideration was paid for the grant of the awards and no consideration is due on the vesting and/or exercise of the awards. An incentive plan for certain senior executives within the Interiors Division (defined as The Fine Art Auction Group Limited and its subsidiaries) was adopted by the Board on 2 February 2015 with grants subsequently made on 4 February 2015. Vesting of awards is dependent on the achievement of a performance condition over a performance period commencing on 1 April 2015 and ending on 31 March 2020 or under shorter period as may apply under the performance condition. Bonuses Directors are awarded annual bonuses calculated on the basis of defined criteria relating to Group performance compared to prior year and budget and other specific objectives which contribute to growth in earnings per share, cash generation and return on capital employed. Other benefits The Company Secretary is a member of the Group’s defined benefit pension scheme, which is now closed. During the year contributions were paid on behalf of M Hall and D Duff to defined contribution schemes. Benefits also include the provision of family private healthcare insurance and death in service insurance. The Stanley Gibbons Group plc 22 242519 Stanley Gibbons RA pp01-pp23 05/10/2016 23:25 Page 23 Report on Remuneration continued Service contracts No Director has a notice period exceeding twelve months. Directors’ Remuneration For each Director remuneration for the year to 31 March 2016 can be analysed as follows: 2016 Salary & Fees £’000 2016 Performance Related Bonus £’000 2016 Other Benefits £’000 2016 Pension Contributions £’000 – 1 3 3 – – – – 7 – 27 18 10 – – – – 55 M Bralsford M Hall D Duff J Byfield* M Magee S Perreé C Jones I Goldbart* 60 275 182 88 35 35 35 – 710 * Relates to period of employment as a Director. Directors’ Share Options Date of grant Earliest exercise date – – – – – – – – – Expiry Exercise Number at Price 31 March 2015 date (1p shares) M Hall D Duff I Goldbart* J Byfield* 27/1/17 10/4/17 4/5/15 27/1/17 10/4/17 3/5/22 4/5/12** 26/1/24 27/1/14** 10/4/24 10/4/14** 30/9/14*** See Pg 18 See Pg 18 26/1/24 27/1/14** 10/4/14** 10/4/24 30/9/14*** See Pg 18 See Pg 18 26/1/24 27/1/14** 10/4/14** 10/4/24 30/9/14*** See Pg 18 See Pg 18 27/1/14** 26/1/24 10/4/24 10/4/14** 30/9/14*** See Pg 18 See Pg 18 27/1/17 10/4/17 27/1/17 10/4/17 227.50p 363.00p 316.50p See Pg18 363.00p 316.50p See Pg18 363.00p 316.50p See Pg18 363.00p 316.50p See Pg18 144,736 137,741 157,977 559,174 97,796 112,164 372,782 110,192 126,382 372,782 90,909 104,265 559,174 2,946,074 Granted Exercised in period in period – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2016 Total £’000 60 303 203 101 35 35 35 – 772 2015 Total £’000 59 296 202 283 35 44 35 184 1,138 Number at Forfeited 31 March 2016 in period (144,736) – – – – – – (110,192) (126,382) (372,782) – – – – 137,741 157,977 559,174 97,796 112,164 372,782 – – – 90,909 104,265 559,174 (754,092) 2,191,982 * Relates to period of employment as a Director. ** Options granted under Group Share Option Plan 2010. *** Options granted under the Stanley Gibbons plc Value Creation Plan The market price of the Company’s shares at 31 March 2016 was 18.5p and the range of market prices during the twelve month period was between 15.5p and 273p. The Stanley Gibbons Group plc 23 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 24 Directors’ Report for the year ended 31 March 2016 The Directors present their report and the consolidated audited financial statements for the year ended 31 March 2016. Incorporation The Company was incorporated in Jersey, Channel Islands on 13 June 1977. Directors’ responsibilities for the financial statements Directors are required by the Companies (Jersey) Law 1991 to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Group as at the end of the financial period and of the Group profit or loss for that period. In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • • State whether applicable 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 will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and regulations. The maintenance and integrity of the Stanley Gibbons web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the accounts since they were initially presented on the web site. Legislation in Jersey governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions. In so far as each of the Directors is aware: • • There is no relevant audit information of which the Group’s auditors are unaware; and Each of the Directors have taken all steps that he ought to have taken to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. Principal activities The principal activities of the Group are those of trading in collectibles, dealing in antiques and works of art, auctioneering, the development and operation of collectible websites, philatelic publishing, mail order, retailing, and the manufacture of philatelic accessories. The Stanley Gibbons Group plc 24 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 25 Directors’ Report continued Business review Included within this report is a fair review of the business of the Group during the year ended 31 March 2016 and the position of the Group at the end of the year. This review is contained in the Chairman’s Statement on pages 3 to 5 and the Operating and Financial Review on pages 14 to 18. Key Performance Indicators and a description of the principal risks and uncertainties are referred to below Principal risks and uncertainties The principal risks faced by the Group, together with the controls in place to manage those risks, are documented by the Executives, Senior Management team, Audit Committee and wider Board and are regularly reviewed throughout the period. Investment Products The Group is aware of the potential risk in connection with a commitment to buy-back in the future certain assets sold under collectible investment contracts in previous accounting periods. The Group therefore bears the risk in the event that the underlying assets go down in value during the contract period and continually monitors it. Based on the level of quality and rarity of the assets held under such contracts, and from historic pricing evidence over the past 50 years, the Directors are of the opinion that the risk of the assets going down materially in value in the future is slight. Further details on investment products containing buy back guarantees is provided in note 1 ‘Accounting policies and presentation’ in the Revenue section. Competition The Group’s markets are extremely competitive, with threats from other dealers, auctioneers and online marketplaces. The Group combats this risk by maintaining strong client relationships, continued monitoring of competitor activity and a focus on client service. Key Personnel The knowledge and expertise of the Group’s specialists is critical to maintaining the Group’s reputation and success. Accordingly the Group is highly dependent on attracting and retaining appropriately qualified personnel. The Group manages this risk by ensuring that remuneration is benchmarked against market rates to ensure that it is competitive and providing appropriate support and training. Key Clients A number of the Group’s high value sales are made to a relatively small number of existing key clients. The Group manages this risk by maintaining strong client relationships, focussing on client service and ensuring that it maintains an inventory of highly attractive items. Stock Valuation The market in rare stamps, coins, other collectibles and antiques is not a highly liquid trading market. As a result, the realisable value of inventory is relatively subjective and may fluctuate over time. The Group’s management keeps a close eye on market conditions and on a periodic basis we consult external parties in our consideration of the carrying value of our inventories. The Stanley Gibbons Group plc 25 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 26 Directors’ Report continued Retirement Benefit Pension Obligations Future costs and obligations relating to the Group’s defined benefit pension schemes are significantly influenced by changes in interest rates, investment performance and actuarial assumptions, each of which is unpredictable. Actuarial valuations are carried out every three years with a recovery plan agreed with the Trustees. Key Performance Indicators (KPIs) The Directors manage the business on a monthly cycle of management reports and information combined with weekly sales and margins reporting. A monthly information pack is provided to the Board incorporating individual reports from each of the executive committee members and commentary on key performance indicators. Appropriate matters are summarised and appropriate decisions made at Board meetings. Key performance measures are disclosed and discussed in the Operating Review on pages 14 to 16. The diverse nature of the Group’s activities dictates that specific financial and non financial performance indicators and reporting templates are in place unique to each department to enable the successful management of each operating division. Examples of some of the most important KPIs used in this reporting environment are: • Sales and gross margins compared to last year and budget • Overhead variations against budget • Personnel and resource matters (eg. performance, attendance and training) • New customers recruited and marketing response rates • Value of stock purchases and stock levels at the end of each month against budget • Website visitor activity statistics Results and dividends The consolidated statement of comprehensive income of the Group for the year ended 31 March 2016 is set out on page 32. The Directors do not recommended a final dividend for the year ended 31 March 2016 (year ended 31 March 2015: 1.75p). Directors The following Directors have held office since 1 April 2015: D M Bralsford M R M Hall D P J Duff J Byfield M P Magee (Non-Executive) S Perrée (Non-Executive) C S Jones (Non-Executive) C P Whiley H G Wilson H A J Turcan (Non-Executive) A Cook (resigned 14 July 2016) (resigned 14 July 2016) (resigned 14 July 2016) (resigned 17 September 2015) (resigned 14 July 2016) (resigned 13 September 2016) (appointed 31 March 2016) (appointed 16 May 2016) (appointed 23 May 2016) (appointed 14 July 2016) M Bralsford, M Magee, S Perrée & C Jones were/are considered to be Independent in accordance with the principles of the UK Corporate Governance Code. Biographical details of the current Directors are given on pages 78 and 79. The Stanley Gibbons Group plc 26 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 27 Directors’ Report continued Directors’ interests The interests of the Directors in the shares of the Company, all of which are beneficial, at 31 March 2016 together with their interests at 31 March 2015 were: D M Bralsford M R M Hall D P J Duff M P Magee S Perreé CS Jones CP Whiley Ordinary 1p Shares 31 March 2016 182,800 227,648 100,000 9,456 52,400 Nil Nil Ordinary 1p Shares 31 March 2015 182,800 227,648 100,000 9,456 52,400 Nil Nil Since the year end Zodiac Executive Pension Scheme, of which C P Whiley is a beneficiary, acquired 500,000 ordinary shares on 1 April 2016 under the Firm Placing. HG Wilson held 2,000,000 ordinary shares in the name of Park Securities Limited for Roselea Limited, both companies in which he is a director and shareholder, at his appointment as a Director on 16 May 2016. HAJ Turcan does not have any beneficial interest in the ordinary shares of the Company. Henderson Group plc, Mr Turcan’s ultimate employer, holds 52,173,987 ordinary shares, representing 29.16% of the Company’s issued share capital. Details of the Directors’ share options are given in the Remuneration Report on page 23. Apart from service contracts and the transactions referred to in note 29 of the financial statements, none of the Directors had a material interest in any contract of significance to which the Company or any of its subsidiaries was a party during the year. Research and development Costs associated with research and development relate to internal web development work in the creation of an online collectibles marketplace. Research and development costs are capitalised in the year incurred and are disclosed under the heading ‘Computer Software’ in note 11. Financial Risk Management The Group principally finances its operations through the generation of cash from operating activities and has no interest rate exposure on financial liabilities except those disclosed in note 28. Liquidity risk is managed through forecasting the future cash flow requirements of the business. Further disclosure on the company’s financial risk management can be found in note 16 (Provision for impairment of receivables and collateral held) and note 28 (Financial instruments). Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating Review on pages 14 to 16. The financial position of the Group, its cash resources and borrowing facilities are described in the Financial Review on page 17. In addition note 21 and note 28 in the financial statements include the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, and its exposure to credit risk and liquidity risk. The Stanley Gibbons Group plc 27 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 28 Directors’ Report continued The Group’s forecasts shows that it will remain in compliance with its banking covenants for the foreseeable period and that it will have access to sufficient liquidity. However the forecasts are dependent upon the liabilities and contingent liabilities, particularly in relation to investment plans redemption profiles, not materialising at a level greater than forecast and trading improving from its current level in line with management’s expectations. In the event that either liabilities increased or trading failed to improve, it is likely that the Group would find itself in breach or likely breach of its banking covenants and require access to additional liquidity. The Directors acknowledge that the above risks may be considered material uncertainties which could cast significant doubt on the Group’s ability to continue as a going concern. However the Directors have anticipated a number of mitigating courses of actions, including accelerated asset sales, further cost cutting measures, actively pursuing overdue debt and ultimately they believe that if necessary the company would have the support of alternative capital providers whether it be equity or debt or a combination of both. As such, having regard to the matters above, and after making reasonable enquiries and taking account of uncertainties discussed above, the Directors have a reasonable expectation that the Company and the Group have access to adequate resources to continue operations and to meet its liabilities, as and when they fall due, for the foreseeable future. For that reason, they continue to adopt the going concern basis in the preparation of the accounts. Intangible Assets Except for those acquired in the Noble & Mallett acquisitions, no value is attributed in the Statement of Financial Position to the Group’s brand names, the value of the Stanley Gibbons stamp referencing system, editorial intellectual property or its database of customer lists as an accurate valuation of these items would be impractical to establish and the capitalisation of internally generated assets is not allowed under IAS38. External costs incurred in the development of the software for the Digital Asset Management system and the redevelopment of the Group’s websites have been capitalised and are being amortised in accordance with IAS38. Substantial Shareholdings As at 28 September 2016, the Company had been notified of the following interests in 3% or more of its issued share capital: Henderson Group plc Richard Griffiths and controlled undertakings 29.16% 6.71% Purchase of Own Shares The Company did not purchase any of its shares for cancellation during the year. The Company has authority to purchase up to 15% of its own shares. A resolution to renew this authority will be proposed at the AGM. Employees The Group’s policy is to provide equal opportunities to all present and potential employees. The Group gives full consideration to applications for employment from disabled persons and where existing employees become disabled, it is the Group’s policy, wherever practicable, to provide continuing employment under normal terms and conditions. The Group operates an annual performance review system with employees to discuss performance against agreed objectives and career development. The Group believes in respecting individuals and their rights in the workplace. With this in mind, specific policies are in place covering harassment and bullying, whistle-blowing, equal opportunities and data protection. The Stanley Gibbons Group plc 28 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 29 Directors’ Report continued Secretary Mr R K Purkis has been secretary for the entire year ended 31 March 2016. Auditors Nexia Smith & Williamson Audit Limited resigned as auditors on 10 February 2016 and BDO Limited were appointed by the Directors in their place. BDO Limited have expressed their willingness to continue as auditors and a resolution to reappoint them as auditors to the Company and to authorise the Directors to fix their remuneration will be proposed at the AGM. By order of the board R K Purkis Secretary 3 October 2016 Registered office: 2nd Floor Minden House, Minden Place St Helier, Jersey JE2 4WQ The Stanley Gibbons Group plc 29 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 30 Independent Auditor’s Report to the Members of The Stanley Gibbons Group Plc We have audited the consolidated financial statements (the “financial statements”) of The Stanley Gibbons Group plc for the year ended 31 March 2016 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. 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 auditors’ 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 Statement of Directors’ Responsibilities, 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 Financial Reporting Council’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implication for our report. Basis for qualified opinion on the consolidated financial statements In seeking to form an audit opinion on the financial statements, the audit evidence available to us was limited due to us being unable to obtain the necessary information prior to the date of signing the financial statements in accordance with management’s imposed deadline: • • • In respect of stock, we were unable to obtain sufficient appropriate audit evidence over the completeness and accuracy of stock with a carrying value of £1.0 million consisting of all of the stock at Murray Payne Limited with a carrying value of £0.6 million and Mallett Inc. with a carrying value of £0.4 million, within the total carrying value of stock of £61.8 million. In respect of trade receivables, we were unable to obtain sufficient appropriate audit evidence in respect of the recoverability of trade receivables with a carrying value of £1.9 million. This consists of trade receivables in The Fine Art Auction Group Limited with a carrying value of £1.2 million, trade receivables in Mallett & Son (Antiques) Limited with a carrying value of £0.5 million and trade receivables in H J Hatfield & Sons Limited with a carrying value of £0.2 million, within the total carrying value of trade receivables of £12.9m. In respect of prepayments and accrued income having a total carrying value of £1.7 million, we were unable to obtain sufficient appropriate audit evidence over the recoverability of an amount of £0.2m within Mallett & Son (Antiques) Limited. The Stanley Gibbons Group plc 30 242519 Stanley Gibbons RA pp24-pp31 05/10/2016 23:23 Page 31 Independent Auditor’s Report to the Members of The Stanley Gibbons Group Plc continued • • • In respect of revenue, we were unable to obtain sufficient appropriate audit evidence over the completeness and accuracy of £7 million of revenue recorded in The Fine Art Auction Group Limited and £0.5 million recorded in Stanley Gibbons Limited, within the total Group revenue of £59.1 million. In respect of Bid for Wine Limited, which was acquired by the Group during the year, we were unable to obtain sufficient appropriate audit evidence to support the completeness and accuracy of the amounts disclosed in note 30 in respect of the assets and liabilities acquired and the revenue and expenditure in the period to 31 March 2016. In respect of the contingent liabilities arising from investment products that were sold previously as disclosed in note 27a, we were unable to obtain sufficient appropriate audit evidence to support the completeness and accuracy of the Director’s assessment of the contingent liability being £64.3m. Emphasis of matter – Going concern In forming our opinion on the financial statements, we have considered the adequacy of the disclosure made in note 2 to the financial statements concerning the Group’s ability to continue as a going concern. The Group has reported a net loss for the financial year of £29.3 million. This, together with the other matters explained in note 2 to the financial statements, indicates the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. Qualified opinion on the financial statements In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements: • • • give a true and fair view of the state of the Group’s affairs as at 31 March 2016 and of the Group’s loss for the year then ended; have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies (Jersey) Law, 1991. Matters on which we are required to report by exception In respect solely of the limitation on our work relating to the matters identified above in the Basis of Qualified opinion paragraph: • • we have not received all the information and explanations we require for our audit; and we were unable to determine whether proper accounting records have been kept. We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: • • proper returns adequate for our audit have not been received from branches not visited by us; and the financial statements are not in agreement with the accounting records and returns. Philip Braun For and on behalf of BDO Limited Chartered Accountants Jersey, Channel Islands 3 October 2016 The Stanley Gibbons Group plc 31 242519 Stanley Gibbons RA pp32-pp35 05/10/2016 23:25 Page 32 Consolidated statement of comprehensive income for the year ended 31 March 2016 Revenue Cost of sales Gross Profit Administrative expenses before defined benefit pension service costs and exceptional operating costs Defined benefit pension service costs Exceptional operating charges Total administrative expenses Selling and distribution expenses Operating (loss)/profit Finance income Finance costs (Loss)/profit before tax Taxation (Loss)/profit for the financial year Other comprehensive income: Amounts which may be subsequently reclassified to profit & loss Exchange differences on translation of foreign operations Revaluation of financial assets for sale Reclassification of realised loss on disposal Amounts which will not be subsequently reclassified to profit & loss Revaluation of reference collection Actuarial gains/(losses) recognised in the pension scheme Tax on actuarial gains/(losses) recognised in the pension scheme Other comprehensive income/(loss) for the year net of tax Total comprehensive (loss)/income for the year Basic earnings per Ordinary share Diluted earnings per Ordinary share Total comprehensive income is attributable to the owners of the parent. Notes 1, 3 26 5 4 28 8 12 26 10 10 Year ended 31 March 2016 £’000 59,137 (35,304) 23,833 (4,808) 194 (23,994) (28,608) (23,544) (28,319) 39 (611) (28,891) (403) (29,294) 89 (58) 68 22 132 121 374 (28,920) (62.17)p (62.17)p Year ended 31 March 2015 Restated £’000 60,046 (29,108) 30,938 (3,768) (368) (3,255) (7,391) (21,302) 2,245 4 (428) 1,821 (1,099) 722 (165) (109) – – (1,074) 178 (1,170) (448) 1.54p 1.47p The notes on pages 36 to 77 are an integral part of these consolidated financial statements. The Stanley Gibbons Group plc 32 242519 Stanley Gibbons RA pp32-pp35 05/10/2016 23:25 Page 33 Consolidated statement of financial position as at 31 March 2016 31 March 2016 Notes £’000 31 March 2015 Restated £’000 1 April 2014 Restated £’000 Non-current assets Intangible assets Property, plant and equipment Deferred tax asset Available for sale financial assets Current Assets Inventories Trade and other receivables Assets held for sale Current tax receivable Cash and cash equivalents Total assets Current liabilities Trade and other payables Deferred consideration Borrowings Current tax payable Non-current liabilities Other payables Retirement benefit obligations Borrowings Deferred tax liabilities Total liabilities Net assets Equity Called up share capital Share premium account Shares to be issued Share compensation reserve Capital redemption reserve Revaluation reserve Retained earnings Equity shareholders’ funds 11 12 20 13 14 15 17 19 18 26 19 20 21 23 23 23 23 23 19,631 4,916 1,929 – 26,476 61,804 15,574 2,545 – 1,542 81,465 107,941 30,409 – 5,159 392 35,960 9,802 5,222 16,788 1,777 33,589 69,549 38,392 471 63,682 – 1,448 38 276 (27,523) 38,392 37,846 7,974 2,120 1,364 49,304 73,048 19,604 1,800 – – 94,452 143,756 31,991 – 2,522 569 35,082 24,368 5,816 9,173 1,831 41,188 76,270 67,486 471 63,682 – 798 38 244 2,253 67,486 32,571 6,294 1,016 1,473 41,354 63,999 14,144 – 135 9,499 87,777 129,131 19,858 2,153 276 – 22,287 33,546 3,285 528 760 38,119 60,406 68,725 466 62,565 209 648 38 353 4,446 68,725 The financial statements on pages 32 to 77 were approved by the board of Directors on 3 October 2016, were authorised for issue on that date and were signed on its behalf by: H G Wilson A Cook Directors The notes on pages 36 to 77 are an integral part of these consolidated financial statements. The Stanley Gibbons Group plc 33 242519 Stanley Gibbons RA pp32-pp35 05/10/2016 23:25 Page 34 Consolidated statement of changes in equity for the year ended 31 March 2016 9 8 ) 8 5 ( 8 6 2 2 3 5 2 – – 9 8 – 3 5 2 – ) 4 2 8 ( 0 5 6 ) 0 2 9 , 8 2 ( – – ) 4 2 8 ( ) 2 5 9 , 8 2 ( 2 9 3 , 8 3 ) 3 2 5 , 7 2 ( 5 4 9 , 3 8 ) 0 2 2 , 5 1 ( 2 2 7 5 2 7 , 8 6 6 6 6 , 9 1 ) 0 2 2 , 5 1 ( 2 2 7 6 4 4 , 4 ) 5 6 1 ( ) 9 0 1 ( – ) 5 6 1 ( ) 6 9 8 ( ) 8 4 4 ( ) 5 8 3 , 3 ( 0 5 1 7 5 5 4 7 9 4 4 5 9 6 3 ) 6 9 8 ( ) 9 3 3 ( ) 5 8 3 , 3 ( – 7 5 5 4 7 9 – – – – – – – – – – – 8 3 – 8 3 8 3 – – – – – – – – – – – – ) 8 5 ( 8 6 2 2 – 2 3 – – – 6 7 2 – 3 5 3 3 5 3 – – ) 9 0 1 ( – ) 9 0 1 ( – – – – – – – – – – – – – – 0 5 6 8 4 4 , 1 – 8 4 6 8 4 6 – – – – – – – – – – 0 5 1 6 8 4 , 7 6 3 5 2 , 2 8 3 4 4 2 8 9 7 l a t o T 0 0 0 £ ’ 6 8 4 , 7 6 ) 4 9 2 , 9 2 ( 0 0 0 £ ’ d e n i a t e R i s g n n r a e 3 5 2 , 2 ) 4 9 2 , 9 2 ( – 8 3 0 0 0 £ ’ e v r e s e r – 4 4 2 0 0 0 £ ’ e v r e s e r – 8 9 7 0 0 0 £ ’ e v r e s e r l a t i p a C e r a h S n o i t p m e d e r n o i t a u l a v e R n o i t a s n e p m o c – – – – – – – – – – – – – 9 0 2 9 0 2 – – – – – – – – – – – ) 9 0 2 ( 0 0 0 £ ’ o t s e r a h S d e u s s i e b e r a h S 0 0 0 £ ’ t n u o c c a i m u m e r p 2 8 6 , 3 6 – – – – – – – – – – 2 8 6 , 3 6 – 5 6 5 , 2 6 5 6 5 , 2 6 – – – – – – – – – 1 4 5 6 7 5 – 1 7 4 e r a h s 0 0 0 £ ’ l a t i p a c p u d e l l a C r a e y l i a c n a n i f e h t 5 1 0 2 l i r p A 1 t A r o f t i f o r p / ) s s o L ( – – – – – – – – – 1 7 4 – 6 6 4 6 6 4 – – – – – – – – – 3 2 tly n e u q e s b u e s y b h m hic s w a t n u o m A f o n o i t a l s n a r t n o s e c n e r e f f i d e g n a h c x E s n o i t a r e p o n g e r o f i s s o r fit & lo o p d t sifie cla e r s t e s s a l i a c n a n i f f o n o i t a u a v e R l tly n e u q e s b u e s t b o h will n hic s w t n u o m A s s o r fit & lo o p d t sifie cla e r s t e s s a l i a c n a n i f l f o e a s n o n o i t a c i f i s s a c e R l n o i t c e l l o c e c n e r e f e r f o n o i t a u a v e R l f o t e n e m e h c s n o i s n e p f o t n e m e r u s a e m e R x a t d e r r e f e d ) s s o l ( / e m o c n i e v i s n e h e r p m o c l a t o T i d e t a t s y l s u o v e r p s a – 4 1 0 2 l i r p A 1 t A ) b 1 3 e t o n e e s ( j t n e m t s u d a r a e y r o i r P d e t a t s e r – 4 1 0 2 l i r p A 1 t A d e s i c r e x e s n o i t p o e r a h S s n o i t p o e r a h s f o t s o C 6 1 0 2 h c r a M 1 3 t A s d n e d v D i i r a e y l i a c n a n i f e h t r o f t i f o r P tly n e u q e s b u e s y b h m hic s w a t n u o m A f o n o i t a l s n a r t n o s e c n e r e f f i d e g n a h c x E s n o i t a r e p o n g e r o f i s s o r fit & lo o p d t sifie cla e r s t e s s a l i a c n a n i f f o n o i t a u a v e R l tly n e u q e s b u e s t b o h will n hic s w t n u o m A f o t e n e m e h c s n o i s n e p f o t n e m e r u s a e m e R e m o c n i e v i s n e h e r p m o c l a t o T x a t d e r r e f e d s s o r fit & lo o p d t sifie cla e r s ) a 1 3 e t o n e e s ( e u a v r i a f o t l t n e m t s u d A j ) a 1 3 e t o n e e s ( e u a v r i a f o t l t n e m t s u d A j d e s i c r e x e s n o i t p o e r a h S n o i t a r e d i s n o c d e r r e f e d s a d e u s s i s e r a h S s n o i t p o e r a h s f o t s o C s d n e d v D i i 2 8 6 , 3 6 1 7 4 5 1 0 2 h c r a M 1 3 t A The notes on pages 36 to 77 are an integral part of these consolidated financial statements. The Stanley Gibbons Group plc 34 242519 Stanley Gibbons RA pp32-pp35 05/10/2016 23:25 Page 35 Consolidated statement of cash flows for the year ended 31 March 2016 Cash outflow from operating activities Interest paid Taxes paid Net cash outflow from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible assets (computer software) Overdraft acquired with subsidiary Acquisition of business Sale of financial asset Sale of freehold property Interest received Net cash used in investing activities Financing activities Proceeds from issue of ordinary share capital Dividends paid to company shareholders Net borrowings Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Notes 24 9 Year ended 31 March 2016 £’000 Year ended 31 March 2015 £’000 (5,208) (611) (322) (6,141) (888) (2,450) – (218) 1,306 466 39 (1,745) – (824) 6,455 5,631 (2,255) (1,239) (3,494) (7,400) (258) (367) (8,025) (1,442) (2,692) (1,190) (8,615) – 4,411 4 (9,524) 544 (3,385) 9,652 6,811 (10,738) 9,499 (1,239) The notes on pages 36 to 77 are an integral part of these consolidated financial statements. The Stanley Gibbons Group plc 35 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 36 Notes to the Financial Statements for the year ended 31 March 2016 1 Accounting policies and presentation The financial statements have been prepared in accordance with International Financial Reporting Standards as approved for use in the European Union applied in accordance with the provisions of Companies (Jersey) Law 1991 on a historical cost basis except where otherwise indicated. The Group is listed on AIM, a market operated by the London Stock Exchange. These financial statements have also been prepared in accordance with AIM Rules. The company has not prepared separate company accounts, as permitted under Jersey Company Law 1991 Amendment 4 Part 16 (substituted), as consolidated accounts are prepared. The consolidated financial statements are presented in British Pounds Sterling, which is also the Group’s functional currency. Amounts are rounded to the nearest thousand, unless otherwise stated. Accounting standards and interpretations adopted during the period The following Standards and amendments have been adopted by the Group for the first time for the financial year beginning on or after 1 April 2015: IFRS 10 ‘Consolidated Financial Statements’ IFRS 11 ‘Joint Arrangements’ IFRS 12 ‘Disclosure of Interests in Other Entities’ IAS 12 (amended) ‘Deferred Tax: Recovery of Underlying Assets’ IAS 27 (revised) ‘Separate Financial Statements’ IAS 28 (revised) ‘Investments in Associates and Joint Ventures’ The adoption of the amendments did not have any impact on the financial statements of the Group for the current period of any prior period and is not likely to affect future periods. Standards, amendments and interpretations that are effective for periods beginning on or after 1 April 2015 for standards, amendments subject to EU endorsement: IFRS 9, Financial Instruments, effective for annual periods beginning on or after 1 January 2018, subject to EU endorsement. The standard is part of a wider project to replace IAS 39, Financial Instruments: Recognition and Measurement IFRS 15, Revenue from contracts with customers (effective for periods beginning on or after 1 January 2017, subject to EU endorsement) IFRS 16, Leases ( effective for periods beginning on or after 1 January 2019) IAS 16 and IAS 38 (amended) ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ – effective for accounting periods beginning on or after 1 January 2016 The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods, except that IFRS 9 will impact the measurement of financial instruments, IFRS 15 may have an impact on revenue recognition and related disclosures and IFRS 16 will have an impact on operating leases. Beyond the information above, it is not practicable to provide a reasonable estimation of the effect of IFRS 9, IFRS 15 and IFRS 16 until a detailed review has been completed. The Stanley Gibbons Group plc 36 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 37 Notes to the Financial Statements continued 1 Accounting policies and presentation continued The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. Basis of consolidation Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicated that there may be a change in any of these elements of control. The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. Impairment of non-financial assets (excluding inventories and deferred tax assets) Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying value may not be recoverable Where the carrying value of an asset exceeds its recoverable amount (i.e the higher of value in use or fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (‘CGUs’). Goodwill is allocated on initial recognition to each of the Group’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill. Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed. Intangible Assets Computer software In accordance with IAS 38, purchased computer software that will generate economic benefit beyond one year is capitalised as an intangible asset and amortised over its expected useful economic life of four years on a straight- line basis. This charge is allocated to administrative expenses in the consolidated statement of comprehensive income. The purchase and development of software related to the Group’s websites and the Digital Asset Management system is capitalised and amortised over its expected useful economic life of between five and ten years on a straight line basis. Brands In accordance with IAS 38, brands acquired in a business combination are recognised at fair value at the acquisition date. The brands acquired are considered to have an indeterminate life because of their longevity and heritage. As such, these brands are not amortised but are the subject of an annual impairment review. The Stanley Gibbons Group plc 37 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 38 Notes to the Financial Statements continued 1 Accounting policies and presentation continued Trademarks Trademarks acquired in a business combination are recognised at fair value at the acquisition date. They have a finite useful life and are amortised using the straight line method over their estimated useful life of 8 years. Customer lists In accordance with IAS 38, customer lists acquired have been capitalised as an intangible asset and are amortised on a straight line basis over 8 years. Internally generated customer lists are not capitalised or shown as an intangible asset. Goodwill Goodwill represents the excess of the costs of a business combination over, in the case of business combinations completed prior to 1 January 2010, the Group’s interest in the fair value of intangible assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. For business combinations completed prior to 1 January 2010, cost comprised the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date were treated as an adjustment to cost and, in consequence, resulted in a change in the carrying value of goodwill. For business combinations completed on or after 1 January 2010, cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquire plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense. Goodwill is capitalised as an intangible assets with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date. Internally generated goodwill is not recognised as an intangible asset. Publishing rights Publishing rights represent the cost paid to third parties to acquire copyright of publications. Publishing rights are not amortised but tested annually for impairment and carried at cost less accumulated impairment losses. Property, plant and equipment and depreciation Tangible fixed assets other than the reference collection Tangible fixed assets, other than the reference collection, are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items, their purchase price, including any incidental expenses of acquisition. Depreciation is calculated to write down the net book value of tangible fixed assets less their residual value on a straight-line basis, over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are: The Stanley Gibbons Group plc 38 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 39 Notes to the Financial Statements continued 1 Accounting policies and presentation continued Freehold buildings Vehicles, plant and machinery Fixtures, fittings, tools and equipment Leasehold improvements Freehold land is not depreciated. 2% 20-25% 10-25% Over period of lease Reference collection Fixed assets include a reference collection of certain stamps & coins held on a long term basis. The reference collection for stamps is subject to a full valuation every five years by a qualified external valuer. The carrying value of the numismatic reference library is revalued each year. Therefore not all the reference collection is valued annually. Where a reference collection or part of a collection has been revalued the assets will be carried at the revised valuation. Leased assets When substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an “operating lease”), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. Available for sale financial assets Available for sale financial assets comprise investments in quoted equity instruments and are measured at level 1 of the fair value hierarchy, as outlined in note 2 below. Purchases and sales of financial assets are recognised on the trade date, the date on which the Group commits to buy or sell the asset. Investments are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available for sale financial assets are subsequently carried at fair value. The fair values of quoted investments are determined based upon current bid price. Changes in the value of securities classified as available for sale are recognised within other comprehensive income. The balance as at 31 March 2015 relates to an investment in Avarae Global Coins Plc which was disposed of on 18 May 2015. Assets and businesses classified as held for sale Assets and businesses classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and gains or losses on subsequent re-measurements are included in the statement of comprehensive income. No depreciation is charged on assets and businesses classified as held for sale. Assets and businesses are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. The asset or business must be available for immediate sale and the sale must be highly probable within one year. The Stanley Gibbons Group plc 39 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 40 Notes to the Financial Statements continued 1 Accounting policies and presentation continued The balance held at 31 March 2016 relates to leasehold properties held with Mallett that were disposed of in June 2016. The balance as at 31 March 2015 relates to the assets of the Benham first day cover business, the Plastic Wax retail business and the general auction business of Dreweatts that were disposed of in May 2016. Inventories Inventories are valued at the lower of cost and net realisable value after making allowance for obsolete and slow moving items. Due to the nature of collectibles and antiques it is not always practicable to ascertain individual costs for items purchased. The purchase of stamp, coins and antiques into inventory can be classified in the way in which they are purchased. Some items will be bought on itemised invoices from other dealers and auctioneers. This will be costed based on these invoices. Other items will be purchased via collections or group of assets where a price is determined for the collection. These collections will often be split into individual items and cost is apportioned between the items purchased on the basis of the opinion of the Group’s dealers and experts Work in progress Work in progress comprises philatelic and other collectible material which has been acquired but which has not yet been described by our philatelic experts and therefore is unavailable for sale at the balance sheet date. Financial Instruments Financial assets and financial liabilities are recognised on the consolidated statement of financial position when the company becomes a party to the contractual provisions of the instrument. Financial assets Trade and other receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in the statement of comprehensive income. 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 receivable, the amount of such 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 as an exceptional item in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value for the asset is written off against the associated provision. Cash and cash equivalents comprise cash held by the company and short term bank deposits with an original maturity of three months or less. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of financial position. Financial liabilities Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method. The Stanley Gibbons Group plc 40 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 41 Notes to the Financial Statements continued 1 Accounting policies and presentation continued Financial liabilities issued by the Group are classified in accordance with the contractual arrangements entered into and the definitions of a financial liability. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Taxation The tax expense represents the sum of the tax currently payable and any deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the statement of financial position and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax relating to charges made directly to equity is recognised in other comprehensive income. Foreign currencies Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. On consolidation, the results of overseas operations are translated at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening comprehensive income. Retirement benefits The Group operates two defined benefit pension schemes. The assets of the schemes are held and managed separately from those of the Group. In accordance with IAS 19 (Amendment) for Employee Benefits, the liability in the statement of financial position represents the present value of the defined benefit obligations at that date less the fair value of plan assets. The defined benefit obligation is calculated periodically by an independent actuary. Current service costs are recognised in administrative expenses in the statement of comprehensive income. Interest costs on plan liabilities and the expected return on plan assets are recognised in finance charges. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in other comprehensive income. Pension scheme assets are measured at their market value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. The actuarial valuations are performed by a qualified The Stanley Gibbons Group plc 41 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 42 Notes to the Financial Statements continued 1 Accounting policies and presentation continued actuary on a triennial basis and are updated at each balance sheet date. The resulting defined benefit asset or liability is presented separately as a non-current asset or liability on the face of the statement of financial position. Under IAS 19 the retirement benefit obligation is presented gross of deferred tax. The Group also maintains a number of defined contribution pension schemes. For these schemes the Group has no further obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense in the statement of comprehensive income in the year when they are due. Share capital Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability of financial asset. The Group’s ordinary shares are classified as equity instruments. Share options and awards The fair value of share options and awards granted to certain employees and Directors is recognised as an expense. The total amount to be apportioned over the vesting period of the benefit is determined by reference to the fair value of the options and awards determined at the grant date. The performance conditions (other than market conditions) are reflected in assumptions about the number of options and awards that are expected to become exercisable. The estimate is revised at each reporting date and any adjustments are charged or credited to profit or loss, with the corresponding adjustment to equity. The proceeds received on exercise of the options are credited to equity. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM. Revenue Revenue represents amounts invoiced by the Group in respect of goods sold and services provided during the year falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade discounts and any applicable value added tax. Revenue from the provision of all goods and services is only recognised when the amounts to be recognised are fixed or determinable and collectability is reasonably assured. Sale of goods retail Revenue from the provision of goods is recognised when substantially all the risks and rewards of ownership of goods have transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are allocated to a customer and that customer has made an irrevocable commitment to complete the purchase. Sale of goods – Investment contracts In respect of certain investment products offered by the Group, income is recognised at the point of customer commitment in line with the normal course of trade but not when there is a contractual buyback commitment on the Company as part of the transaction to buy back the products at the full sale price or higher amount. These contracts do not pass the risk or reward of ownership to the customer until the customer accepts stock at the end The Stanley Gibbons Group plc 42 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 43 Notes to the Financial Statements continued 1 Accounting policies and presentation continued of the initial contract term (between 5 and 10 years). At the point where the contract matures the client has options to take a guaranteed cash sum, keep or auction the assets of the contract or reinvest in another of the Group’s investment contracts. Until the point of maturity the contractual buyback amount is shown in other payables on the Group’s balance sheet and the stock contained in these contracts is reported in the Group’s inventory numbers. At maturity, if the customer reinvests or decided to keep the collectible assets the contract is recognised in revenue and the inventory released form the balance sheet. A number of the Groups previous investment contracts, Guaranteed Minimum Return Contract (“GMRC” and the Capital Protection Growth Plan (“CPGP”) both were contracts that had an element of contractual buyback. The contractual buy backs within the CPGPs were at a level of the original purchase price and within the GMRCs were above the purchase price to include a finance charge. This finance charge is recognised in the profit and loss throughout the period of the contract. These contracts were sold between 2005 and 2013 and have resulted in a restatement of prior year earnings relating to open contracts as at April 2014, as described in note 31b). The GMRC and CPGP contracts ceased to be sold in April 2011 and December 2013 respectively. Investment contracts which transfer the risk and rewards of ownership with the customer are recognised as revenue on completion of the contract. These investment contracts do not offer a full guaranteed return or protection of the principal invested. Investment products sold in the year under review include Capital Growth Plans (CGP), Flexible Trading Portfolios (FTP), Portfolio Builders (PB) and Personal Managed Funds (PMF). The FTPs and CGPs also include a buy back option of 75% of the Stanley Gibbons catalogue value where appropriate or otherwise market value. The Directors consider that the likelihood of these investment plan holders exercising this right to accept a value lower than market value to be remote. Investment plans including contractual buy back options at any level ceased to be sold in July 2016. Sale of goods – auctions In its role as auctioneer, the Group accepts property on consignment and matches sellers to buyers through the auction process. Following the auction, the Group invoices the buyer for the purchase price of the property (including the commission owed by the buyer), collects payment from the buyer, and remits to the consignor the net sale proceeds after deducting its commissions, expenses and applicable taxes and royalties. The Groups auction commissions include those paid by the buyer (“buyer’s premium”) and those paid by the seller (vendors commission”) (collectively, “auction commission revenue”), both of which are calculated as a percentage of the hammer price of the property sold at auction. On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which includes the hammer price of the property purchased plus the buyer’s premium, and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Therefore both buyer’s premium and vendors commission is recognised on the date of the auction sale upon the fall of the auctioneer’s hammer. The Group is not obligated to pay the consignor for property that has not been paid for by the buyer. If a buyer defaults on payment, the sale may be cancelled, and the property will be returned to the consignor. The Stanley Gibbons Group plc 43 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 44 Notes to the Financial Statements continued 1 Accounting policies and presentation continued The Group’s management evaluates the collectability of amounts due from individual buyers. If management determines that it is probable that the buyer will default, a credit note is recorded in the period in which this judgement is made and any commission due to the Group from the buyer and the vendor is reversed. Further detail of the Group’s revenue streams can be found in the operating review on pages 14 to 16. Provisions Provisions are recognised when the Group has a present legal or constructive obligation to transfer economic resources as a result of past events. Provisions are measured at management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. Provisions are discounted if the effect of the time value of money is material. Rental Income The Group sublets some of its property that it occupies under operating leases. The rental income is recognised on an accruals basis. 2 Critical Accounting Estimates and Judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates, assumptions and management judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating Review on pages 14 to 16. The financial position of the Group, its cash resources and borrowing facilities are described in the Financial Review on page 17. In addition note 28 in the financial statements include the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, and its exposure to credit risk and liquidity risk. The Group’s forecasts shows that it will remain in compliance with its banking covenants for the foreseeable period and that it will have access to sufficient liquidity. However the forecasts are dependent upon the liabilities and contingent liabilities, particularly in relation to investment plans redemption profiles, not materialising at a level greater than forecast and trading improving from its current level in line with management’s expectations. In the event that either liabilities increased or trading failed to improve, it is likely that the Group would find itself in breach or likely breach of its banking covenants and require access to additional liquidity. The Directors acknowledge that the above risks may be considered material uncertainties which could cast significant doubt on the Group’s ability to continue as a going concern. However the Directors have anticipated a number of mitigating courses of actions, including accelerated asset sales, further cost cutting measures, actively pursuing overdue debt and ultimately they believe that if necessary the company would have the support of alternative capital providers whether it be equity or debt or a combination of both. As such, having regard to the matters above, and after making reasonable enquiries and taking account of uncertainties discussed above, the Directors have a reasonable expectation that the Company and the Group have The Stanley Gibbons Group plc 44 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 45 Notes to the Financial Statements continued 2 Critical Accounting Estimates and Judgements continued access to adequate resources to continue operations and to meet its liabilities, as and when they fall due, for the foreseeable future. For that reason, they continue to adopt the going concern basis in the preparation of the accounts. Revenue recognition Within the investment sales are a number of different products. These include GMRCs and CPGPs. One of the options within these products is a contractual buy back option to re-acquire at a level equal to or above the original purchase price. These transactions are considered by management not to meet the criteria for a sale until such time as the underlying items are irrevocably sold. This is because insufficient risk and reward is considered to have passed to the client. For all other sales, including investment plans with guarantee buy-back options at 75% of catalogue or market value, revenue is recognised immediately as the risks and rewards of ownership are deemed to have passed to the buyer. Retirement benefits The costs, assets and liabilities of the defined benefit retirement schemes operating within the Group are determined using methods relying on actuarial estimates and assumptions. Details of the key assumptions are set out in note 26. The Directors take advice from independent actuaries relating to the appropriateness of the assumptions and challenge the reasonableness and appropriateness of these assumptions before adapting them in these financial statements. It is important to note, however, that comparatively small changes in the assumptions used may have a significant effect on the consolidated statement of comprehensive income and the statement of financial position. Inventory valuation Inventory is valued at the lower of cost and net realisable value. Cost comprises all costs of purchase, including auction buyers premium where applicable. Where necessary, provision is made for slow-moving and damaged stock. This provision represents the difference between the cost of the stock and its estimated market value, based upon stock turn rates, market conditions and trends in consumer demand. For rare collectibles and antiques this includes monitoring of sales of similar items and a degree of judgement being applied by our specialists as to the relevance for items held in stock. Reference Collections Reference collections of philatelic items are carried at cost or valuation. Where the carrying value is above cost this will be supported by an independent external valuation. If the carrying value is below cost or independent value this will be as a result of a review performed either by external or internal specialists. Intangible Assets IFRS 3 (revised) ‘Business Combinations’ requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification of other intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of estimates and judgments which may differ from the actual outcome. IAS 38 ‘Intangible Assets’ requires that development costs, arising from the application of research findings or other technical knowledge to a plan or design of a new or substantially improved product, are capitalised, subject to certain criteria being met. Determining the technical feasibility and estimating the future cash flows generated by the products in development requires judgments which may differ from the actual outcome. The estimates and judgments made in relation to both acquired intangible assets and capitalised development costs, cover future growth rates, expected inflation rates and the discount rate used. The Stanley Gibbons Group plc 45 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 46 Notes to the Financial Statements continued 2 Critical Accounting Estimates and Judgements continued Trade receivables – investment sales Included within trade receivables are £4.1m (2015 – £5.7m) of investment sales that are on credit terms which expire within the next 12 months. The largest investment balance outstanding at the year end was £1.7m (2015 – £3.6m). In most cases, the recoverability of these balances is dependent on the ability of the investors to realise these or other investment portfolios. The directors are confident that these balances are recoverable but the timing and value of these portfolio sales is currently uncertain. Should the investors be unable to realise their portfolios within the credit period the balances may not be recoverable when they fall due. Fair value measurement A number of assets and liabilities included in the Group’s financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’): – Level 1: Quoted prices in active markets for identical items (unadjusted) – Level 2: Observable direct or indirect inputs other than Level 1 inputs – Level 3: Unobservable inputs (i.e. not derived from market data). The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur. The carrying amount of financial assets or financial liabilities is a reasonable approximation of their fair value. Any differences between these valuations would not be material. Segmental Analysis 3 IFRS 8 requires operating segments to be identified based on internal reporting. Accordingly, the determination of the Group’s operating segments is based on the following organisation units for which management accounting information is reported to the Group’s management and used to make strategic decisions. The operating units have changed from those disclosed in previous years to ensure they meet this basis and the previous year comparative has been amended accordingly. • • • • • • Sale of investment contracts; Sale of investment contracts; Philatelic trading and retail operations; Publishing and philatelic accessories; Coins and medals Interiors Interiors encompasses autographs, historical documents, memorabilia, rare books, records, antiques, watches, fine wine, jewellery and Benham first day covers. The activities, products and services of the reportable segments are detailed in the Operating Review on pages 14 to 16. The Stanley Gibbons Group plc 46 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 47 Notes to the Financial Statements continued 3 Segmental Analysis continued Segmental income statement Year ended 31 March 2016 Revenue Operating costs Exceptional costs Net finance costs Profit/(loss) before tax Tax Profit/(loss) for the year Segmental balance sheet as at 31 March 2016 Total assets Total liabilities Net assets Investments £’000 Philatelic Publishing £’000 £’000 22,447 (19,281) (2,015) – 1,151 – 7,545 (7,658) – – (113) (37) 3,039 (2,669) (50) – 320 – Coins & Medals £’000 8,213 (6,074) (152) – 1,987 (36) Interiors Unallocated £’000 £’000 Total £’000 16,961 (21,041) (3,225) (240) (7,545) (201) 932 (6,740) (18,552) (331) (24,691) (129) 59,137 (63,463) (23,994) (571) (28,891) (403) 1,151 (150) 320 1,951 (7,746) (24,820) (29,294) 28,479 (24,994) 3,485 17,975 (10,867) 7,108 168 – 168 29,682 (7,632) 22,050 25,974 (24,928) 1,046 5,663 (1,128) 4,535 107,941 (69,549) 38,392 Other segmental items Depreciation Amortisation of other intangible assets Capital expenditure – – – 331 – 119 43 – – Investments £’000 Philatelic Publishing £’000 £’000 94 – – Coins & Medals £’000 409 – 847 34 1,002 2,590 Interiors Unallocated £’000 £’000 911 1,002 3,556 Total £’000 Segmental income statement Year ended 31 March 2015 Restated Revenue Operating costs Exceptional costs Net finance cost Profit/(loss) before tax Tax Profit/(loss) for the year Segmental balance sheet as at 31 March 2015 Total assets Total liabilities Net assets 20,628 (15,524) (500) – 4,604 – 9,394 (8,185) (225) – 984 – 2,937 (2,164) – – 773 – 9,204 (6,672) – – 2,532 (943) 14,861 (13,623) – (103) 1,135 (203) 3,022 (8,378) (2,530) (321) (8,207) 47 60,046 (54,546) (3,255) (424) 1,821 (1,099) 4,604 984 773 1,589 932 (8,160) 722 35,343 (33,010) 2,333 23,365 (16,107) 7,258 (153) – (153) 26,235 (6,137) 20,098 26,678 (17,886) 8,792 32,288 (3,132) 29,156 143,756 (76,270) 67,486 Other segmental items Depreciation Amortisation of other intangible assets Capital expenditure – – – 348 – 1,455 – – – 91 – 24 300 69 485 39 692 2,170 778 761 4,134 The Stanley Gibbons Group plc 47 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 48 Notes to the Financial Statements continued 3 Segmental Analysis continued Geographical information Analysis of revenue by origin and destination Channel Islands United Kingdom Hong Kong Europe North America Singapore Rest of Asia Rest of the World Year ended 31 March 2016 Year ended 31 March 2016 Sales by destination £’000 2,062 34,549 3,115 4,063 10,678 1,257 474 2,939 59,137 Sales by origin £’000 19,930 36,562 2,645 – – – – – 59,137 Year ended 31 March 2015 Restated Sales by destination £’000 Year ended 31 March 2015 Restated Sales by origin £’000 2,491 32,577 2,686 4,172 10,208 3,149 2,157 2,606 60,046 18,111 39,586 2,349 – – – – – 60,046 Destination is defined as the location of the customer. Origin is defined as the country of domicile of the Group company making the sale. All of the sales relate to external customers. There were no other customers in either 2016 or 2015 from which the Group earned more than 10% of its revenues. Property, plant and equipment of £4,916,000 was split between the UK £4,766,000 (2015 : £7,786,000) and the Channel Islands £150,000 (2015: £188,000). Intangible assets and available for sale financial assets of £19,631,000 were split between the UK £19,631,000 (2015: £34,310,000) and the Channel Island £nil (2015: £3,536,000). The Stanley Gibbons Group plc 48 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 49 Notes to the Financial Statements continued 4 Operating (loss)/profit The following table shows the material costs by nature charged to cost of sales, administrative expenses and selling and distribution costs. Cost of inventories recognized as an expense Employee benefit costs expensed (see note 7) Depreciation of property plant and equipment Amortisation of intangible assets Advertising & marketing expenses Distribution & transport costs Operating lease charges – leased premises IT operating expenses Other property operating costs Fees payable to the Group’s auditor for the audit of the Group’s annual accounts, including subsidiaries Fees payable to the Group’s auditor for tax compliance & advisory services Fees payable to the Group’s auditor for other advisory services Other professional fees Foreign exchange losses Year ended 31 March 2016 £’000 35,304 13,920 911 1,002 4,592 511 2,685 936 1,213 420 – 30 636 170 Year ended 31 March 2015 Restated £’000 29,108 13,169 778 761 3,524 254 1,827 522 605 171 1 12 416 18 Fees paid to the auditors in respect of non-audit work in the year to 31 March 2016 are in respect of a review of inventory valuations regarding a specific project commissioned by the Company’s bankers. These services are reviewed by the Directors to ensure that the independence of the auditors is not compromised. Exceptional operating charges 5 The items of income and expenditure listed below are either non-recurring or unusual in size and therefore distort the view of the normal trading activities of the Group. They have therefore been separately identified to give more clarity on the underlying trend of the trading performance. Impairment of intangible assets Marketplace intangible asset written off Loss on sale of business Pension scheme (recovery)/costs Professional fees for corporate activity Restructuring costs Stock provisions Profit on disposal of tangible fixed assets Deferred consideration Impairment of tangible fixed assets Impairment of receivables Other exceptional operating charges Legal costs in relation to SEC investigation The Stanley Gibbons Group plc 49 Year ended 31 March 2016 £’000 Year ended 31 March 2015 £’000 13,895 5,986 – (1,968) 819 1,156 1,373 (189) – 230 1,618 – 1,074 23,994 – – 2,331 895 1,161 – 225 (1,543) (363) – 500 49 – 3,255 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 50 Notes to the Financial Statements continued 6 Directors’ emoluments The remuneration paid to the Directors of The Stanley Gibbons Group plc was: Fees Salaries Benefits Short-term employee benefits Post-employment benefits Share-based payment Key management personnel compensation Number of Directors included in the defined benefit pension scheme (note 26) Year ended 31 March 2016 £’000 Year ended 31 March 2015 £’000 165 546 6 717 55 140 912 – 173 895 7 1,075 63 71 1,209 – The detailed numerical analysis of Directors’ remuneration is included in the Report on Remuneration on page 23. The charge to profit in respect of share options and awards issued to the Directors was £140,000 (2015: £71,000). M Hall and D Duff are members of the Company’s defined contribution pension scheme which they joined in 2010. The company made payments into a personal pension plan of J Byfield which came into effect in 2012. Total cost of these pension contributions to the company were £55,000 (2015: £63,000). The Company made no other pension contributions in respect of any Directors in the period or the preceding year. Details of share options forfeited by Directors during the period are disclosed in the Report on Remuneration on page 23. Management consider that the key management personnel comprise the Directors. Employee information 7 The average number of persons (including executive Directors) employed by the Group during the period was 252 (2015: 293). Management and Administration Sales Production and Editorial Distribution Marketing Year ended 31 March 2016 No. Year ended 31 March 2015 No. 92 115 17 16 12 252 108 119 46 9 11 293 The Stanley Gibbons Group plc 50 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 51 Notes to the Financial Statements continued 7 Employee information continued Staff costs relating to those persons during the year amounted to: Wages and salaries Social security costs Pension costs – defined benefit scheme (note 26) Pension costs – defined contribution scheme Share option cost 8 Taxation UK corporation tax and overseas tax on profits for the year Current tax: UK corporation tax at 20% (2015: 21%) Capital gains tax on sale of property Overseas tax Adjustment relating to earlier periods Deferred taxation Deferred taxation movement on pension scheme liability Tax charge Year ended 31 March 2016 £’000 Year ended 31 March 2015 £’000 11,868 1,284 (18) 486 300 13,920 10,969 1,047 538 465 150 13,169 Year ended 31 March 2016 £’000 30 – 115 – 145 258 – 403 Year ended 31 March 2015 restated £’000 348 500 66 5 919 227 (47) 1,099 The Company is registered in the Channel Islands and has subsidiaries in the Channel Islands, the UK, Hong Kong, Singapore and the USA. However a significant proportion of the profits in the Group are taxed in the UK. Accordingly, the difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit is as follows: Tax charge reconciliation The standard rate of corporation tax in the UK Effects of: Item subject to capital gains tax Disallowable exceptional items Overseas profits taxable at lower rates Losses for which no deferred asset recognised Adjustments relating to prior years charge Other Effective rate of corporation tax for year/period Year ended 31 March 2016 % Year ended 31 March 2015 % 20.0 – (4.1) (16.2) (0.3) – (0.8) (1.4) 21.0 15.9 4.6 15.3 2.4 0.1 1.1 60.4 The main rate of corporation tax in the UK was 21% for financial year starting on 1 April 2014 and it was 20% from 1 April 2015. The Stanley Gibbons Group plc 51 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 52 Notes to the Financial Statements continued 9 Dividends Amounts recognised as distribution to equity holders in the period/year: Dividend declared and paid in respect of prior year Dividend paid per share Dividend proposed but not paid at balance sheet date Dividend proposed per share Year ended 31 March 2016 £’000 Year ended 31 March 2015 £’000 824 1.75p – – 3,385 7.25p 825 1.75p 10 Earnings per ordinary share The calculation of basic earnings per ordinary share is based on the weighted average number of shares in issue during the period. Adjusted earnings per share has been calculated to exclude the effect of exceptional operating costs, pension service costs, share option charges and the amortisation of customer lists. The Directors believe this gives a more meaningful measure of the underlying performance of the Group. Indicative new issue earnings per share, is purely an indicative measure and simply increases the number of shares by those issued on the 1 April 2016 and makes no adjustment to earnings. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has only one category of dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the period. Weighted average number of ordinary shares in issue (No.) Dilutive potential ordinary shares: Employee share options (No.) (Loss)/profit after tax (£) Pension service cost (net of tax) Cost of share options (net of tax) Amortisation of customer lists Exceptional operating costs (net of tax) Adjusted (loss)/profit after tax (£) Basic earnings per share – pence per share (p) Diluted earnings per share – pence per share (p) Adjusted earnings per share – pence per share (p) Adjusted diluted earnings per share – pence per share (p) Weighted average number of ordinary shares in issue (No.) Dilutive potential ordinary shares: Employee share options (No.) Number of ordinary shares issued 1 April 2016 (No.) Indicative new issue basic earnings per share – pence per share (p) Indicative new issue diluted earnings per share – pence per share (p) Year ended 31 March 2016 47,120,357 1,770,977 (29,294,000) (14,220) 650,000 360,000 23,556,710 (4,741,510) (62.17)p (62.17)p (10.06)p (10.06)p 47,120,357 1,770,977 131,796,286 (16.37)p (16.37)p Year ended 31 March 2015 restated 46,774,755 2,293,308 722,000 425,020 150,000 360,000 3,152,014 4,809,034 1.54p 1.47p 10.28p 9.80p 46,774,755 2,293,308 131,796,286 0.40p 0.40p Net assets per share, as disclosed in the financial highlights, are calculated using the net assets per the statement of financial position divided by the number of shares at 31 March 2016 per note 21. The Stanley Gibbons Group plc 52 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 53 Notes to the Financial Statements continued 11 Intangible assets Goodwill £’000 Publishing rights £’000 Computer Software £’000 Customer Lists £’000 Brands & trademarks £’000 Cost At 1 April 2014 Additions – internally developed Additions – business combinations Disposals At 31 March 2015 Additions – internally developed Additions – business combinations Disposals At 31 March 2016 Accumulated amortisation and impairment At 1 April 2014 Amortisation charge At 31 March 2015 Impairment losses Amortisation charge At 31 March 2016 Net book value At 31 March 2016 At 31 March 2015 At 31 March 2014 24,306 – – (256) 24,050 – 218 – 24,268 – – – 13,003 – 13,003 11,265 24,050 24,306 19 – – – 19 – – – 19 – – – – – – 19 19 19 3,752 2,692 162 – 6,606 2,450 – – 9,056 1,584 380 1,964 6,202 538 8,704 352 4,642 2,168 2,765 – 828 – 3,593 – – – 3,593 127 360 487 676 447 1,610 1,983 3,106 2,638 3,442 – 2,610 – 6,052 – – – 6,052 2 21 23 – 17 40 6,012 6,029 3,440 Total £’000 34,284 2,692 3,600 (256) 40,320 2,450 218 – 42,988 1,713 761 2,474 19,881 1,002 23,357 19,631 37,846 32,571 The brought forward goodwill of £24,050,000 related to the acquisition of the Noble Investments Group (£23,682,000), the acquisition of Murray Payne (£221,000), the acquisition of the magazine ‘Philatelic Exporter’ (£87,000), the album producer ‘Frank Godden’ (£23,000), the trade of an independent stamp dealer (£10,000) and the acquisition of Stampwants.com (£36,000). On 29 May 2015 the Group, through its wholly owned subsidiary, The Fine Art Auction Group Limited, (“TFAAG”) purchased 100% of Bid For Wine Ltd . Details of the acquisition are outlined in note 30. Goodwill has undergone an impairment review with reference to expected future cash flows generated by these business units. Management looks at five year projections, using a cost of capital of 8.7% (2015: 5.8%), when determining if any impairment is likely. The key assumptions used by management derived from current budgets and forecast, are the growth in revenue and costs of between 2% to 3% (2015: 2% to 3%) over the period in question. The forecasted levels of profits used in the impairment tests are lower than in the past due to recent trading performance, which coupled with the application of a higher cost of capital has resulted in an impairment of goodwill relating to the Noble Investments Group of £13,003,000 as at 31 March 2016. For these reasons an impairment test was performed on the remaining intangible assets, which resulted in an impairment of customer lists relating to the Noble Group of £676,000 as at 31 March 2016. Publishing rights represent the cost paid to third parties to acquire copyright of publications. The net book value of internally generated intangible assets as at 31 March 2016 was £nil (2015: £3,536,000) The Stanley Gibbons Group plc 53 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 54 Notes to the Financial Statements continued 12 Property, plant and equipment Reference collection £’000 Freehold Leasehold land and property and buildings improvements £’000 £’000 Fixtures, fittings, tools and equipment £’000 Vehicles, plant and machinery £’000 Cost or valuation At 1 April 2014 Acquired on acquisition Additions Disposals Assets written off in the year At 31 March 2015 Additions Revaluation Disposals Assets written off in the year Transferred to current assets At 31 March 2016 Accumulated depreciation At 1 April 2014 Charge for the year Depreciation on disposal At 31 March 2015 Charge for the year Impairment for year Depreciation on disposal Transferred to current assets At 31 March 2016 Net book value At 31 March 2016 At 31 March 2015 At 31 March 2014 1,527 – 38 – – 1,565 – 22 – – – 1,587 150 – – 150 – 230 – – 380 1,207 1,415 1,377 3,187 – 79 (2,904) – 362 – – (362) – – – 56 56 (36) 76 3 – (79) – – – 286 3,131 1,849 3,925 1,049 – – 6,823 323 – – (210) (2,672) 4,264 935 362 – 1,297 639 – (193) (127) 1,616 2,648 5,526 914 1,327 8 241 – – 1,576 163 – – (320) – 1,419 654 272 – 926 114 – (338) – 702 717 650 673 Total £’000 8,857 3,954 1,442 (2,904) (70) 11,279 888 22 (362) (582) (2,672) 967 21 35 – (70) 953 402 – – (52) – 1,303 8,573 768 88 – 856 155 – (52) – 959 344 97 199 2,563 778 (36) 3,305 911 230 (662) (127) 3,657 4,916 7,974 6,294 The reference collection is subject to a full valuation every five years by a qualified external valuer and an interim valuation is carried out in year three by the Group’s expert stamp dealers. The last independent valuation of a part of the reference collection was carried out in March 2016 by A F Norris, Philatelic Consultant. The basis of the revaluation used was replacement value. The surplus of £22,000 was transferred to the revaluation reserve. The revalued element of the reference collection is £366,000 (2015: £344,000). All other fixed assets are stated at historic cost. If the reference collection had not been revalued it would have been included at a net book value based on historic cost of £841,000 (2014: £1,071,000). A leasehold property was transferred to current assets as it was sold after the balance sheet date, as disclosed in note 15. Fully written down Property, Plant and Equipment with a cost of £568,000 (2015: £835,000) remains in use by the Group. The Stanley Gibbons Group plc 54 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 55 Notes to the Financial Statements continued 13 Inventories Raw materials and consumables Work in progress Finished goods and goods for resale 31 March 2016 £’000 – 3,155 58,649 61,804 31 March 2015 restated £’000 – 3,465 69,583 73,048 Included within the above inventories as at 31 March 2016 is £14,719,000 owned by third parties (2015: £22,225,000). As at 31 March 2016 £38,557,000 (2015: £40,479,000) of the above inventories were part of the security given in relation to the borrowings detailed in note 19. During the year £1,373,000 was charged to P&L for the write down of inventories (2015:£225,000) following a review of the Group’s carrying value of its inventories, as a result of comparison to net realisable value and checks for physical existence. The impact of the prior year adjustments on inventories are given in note 31 a and b. 14 Current trade and other receivables Amounts falling due within one year Trade receivables Other receivables Prepayments and accrued income 15 Current assets held for sale Leasehold property Stock Fixed assets Intangibles 31 March 2016 £’000 31 March 2015 £’000 12,935 972 1,667 15,574 15,685 1,042 2,877 19,604 31 March 2016 £’000 31 March 2015 £’000 2,545 – – – 2,545 – 1,630 70 100 1,800 Included within the leasehold property at 31 March 2016 is a property that was sold on the in June 2016 for £2,500,000. The Stanley Gibbons Group plc 55 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 56 Notes to the Financial Statements continued 16 Provision for impairment of receivables and collateral held A provision is established for irrecoverable amounts where there is objective evidence that amounts due under the original payment terms will not be collected. Indications that the trade receivable may become irrecoverable would include financial difficulties of the debtor, likelihood of the debtor’s insolvency and default or significant failure of payment. Provision for impairment of receivables Relating to debt over 6 months past due 31 March 2016 £’000 31 March 2015 £’000 1,323 515 As at 31 March 2016, excluding balances due under extended payment terms detailed below, £2,249,000 (2015: £1,894,000) of trade receivables, excluding those provided for by the impairment provision, were past their due settlement date but not impaired. The ageing analysis of these trade receivables is as follows: Up to 3 months past due 3 to 6 months past due Over 6 months past due 31 March 2016 £’000 31 March 2015 £’000 644 926 679 2,249 843 718 333 1,894 The Group retains possession of the material sold under extended payment terms, thus limiting credit risk from entering into such arrangements to the margin achieved on the transaction. In most cases the customers sign a formal credit agreement and pay a minimum 10% non-refundable deposit. The balances fall due a maximum of 24 months in the future although the option to settle early does exist. There was an outstanding balance of £3,588,000 at 31 March 2016 (31 March 2015: £6,763,000) in respect of such extended payment plans. Of the outstanding balance, £2,908,000 was past their settlement date (31 March 2015: £923,000) but not impaired. There are instances where receivables have had their terms renegotiated however the group has not had to call upon its security due to default by customers at any time during the year. Trade receivables that are neither past due nor impaired are considered to be fully recoverable. 17 Current trade and other payables Trade payables Other payables Other taxes and social security Accruals and deferred income Provisions 31 March 2016 £’000 10,424 15,741 1,246 1,924 1,074 30,409 31 March 2015 restated £’000 13,373 12,991 1,681 3,946 – 31,991 The Stanley Gibbons Group plc 56 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 57 Notes to the Financial Statements continued 18 Non-current other payables Non-current Due between 1 and 2 years Due between 2 and 5 years Due > 5 years 31 March 2016 £’000 5,105 4,598 99 9,802 31 March 2015 restated £’000 14,117 10,060 191 24,368 The above amounts, together with £9,322,000 (2015: 3,930,000) within current payables are the amounts credited following the de-recognition (see note 31b) of revenue on certain investment plans. These total amounts represent the value of the relevant extant investment plans and will be payable if the plan holder chooses either not to hold their collectibles nor to reinvest in other collectibles on expiry of the investment scheme. 19 Borrowings Current Bank loans Bank overdraft Non-current Bank loans Bank overdraft 31 March 2016 £’000 31 March 2015 £’000 123 5,036 5,159 9,000 7,788 16,788 1,283 1,239 2,522 9,173 – 9,173 The bank loans outstanding at 31 March 2016 are repayable as follows: Facility A loan with The Royal Bank of Scotland plc Amount £’000 9,000 Due < 1 year £’000 Due > 1 year £’000 – 9,000 Murray Payne acquisition loan with The Royal Bank of Scotland plc 123 9,123 123 123 – 9,000 Rate Libor + margin varying between 1.3% and 2.75% Libor + 1.5% The Facility A loan was increased to £9.5m in April 2016 and there is a moratorium on capital repayments until May 2017 unless there is a disposal of a fixed asset, in which case 50% of the proceeds will be applied in reducing the loan balance, subject to any repayments being restricted to not more than £2.5m before May 2017. Amortisation of this loan commences at £0.5m per quarter from May 2017 until May 2018 when the facilities are due for review. The Group also has a £10m revolving credit facility with The Royal Bank of Scotland PLC repayable in May 2018. Interest is charged at margins over LIBOR ranging between 1.3% and 2.75%. The Group is required to satisfy stock cover and net asset cover covenants until May 2017. The stock covenant is to maintain 2 times cover for total stock to the combined total of the Facility A loan and the revolving credit facility and 1.5 times cover for both the philatelic stock and stock held by UK entities. The net asset covenant is to maintain Group consolidated net assets of at least The Stanley Gibbons Group plc 57 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 58 Notes to the Financial Statements continued 19 Borrowings continued £40,000,000, after the share issue on the 1 April 2016. Thereafter, there are also fixed cost cover and interest cover covenants to be calculated by reference to the Group’s budget for the year ended 31 March 2018. Additionally the Group had an overdraft facility of £6m on the 31 March 2016, the balance as at 31 March 2016 was £5,036,000, which was repaid with part of the proceeds from the shares issued on 1 April 2016 and the overdraft facility was cancelled. During the year the Group paid arrangement facility fees of £210,000 (2015: £200,000) for the above facilities The borrowings are secured by a full fixed and floating charge debenture over the core assets of the group. 20 Deferred tax assets and liabilities Defined benefit pension scheme (note 26) Other timing differences Unutilised tax losses Deferred tax on revalued fixed assets Accelerated capital allowances Full provision 21 Called up share capital Assets Liabilities 2016 £’000 940 238 751 – – 1,929 2015 restated £’000 981 238 901 – – 2,120 2016 £’000 – – – 941 836 1,777 2015 restated £’000 – – – 941 890 1,831 Authorised 250,000,000 (2015: 75,000,000) ordinary shares of 1p each Allotted, issued and fully paid (all equity): 47,120,357 (2015: 47,120,357) ordinary shares of 1p each 31 March 2016 £’000 31 March 2015 £’000 2,500 471 750 471 During the year ended 31 March 2015, 304,650 ordinary shares were issued at £1.79 to satisfy the exercise of options. 91,588 ordinary shares were issued at £2.28p on 15 October 2014 to satisfy deferred consideration obligations following the acquisition of Stampwants.com Inc on 31 October 2012. 126,260 ordinary shares were issued at £2.95p on 1 December 2014 to satisfy deferred consideration of Noble Investments (UK) Limited following the acquisition of the The Fine Art Group Limited on 18 December 2012. Capital risk management Capital is managed to ensure that the entities within the Group will be able to continue as a going concern whilst maximising the returns to stakeholders through the optimisation of debt and equity balances. Detail on capital structure is presented in the Statement of Financial Position. Notes 21 and 22 provide details on equity. Details of loans and overdrafts at the year end are disclosed on page 17 in the Financial Review and further disclosure can be found in note 19 and note 28. There are no externally imposed capital requirements on the Group. Further detail on capital risk management can be found in the Operating and Financial reviews on pages 14 to 18. The Stanley Gibbons Group plc 58 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 59 Notes to the Financial Statements continued 22 Options in shares of The Stanley Gibbons Group plc Executive Share options are granted to Directors and other employees on a phased basis. The value of those options ensures that this spreads any reward over a number of years, allied to growth in shareholder value over the long term. Options granted under the Inland Revenue approved UK Executive Share Option Scheme and the Jersey Executive Share Option Scheme are exercisable between the third and tenth anniversaries of the date of grant. Options granted are not normally exercisable unless the performance target is satisfied. Options issued in 2010 had the target of a minimum EPS of 17.3 pence for the year ended 31 December 2012. 25% of the granted options vest if this target is reached, rising on a straight line basis to 100% of options granted to vest if an EPS of 21.5 pence is achieved. Options issued in 2011 had the target of a minimum EPS of 19.2 pence for the year ended 31 December 2013. 25% of the granted options vest if this target is reached, rising on a straight line basis to 100% of options granted to vest if an EPS of 22.7 pence is achieved. Options issued in 2012 had the target of a minimum EPS of 21.8 pence for the year ended 31 December 2014. 25% of the granted options vest if this target is reached rising on a straight line basis to 100% of options granted to vest if an EPS of 25.7 pence is achieved. Options issued in 2014 require that the Company’s compound average Total Shareholder Return (TSR) growth over the performance period must match or exceed 8% per annum. The options shall vest over a number of shares determined as follows: Compound average annual TSR growth over the performance period Less than 8% 8% 15% or more Percentage of Option which vests (with straight line vesting between each point) 0% 25% 100% In addition to the Directors’ share options disclosed in the Report on Remuneration, detailed below are options which have been granted to employees together with the periods in which they may be exercised: Date of grant 01/6/10 06/5/11 06/12/11 04/5/12 06/11/12 27/01/14 10/04/14 18/12/14 Earliest exercise date Expiry Exercise Number at price 31 March 2015 Granted Exercised Forfeited Number at In 31 March 2016 in Year in Year Year Date (1p shares) 123.5p 01/6/13 31/5/20 179.0p 06/5/14 05/5/21 165.0p 06/12/14 05/12/21 227.5p 04/5/15 03/5/22 220.5p 06/11/15 05/11/22 27/01/17 26/01/24 363.0p 10/04/17 10/01/24 316.50p 294.5p 18/12/14 18/12/24 22,830 116,398 4,774 172,334 170,493 504,856 129,855 97,530 1,219,070 – – – – – – – – – – – 22,830 – 116,398 – 4,774 – – – – (172,334) – (170,493) – – (168,501) 336,355 56,554 – – 73,968 – (608,191) 610,879 (73,301) (23,562) The Stanley Gibbons Group plc 59 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 60 Notes to the Financial Statements continued 22 Options in shares of The Stanley Gibbons Group plc continued Movements in the number of share options outstanding including Directors share options and their related weighted average exercise prices are as follows: At 1 April Granted Forfeited/lapsed Exercised At 31 March 31 March 2016 Average exercise price per share 31 March 2016 Options (thousands) 31 March 2015 Average exercise price per share 31 March 2015 Options (thousands) 169p – 206p – 151p 4,165 – (1,362) – 2,803 276p 92p 269p 177p 169p 2,154 2,638 (244) (383) 4,165 Share options outstanding at the end of the period have the following expiry date and exercise price: Expiry date 31 May 2020 5 May 2021 5 December 2021 3 May 2022 5 November 2022 26 January 2024 10 April 2024 30 September 2020 18 December 2024 Exercise price per share Options (thousands) 31 March 2016 Options (thousands) 31 March 2015 123.5p 179.0p 165.0p 227.5p 220.5p 363.0p 316.5p nil 294.5p 23 116 5 – – 663 431 1,491 74 2,803 23 116 5 317 170 941 631 1,864 98 4,165 Binomial and Black-Scholes models have been used to value the awards. The awards issued in the year ended 31 March 2016 and the year ended 31 March 2015 are set out below: Dates of grant Number of options granted Weighted average fair value at date of grant (per share) Weighted average share price on date of grant Weighted average exercise price Expected term (from date of grant) Expected volatility Expected dividend yield Risk-free interest rate 18/12/14 97,530 30.03 295.5p 294.5p 6.5 years 20.4% 2.68% 1.22% 30/09/14 1,863,912 nil 277.5p nil 3 years 22.5% 2.52% 1.22% 10/04/14 676,653 22.01p 314.0p 316.5p 6.5 years 18.95% 2.68% 1.22% Expected volatility was determined by calculating historical volatility of the Group’s share price over a minimum 10 year period. On 2 February 2015 the Board approved the adoption by the Company of an incentive plan for senior executives within the Interiors Division (The Fine Art Auction Group Limited and its subsidiaries). Awards were subsequently made on 4 February 2015. Under the terms of the plan participants share in the growth in value of the Interiors Division measured over the period 1 April 2015 to 31 March 2020. Pay out under the plan, which can be in cash or shares, requires the value of the Interiors Division to achieve a minimum compound annual growth rate of 10% above £28.5m. Participants are entitled to share in a plan pool determined as a percentage of the growth in value in excess The Stanley Gibbons Group plc 60 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 61 Notes to the Financial Statements continued 22 Options in shares of The Stanley Gibbons Group plc continued of this minimum requirement. The value at payout is referred to in the plan as the “End Value”. The minimum requirement is referred to as the “Threshold Value”. The maximum number of shares which can be issued under the plan when added to the number of shares which can be issued under any other plan operated by the Company cannot exceed 10% of the Company’s issued share capital. Any additional entitlement would be paid in cash. Payouts are subject to appropriate deductions for tax and national insurance. If all or part of the Interiors Division is sold during the performance period or the Company is subject to a change of control then there can be an earlier payout under the plan. The maximum payout under the plan is £12.5m. Vesting other than following a sale or change of control is in two tranches. The plan pool will be calculated as follows: On or before 31 March 2016 – 18% of the End Value minus the Threshold Value On or before 31 March 2020 – 14% of the End Value minus the Threshold Value On or after 1 April 2020 – 13% of the End Value minus the Threshold Value. The fair value of awards granted under this scheme has been calculated at 9.6p based on an assumed maximum share number of 4,610,042 and the following assumptions: Weighted average share price on grant date – 292p Weighted average exercise price –nil Expected term – 5 years Expected volatility – 20% Expected dividend yield – 2.00% Risk free interest rate – 0.984% 23 Share premium and reserves Share premium account The share premium account is used to record the aggregate amount or value of premiums paid when the Company’s shares are issued at a premium. Share compensation reserve The share compensation reserve relates to the fair value of options granted which has been charged to the statement of comprehensive income over the vesting period of the options. Revaluation reserve The revaluation reserve relates to the reserve movement in respect of the revaluation of property, plant and equipment and available for sale financial assets. Capital redemption reserve The capital redemption reserve represents the cumulative par value of all shares bought back and cancelled by the Group. Retained earnings Retained earnings represents the accumulated profits not distributed to shareholders. The Stanley Gibbons Group plc 61 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 62 Notes to the Financial Statements continued 24 Cash outflows from operating activities Operating (loss)/profit Profit on sale of property Impairment of tangibles assets Depreciation Amortisation Loss on sale of financial asset Impairment of intangible assets Impairment of tangible assets Decrease in provisions Cost of share options Decrease/(increase) In inventories Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables (less deferred consideration) Net exchange differences Cash outflows from operating activities 25 Capital and other commitments Year ended 31 March 2016 £’000 (28,319) (183) – 911 1,002 58 19,881 230 (462) 650 11,244 5,830 (16,139) 89 (5,208) Year ended 31 March 2015 Restated £’000 2,245 (1,613) 70 778 761 – 156 – (375) 150 (7,170) (3,250) 848 – (7,400) Lease commitments At 31 March 2016 the Group had future minimum lease payments under non-cancellable operating leases as follows: Payable: Within one year Between two and five years In five years or more Land and Buildings Land and Buildings 31 March 2015 £’000 31 March 2016 £’000 2,552 6,691 7,145 16,388 2,501 6,313 7,112 15,926 These figures represent the aggregate payable until expiration of all non-cancellable operating leases. At 31 March 2016 the Group had future minimum rental payments receivable under non-cancellable operating leases as follows: Receivable: Within one year Between two and five years In five years or more Land and Buildings Land and Buildings 31 March 2015 £’000 31 March 2016 £’000 907 4,395 6,501 11,803 129 388 – 517 These operating leases are all sub leases and the lease terms are coterminous with those of the company. The above rentals relate to the sub lease at premises in Strand, London and Hill Street, Jersey. The Stanley Gibbons Group plc 62 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 63 Notes to the Financial Statements continued 26 Retirement benefits The Stanley Gibbons Group of Companies operates two defined benefit pension schemes namely: (a) The Stanley Gibbons Holdings PLC Pension and Assurance Scheme (“the Scheme”) The scheme closed to new members with effect from 1 September 2002 and to future accrual with effect from 1 July 2014. All employer costs are borne by Stanley Gibbons Limited. The assets of the scheme are held under the provisions of a trust deed and are invested in AAA rated Corporate Bonds and unitised equity funds managed by two UK institutions. This investment policy mitigates the actuarial risks that the scheme is exposed to such as longevity, interest rate, inflation and investment risks. The contributions are determined by a qualified actuary on the basis of triennial valuations using the projected unit method. The Scheme is funded with the assets held in separate trustee administered funds. Employees are entitled to retirement benefits based on their final pensionable salary and length of service. The costs of insurance of the death-in-service benefits and all administration expenses and levies to the Pension Protection Fund are paid for by the employer. The IAS19 disclosures for the year to 31 March 2016 are based on the results of the actuarial valuation as at 30 June 2012 which also encompassed the cleansing of member data. The actuarial valuation of the Scheme as at 30 June 2015 is close to being finalised. Previous valuations were based on a roll forward of the Scheme’s actuarial valuation as at 30 June 2009 as adjusted to reflect benefit and data changes which subsequently came to light. Scheme assets are stated at their market value at 31 March 2016. The Group currently pays deficit reduction contribution of £250,000 per annum under a Recovery Plan agreed in June 2015. (b) The Mallett Retirement Benefits Scheme This is a separate trustee administered scheme holding the pension plan assets to meet long term pension liabilities for employees and former employees. The level of retirement benefit is principally based on salary earned in the last three years of employment prior to leaving active service and is linked to changes in inflation up to retirement. The plan is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December 2005. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension plans in the UK. The trustees of the plan are required to act in the best interest of the plan’s beneficiaries. The appointment of the trustees is determined by the plan’s trust documentation. A full actuarial valuation was carried out as at 1 May 2013 and the funding of the plan is agreed between the company and the trustees in line with those requirements. This actuarial valuation showed a deficit of £1,602,000. The company agreed with the trustees that it will aim to eliminate the deficit over a period of 9 years and 10 months from 1 June 2014 by the payment of monthly contributions of £17,033 in respect of the deficit which includes an allowance of £1,200 towards Friends Life’s expenses of administration. The company will also meet expenses of the plan and levies to the Pension Protection Fund. The IAS19 disclosures for the year to 31 March 2016 are based on the actuarial valuation as at 1 May 2013 and updated on an approximate basis to 31 March 2016. The Stanley Gibbons Group plc 63 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 64 Notes to the Financial Statements continued 26 Retirement benefits continued The amounts recognised in the statement of financial position are as follows: Present value of funded obligation Fair value of scheme assets Net obligation Deferred tax asset Retirement benefit obligation Cumulative amount of actuarial losses recognised in other comprehensive income 31 March 2016 £’000 31 March 2015 £’000 (18,232) 13,010 (5,222) 940 (4,282) £’000 (1,748) (18,946) 13,130 (5,816) 981 (4,835) £’000 (1,880) The amounts recognised in the statement of comprehensive income for the period are as follows: Current service cost Interest cost on net benefit obligations Total included in employee benefit expense Actual return on scheme assets The amounts recognised in other comprehensive income are as follows: Actuarial gains/(losses) on scheme obligations from financial assumptions Actuarial (losses)/gains on fair value of scheme assets Remeasurement (losses)/gains 31 March 2016 £’000 31 March 2015 £’000 (194) 176 (18) (106) 368 170 538 322 31 March 2016 £’000 31 March 2015 £’000 659 (527) 132 (2,052) 978 (1,074) Changes in the present value of the defined benefit obligation are as follows: Present value of obligations at start of year/period Liabilities acquired at fair value Current service cost Interest cost Contributions by employees Remeasurement losses/(gains) Charges paid Benefits paid Present value of obligations at end of year/period 31 March 2016 £’000 31 March 2015 £’000 18,946 – (194) 596 – (659) 194 (651) 18,232 10,579 6,114 368 563 5 2,052 (324) (411) 18,946 The Stanley Gibbons Group plc 64 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 65 Notes to the Financial Statements continued 26 Retirement benefits continued Changes in the fair value of scheme assets are as follows: Fair value of scheme assets at start of year/period Assets acquired at fair value Expected return on scheme assets Remeasurement gains/(losses) Contributions by employees Contributions by company Charges paid Benefits paid Fair value of scheme assets at end of year/period 31 March 2016 £’000 31 March 2015 £’000 13,130 – 420 (527) – 444 194 (651) 13,010 7,294 4,971 393 978 5 224 (324) (411) 13,130 The Group currently expects to contribute £474,000 to its defined benefit schemes in the financial year to 31 March 2017. The major categories of scheme assets as a percentage of the fair value of total scheme assets are as follows: Equities Corporate bonds Diversified growth funds Insurance policies Gilts/cash/other Principal actuarial assumptions at the reporting date: Future salary increases Price inflation – RPI Price inflation – CPI Future pension increases – pension accrued before 6 April 1997 (per annum) Future pension increases – pension accrued after 6 April 1997 (per annum) Discount rate Equities (long term expected rate of return) Corporate bonds (long term expected rate of return) Fixed interest gilts (long term expected rate of return) Cash (long term expected rate of return) 31 March 2016 % 31 March 2015 % 26.4% 33.9% 13.3% 20.8% 5.6% 31.1 28.9 12.2 21.1 5.7 31 March 2016 31 March 2015 2.00% 2.80% 1.80% 0.00% 1.80% 3.40% 3.40% 3.40% 3.40% 3.40% 2.00% 2.80% 1.80% 0.00% 1.80% 3.20% 3.20% 3.20% 3.20% 3.20% Mortality Assumptions The mortality trends of the scheme were assessed at 31 March 2016 by the actuary using the mortality tables SAPS projected by birth year, with an allowance for medium cohort mortality improvements, and an underpin of 1%. The Directors consider that, statistically, this table gives the best indicators of the life expectancy of pension scheme members taking into account their employment history, lifestyle and job location. The mortality assumptions imply the following life expectation: The Stanley Gibbons Group plc 65 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 66 Notes to the Financial Statements continued 26 Retirement benefits continued The Stanley Gibbons Holdings PLC Pension and Assurance Scheme Retiring at 60 at reporting date Male Female Retiring at 60 at reporting date + 20 years Male Female The Mallett Retirement Benefits Scheme Retiring at 65 at reporting date Male Female Retiring at 65 at reporting date + 20 years Male Female 31 March 2016 In years 31 March 2015 In years 26.7 29.4 28.8 31.4 26.6 29.3 28.7 31.3 31 March 2016 In years 31 March 2015 In years 21.9 24.5 23.8 26.3 21.5 24.1 23.4 26.0 Sensitivity of results The value placed on the benefit obligation is particularly sensitive to changes in some of the key assumptions as detailed below: The Stanley Gibbons Holdings PLC Pension and Assurance Scheme Assumption as per IAS 19 disclosures 0.25% p.a. reduction in discount rate 0.25% increase in CPI inflation Pensions payable for 1 year longer due to mortality assumptions The Mallett Retirement Benefits Scheme Assumption as per IAS 19 disclosures 0.25% p.a. reduction in discount rate 0.25% increase in inflation Pensions payable for 1 year longer due to mortality assumptions Change in the benefit Obligation – % n/a 3.8% 2.1% 2.0% Change in the benefit Obligation – % n/a 4.4% 1.9% 3.0% (Deficit) £’000s (3,911) (4,355) (4,165) (4,142) (Deficit) £’000s (1,311) (1,541) (1,427) (1,400) The Stanley Gibbons Group plc 66 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 67 Notes to the Financial Statements continued 26 Retirement benefits continued Amounts for the current and previous four periods are as follows: Present value of defined benefit obligations Fair value of scheme assets Deficit Experience adjustments on scheme assets Effects of changes in the demographic and financial assumptions underlying scheme liabilities – Amount – Percentage of benefit obligation 31 March 2016 £’000 (18,232) 13,010 (5,222) (527) 31 March 2015 £’000 (18,946) 13,130 (5,816) 978 31 March 2014 £’000 (10,579) 7,294 (3,285) 544 31 December 2012 £’000 restated 31 December 2011 £’000 (9,941) 6,780 (3,161) 544 (8,942) 6,181 (2,761) (492) 659 3.6% (2,077) -10.9% (297) -2.80% (664) -6.68% (342) -3.83% Future profile of the Stanley Gibbons Holdings PLC Pension and Assurance Scheme The Stanley Gibbons Holdings PLC Pension and Assurance Scheme closed to new members with effect from 1 September 2002. This will result in the age profile of the active membership rising over time and hence, under the method required to calculate IAS 19 liabilities, the future cost in relation to this Scheme will rise in the long-term. The Group has considered the impact of the IAS 19 deficit in respect of the Group, its employees and pensioners. The deficit has decreased from £4,285,000 at 31 March 2015 to £3,911,000 at 31 March 2016 principally arising from changes in scheme data and a change from the approximate methodology used in previous disclosures. Future profile of the Mallet Retirements Benefits Scheme The Mallet Retirements benefits Scheme was closed to new members in 2002. This will result in the age profile of the active membership rising over time and hence, under the method required to calculate IAS 19 liabilities, the future cost in relation to this Scheme will rise in the long-term. The Group has considered the impact of the IAS 19 deficit in respect of the Group, its employees and pensioners. The deficit has decreased from £1,531,000 at 31 March 2015 to £1,311,000 at 31 March 2016 principally arising from changes in scheme data and a change from the approximate methodology used in previous disclosures. 27 a Contingent liability – Investment Plans The Group’s wholly owned subsidiary Stanley Gibbons (Guernsey) Ltd, has potential liabilities that would be due to customers of certain previously sold investment products still extant. They will become payable if the customer chooses to exercise a guarantee or undertaking within their contracts to require the Group to buy back their collectibles at 75% of the latest Stanley Gibbons catalogue price where appropriate, or otherwise at 75% of the market value. As at 31 March 2016 the maximum potential liability was £64,300,000 (2015: £51,400,000). These amounts will not become due if the customer chooses to either hold their collectibles, reinvest in other collectibles or sell their collectibles to a third party at above these discounted levels. Any payments made in relation to this liability would mean that the collectibles would be returned to stock and could be resold at full market value at a profit. It is expected that once the collectible item is resold the long term impact to assets and particularly cash would be significantly lower. The Stanley Gibbons Group plc 67 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 68 Notes to the Financial Statements continued 27 b Contingent liability – Litigation Following its acquisition of Mallett plc in October 2014, the Company learned that government regulators in the United States were investigating transactions that had occurred since 1 January 2010 involving a former client of Mallett Inc., Mallett’s New York-based subsidiary. The former client is not a related person or affiliate of the Group. This issue had not been disclosed to the Company by the directors of Mallett plc during the due diligence process prior to the acquisition. The Group continues to cooperate fully with the U.S. Securities and Exchange Commission (the “SEC”) and the Department of Justice (“DOJ”), including responding to a subpoena from the SEC requesting documents and providing information to the government regulators as requested. Both the SEC and DOJ are aware that Mallett’s new owners were not involved in the events underlying the investigation, and there have been discussions with the SEC regarding resolution of these matters. Whilst the investigations are ongoing, no criminal or civil charges have been filed against Mallett Inc. or any Mallett group company to date. The Group continues to retain the services of special legal counsel to advise it in these matters. The investigations are not being conducted in public, and the Directors cannot predict with certainty whether Mallett Inc. or any other company or person in the Mallett group will be named in civil or criminal claims or litigation as a result of the investigations. Though the transactions pre-dated the acquisition there was no provision in the financial accounts of Mallett plc or its subsidiaries for any costs relating to them. A fair value adjustment was made subsequent to the acquisition as at that point the costs in responding to the subpoena from the SEC and/or assisting the US authorities with their investigations were unavoidable. The estimate made at the time was £0.9m. Subsequently, with the involvement of the DOJ, this estimate has proved to be inadequate. At the year end the Group had an accrual of £1.1m, which represents the Board’s best estimate for subsequent costs. There is a possibility that costs may exceed this level, though they may be covered by insurance or counter claims. The Board consider the likelihood of additional costs to be both remote and difficult to measure so are unable to meaningfully quantify. 28 Financial instruments The Group is exposed through its operations to the following risks: – – – Credit risk Interest rate risk Liquidity risk The Group is exposed to the risk that arises from its use of financial instruments. The Group’s financial instruments comprise cash and available banking facilities and various items such as trade receivables and trade payables which arise directly from operations. The Group financed its operations with a bank loan, details of the loan facility can be found in note 19. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group’s policies and procedures in managing these risks are detailed in the Financial Review on pages 17 to 18. The Stanley Gibbons Group plc 68 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 69 Notes to the Financial Statements continued 28 Financial instruments continued Summary of financial assets and liabilities by category The principal financial instruments used by the Group, from which financial instrument risk arises are shown below summarised by category: Financial assets – Loans and receivables Available for sale financial assets (see below) Trade and other receivables Cash at bank Financial liabilities measured at amortised cost Trade and other payables Borrowings 31 March 2016 £’000 31 March 2015 £’000 (restated) – 15,574 1,542 17,116 40,211 21,947 62,158 (45,042) 1,364 19,604 – 20,968 56,359 11,695 68,054 (47,086) Credit risk Credit risk is the risk of financial loss to the Group if a customer or contractual party to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. In order to manage risk the Group has implemented policies that require appropriate credit checks on potential customers before sales are made. These checks are performed at a local level. The amount of any exposure to any individual counterparty is subject to a limit which is regularly reviewed by the Directors. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. Risks associated with cash deposits are limited as the banks used have high credit ratings assigned by international credit rating agencies. The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised in the statement of financial position as noted in the above table. The Directors of the Company consider that all the above financial assets for each of the statement of financial position dates under review are of a good credit quality, including those past due settlement dates. See note 16 for more information on financial assets that are past due settlement dates. Interest rate risk The Group finances its operations through a combination of bank loans and overdraft (see note 19), and through the generation of cash from operating activities and has no interest rate exposure on any other financial liabilities. The finance charge of the Group for the year to 31 March 2016 of £611,000 (2015: £428,000) comprised loan interest & charges of £435,000 (2015: £258,000) and net finance costs from its defined benefit pension scheme liabilities of £176,000 (2015: £170,000). The bank loans are linked to LIBOR. A 0.05% (5 basis point movement) movement in LIBOR would have resulted in an additional interest charge of £8,000 (2015: £3,000). The Stanley Gibbons Group plc 69 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 70 Notes to the Financial Statements continued 28 Financial instruments continued Foreign exchange risk The Group had no material exposure to foreign exchange risk in the year ended 31 March 2016. The Group did have assets and liabilities denominated in foreign currencies relating to its USA activities for both the internet and Mallett. Neither of these activities was deemed as a material risk of foreign currency exposure to the group. Liabilities that arises in US $ are managed from cash generated by the sale of assets in these currencies or by the use of foreign currency earnings generated elsewhere within the Group. Following the closure of the USA marketplace activities and the significant reduced USA Mallett activities post 31 March 2016 the exchange rate risk to the Group has diminished further. Liquidity risk Liquidity risk arises from the Group’s management of its working capital and the finance charges and principal repayment on its bank borrowings. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs. The Group’s liquidity risk is managed by the Group finance function. Budgets and forecasts are prepared throughout the year for the Directors. These are monitored to ensure that the Group has sufficient headroom within its cash facilities to meet liabilities as they fall due. The Group’s forecasts shows that it will remain in compliance with its banking covenants throughout the foreseeable period and that it will have access to adequate resources to continue operations and to meet its liabilities, as and when they fall due. However the forecasts are dependent upon the liabilities and contingent liabilities, particularly in relation to investment plans redemption profiles, not materialising at a level greater than forecast and trading improving from its current level in line with management’s expectations. The Group’s financial liabilities have contractual maturities (representing undiscounted contractual cash flows) as summarised below: At 31 March 2016 Trade and other payables Borrowings At 31 March 2015 (restated) Trade and other payables Borrowings Within 6 months £’000 Between 6 and 12 months £’000 Between 1 and 5 years £’000 21,986 5,431 27,417 24,642 577 25,219 8,423 271 8,694 7,349 1,394 8,743 9,802 17,726 27,528 24,368 10,937 34,855 Total £’000 40,211 23,428 63,639 56,359 12,908 68,817 Included within trade and other payables is an amount of £23,918,000 (£33,546,000 – 31 March 2015) relating to previous customers of certain investment plans and will be payable if the customer chooses not to hold their collectibles or reinvest in other collectibles. During the year ended 31 March 2016 £9,628,000 of these contracts fell due and off these contracts £1,450,000 was paid to customers who chose not to hold or reinvest. The Directors monitor these liabilities as they fall due and have procedures in place to ensure that the liquidity risk from these maturing investments in minimised. A further liquidity risk is disclosed in note 27 and relates to investment plans which the Group has a £64,300,000 (2015: £51,400,000) contingent liability exposure. The Director’s current opinion is that an event to crystalise this liability is remote. The Stanley Gibbons Group plc 70 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 71 Notes to the Financial Statements continued 29 Identity of related parties The Company has a controlling related party relationship with its subsidiary companies (see note 33). The Group also had a related party relationship with its Directors. Transactions between parent and subsidiaries The parent company charged management fees of £3,239,000 in the year to 31 March 2016 (2015: £3,231,000) to its subsidiaries. Transactions with Directors and key management personnel The remuneration of the Directors and details of share options granted are disclosed in the Report on Remuneration and in note 6. There are no key management personnel, as defined in IAS 24, aside from the Directors. Year ended 31 March 2016 M Hall forfeited share options during the year to 31 March 2016 as follows: M Hall Shares forfeited No 144,736 Price 227.50p M Hall, Director, made purchases during the year to the value of £17,657. He had a net sales ledger balance of £13,359 at the year end. H G Wilson had a purchase ledger balance of £21,415 at the year end. The Group received rental income of £21,600 during the year from Marbral Limited, a company 100% owned by Mr Bralsford. During the year the Group paid £75,000 to Evolution Securities China Ltd for corporate consultancy services. C P Whiley is the Managing Director of this company. Year ended 31 March 2015 M Hall & D Duff exercised share options during the year to 31 March 2015 as follows: M Hall D Duff Shares acquired Shares disposed No 112,000 70,000 Price 179.0p 179.0p No 112,000 70,000 Price 310.0p 310.0p M Hall, Director, had a purchase ledger balance of £865 at the year end. J Byfield, Director, redeemed portfolios to the value of £409,777 during the year and there was £8,786 due to him at the year end. I Goldbart, former Director, purchased and sold coins from/to A H Baldwin & Sons Limited to the value of £3,750 and £1,550 respectively during the year. Relatives of I Goldbart, former Director, purchased and sold coins from/to A H Baldwin & Sons Limited to the value of £8,333 and £1,030 during the year. There was £2,118 owed by AH Baldwin & Sons Limited to relatives of Mr Goldbart at the year end. On 21 November 2014, I Goldbart sold 122,853 Ordinary 1p shares at £3.00. The Stanley Gibbons Group plc 71 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 72 Notes to the Financial Statements continued 30 Acquisitions On 29 May 2015, the Group, through its wholly owned subsidiary, The Fine Art Auction Group Limited, (“TFAAG”) purchased 100% of the share capital of Bid for Win e Limited for £217.500. A further £300,000 of consideration is deferred depending on the business achieving gross merchandise value of £1,500,000 per annum. Bid for Wine Limited is a peer to peer wine sales platform with auction capabilities. The Group has used the auction capability to hold on line auctions for its Dreweatts business. The provisional fair values of the assets acquired at the time along with the final fair values determined in the current year are as follows: At date of acquisition Intangible assets Inventories Trade debtors Loan Book and fair value of net assets at acquisition date Goodwill Consideration paid Bid for Wine £000 12 36 43 (91) – 218 218 After completion the Loan which was with the previous Directors of Bid for Wine Limited was repaid. In the period from acquisition to 31 March 2016 Bid for Wine contributed £62,000 of revenue and a loss of £300,000. At 31 March 2016 the Directors reviewed the carrying value of the business based on its performance since 29 May 2015 and its predicted future profits. As a result of this review the Directors required a full impairment (£218,000) against the carrying value of goodwill. As a result of this review it is the Directors opinion that the deferred consideration is unlikely to be paid and therefore no provision has been made in the Group accounts. 31 a Prior year adjustment – fair value on acquisition On 20 October 2014, the Group, through its wholly owned subsidiary, The Fine Art Auction Group Limited, (“TFAAG”) purchased 100% of Mallett plc (“Mallett”). Provisional fair values were calculated for inclusion in 31 March 2015. A review of the provisional fair value adjustments was conducted at 31 March 2016. From this review the Directors concluded that the interpretation of fair value accounting adjustments at the date of acquisition had been incorrectly applied and a number of the assets and liabilities were misstated. As a result the Directors felt that it was appropriate to restate net assets of the acquired company, fair value adjustments and goodwill on acquisition by way of a prior year adjustment. The following amendments to net assets and fair value at acquisition have been applied. The Stanley Gibbons Group plc 72 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 73 Notes to the Financial Statements continued 31 a Prior year adjustment – fair value on acquisition continued At date of acquisition Property, plant & equipment Intangible assets Financial assets Inventories Trade debtors Other debtors Cash Trade payables Tax Accruals Pensions Book value of net assets at acquisition date Fair value adjustments Customer relationships Brands Property Inventory Debtors Deferred tax asset Deferred tax liability Accruals Pensions Fair value of net assets acquired Goodwill Consideration paid Mallett Net assets at acquisition as stated in 31 March 2015 Financial Statements £’000 Net assets at acquisition restated 31 March 2016 £000 2,508 162 6 11,252 1,182 335 (1,190) (945) 6 (2,104) (1,417) 9,795 2,508 162 6 8,305 1,182 335 (1,190) (945) 6 (2,104) (1,417) 6,848 Fair value adjustments as at 31 March 2015 Final FV adjustments as at 31 March 2016 828 2,610 – (5,805) (175) 3,147 (687) (1,304) 212 8,621 – 8,621 828 2,610 1,446 (324) (175) 1,087 (976) (1,304) 212 10,252 (1,631) 8,621 Impact on the financial statements of the fair value prior year adjustment The correction of net assets and fair values on acquisition results in negative goodwill of £1,631,000 as a result of net assets being higher than consideration. As the business was acquired at 20 October 2014 there is no impact on opening reserves at 1 April 2014. However, there is an impact on both the statement of comprehensive income and the statement of financial position at 31 March 2015. The Stanley Gibbons Group plc 73 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 74 Notes to the Financial Statements continued 31 a Prior year adjustment – fair value on acquisition continued Impact on Statement of Comprehensive income As a result of the changes in stock fair value provision there is an impact on comprehensive income for the year ending 31 March 2015. The previous year’s financial statements included a fair value stock provision release of £655,000 and a deferred tax asset release associated with this of £98,000. The impact of this prior year adjustment on the statement of comprehensive income and statement of financial position as at 31 March 2015 shown in the table at the end of note 31 b. 31 b Prior year adjustment – revenue recognition As part of the audit process the Board reviewed its accounting policy and past accounting treatment with regard to the recognition of revenue in relation to certain of the investment plans which were offered by the Group in earlier years. This review was undertaken in light of the contractual terms of those investment plans and the appropriate accounting standards. The Board considers that the previous recognition of revenue related to certain of the investment plans was not in line with appropriate accounting standards and this has been corrected by way of a prior year adjustment. The review of the accounting policy impacts the opening net assets of the Group at 31 March 2014 as explained below. The net impact of the review is to reduce net assets at 31 March 2014 by £15,220,000. Revenue recognition on investment plans – The Group offered investment plans to clients which included at the end of the contract term an option to sell back the items at the original purchase price (Capital Protected Growth Plan “CPGP”) and in some cases with a guaranteed return (Guaranteed Minimum Return Contract “GMRC”), to Stanley Gibbons. These contracts were over a fixed period between 1-10 years, with the majority being 5 year contracts. At the end of the contract the buyback is one option open to clients, along with other options such as where the client chooses to sell the item at market value, reinvests in other items or retains the item. On reviewing the appropriate accounting standards against the contractual terms of these plans it was the Directors opinion that the recognizing the revenue from these investment plans at the contract inception was incorrect and that revenue that had been recognised in previous accounting periods relating to the CPGP and GMRC products should be reversed. Depending on subsequent events (the decision that the client makes at the end of the contract term), the value of outstanding the CPGP and GMRC investment plans, would fall to be recognised as revenue in later financial periods, if the buyback option is not chosen. Although the trading results of later years are likely to be beneficially effected, the historic reported revenue and profit have been materially reduced as a consequence of the unwinding of a material part of the previously reported investment plan revenues and profits. The accounting adjustment applied to the opening balance sheet at 1 April 2014 brings back into stock those items where the Group retains a contractual obligation to repurchase the items from clients at the end of the investment plan term and the value of the potential obligations are recorded as a liability on the balance sheet. Therefore a creditor was created for the potential obligations to clients of £37,101,000. Inventory brought back into stock as a result of these investment plans was £24,930,000. During the year ended March 2015, holders of these plans that chose to retain their collectible items after their GMRC or GPGP expired, would result in revenue being now being recognised in that year that previously would have been recognised in previous years. The Stanley Gibbons Group plc 74 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 75 Notes to the Financial Statements continued 31 b Prior year adjustment – revenue recognition continued The Group’s exposure to such contracts is limited to those contracts still extant and the GMRC and CPGP ceased to be sold in April 2011 and December 2013, respectively. Stock repurchased on expired plans – Additionally in the past where guarantees were exercised, the transaction was recorded as a purchase of stock at the guaranteed value . As the original transaction is no longer recognised as a sale, the item should have remained in stock at its original purchase price, albeit the exercise of the guarantee would have passed legal title back to the Stanley Gibbons. The accounting adjustment, relating to the items exercised under the guarantee, is for the carrying value of the related element of stock to be reduced from the price at which it was repurchased back to original cost and results in a decrease in the Group’s inventory of £3,049,000 at 1 April 2014. The net adjustment to the Group’s inventory as a result of the two transactions is an increase in stock of £21,881,000. The impact of this prior year adjustment on the statement of comprehensive income and statement of financial position as at 31 March 2015 was as follows: Statement of comprehensive income (extract) Sales Cost of sales Profit before tax Taxation (Loss)/profit before tax 31 March 2015 (previously stated) £’000 Increase/ (Decrease) note 31a £’000 Increase/ (Decrease) note 31b £’000 31 March 2015 (Restated) £’000 56,865 (24,600) 3,148 (1,197) 1,951 (655) (655) 98 (557) 3,181 (3,853) (672) (672) 60,046 (29,108) 1,821 (1,099) 722 Statement of financial position (extract) Property, plant & equipment Deferred tax assets Inventories Total assets Trade and other payables – current Other payables – non current Deferred tax liabilities Total liabilities Net assets Retained earnings Total equity shareholders funds 31 March 2015 (previously stated) 31 March 2015 £’000 6,528 4,063 53,822 125,027 22,363 756 1,424 42,623 82,404 17,171 Increase/ Increase/ (Decrease) (Decrease) note 31b £’000 note 31a £’000 31 March 1 April 2014 2015 (previously stated £’000 (Restated) £’000 Increase/ (Decrease) note 31b £’000 1 April 2014 (restated) £’000 1,446 (1,943) 1,878 1,381 6,528 7,974 – 1,016 2,120 – 17,348 42,118 73,048 17,348 143,756 107,250 6,528 – 1,016 – 21,881 63,999 21,881 129,131 – – 407 407 974 974 9,628 23,612 – 33,240 (15,892) (15,892) 31,991 24,368 1,831 76,270 67,486 2,253 15,928 375 1,424 23,305 83,945 19,666 3,930 33,171 – 37,101 (15,220) (15,220) 19,858 33,546 1,424 60,406 68,725 4,446 82,404 974 (15,892) 67,486 83,945 (15,220) 68,725 The Stanley Gibbons Group plc 75 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 76 Notes to the Financial Statements continued 32 Post Balance Sheet Events Issue of share capital On 1 April 2016, the Company issued 131,796,286 Ordinary Shares at an issue price of 10p a share. These shares were admitted to the Alternative Investment Market on that date. 129,996,286 shares were issued to shareholders by way of a fundraising exercise and 1,800,000 shares were issued to Evolution Securities China Limited (ESCL) for consultancy services supplied by ESCL to the Company. Clive Whiley is managing director of ESCL. The net proceeds of this issue were £12,350,000 At the date of this report the Company’s issued and fully paid share capital stands at 178,916,643 ordinary shares of 1p each with a value of £1,789,166. Sale of lease During May 2016 the Group sold its leases over Ely House, Dover Street, London and an adjacent property for £2.5m. After costs, this reduced the Group’s indebtedness by £2.4, The Group also sublet a substantial part of its New York premises. Resignation of Directors On 14 July 2016 D M Bralsford, S Perrée, M R M Hall and D P J Duff resigned as Directors of the company. On 13 September 2016 C S Jones resigned as a Director of the company. 33 Principal subsidiaries The principal subsidiary undertakings of the Company, all of which are 100% owned are as follows: Name Stanley Gibbons (Guernsey) Limited Guernsey Country of incorporation Description of shares held Ordinary £1 shares Stanley Gibbons (Jersey) Limited Jersey Ordinary £1 shares Stanley Gibbons E-commerce Limited Jersey Stanley Gibbons Holdings Limited Stanley Gibbons Limited* England England Ordinary £1 shares Ordinary £0.25 shares Ordinary £1 shares Stanley Gibbons (Asia) Limited Hong Kong Ordinary HK$1 shares Stanley Gibbons (SEA) Pte Limited Singapore Ordinary S$1 shares Principal activity Philatelic dealer and dealer in memorabilia Philatelic dealer and dealer in memorabilia E-commerce retailing Holding Company Philatelic dealer and retailer, and dealer in memorabilia Philatelic dealer and dealer in memorabilia Philatelic dealer and dealer in memorabilia Stanley Gibbons US, Inc* Minden House Limited Concept Court Limited Murray Payne Limited United States Jersey England England Common stock US$0.0001 Web development Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares First day cover dealer First day cover dealer Philatelic dealer and auctioneer Holding Company Dealer and auctioneer in rare coins and other collectibles Auctioneers of works on paper Noble Investments (UK) Limited AH Baldwin & Sons Limited* England England Ordinary 1p shares Ordinary £1 shares Greenfield Auctions Limited* England Ordinary £1 shares The Stanley Gibbons Group plc 76 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 77 Notes to the Financial Statements continued 33 Principal subsidiaries continued Name The Fine Art Auction Group Limited* England Country of incorporation Mallett Limited* Mallett & Son (Antiques) Limited* Mallett Overseas Limited* Mallett, Inc* H J Hatfield & Sons Limited* (1) Masterpiece London Limited* (2) * Indirect holding 1 60% holding 2 23.75% holding Description of shares held Ordinary £0.45 shares Preferred £1 shares Preferred £0.25 shares Deferred £0.25 shares Ordinary £0.05 shares Ordinary £1 shares Ordinary £1 shares England England England United States Common stock US$1 England England Ordinary £1 shares Ordinary £1 shares Principal activity Auctioneers and valuers of art, antiques and collectibles Holding company Antique dealers Antique dealers Antique dealers Restorers Exhibition organiser The Stanley Gibbons Group plc 77 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 78 Directors’ Biographical Details Henry George Wilson, Director and Executive Chairman Date of Birth: 18 September 1952. Date of Appointment as Director: 16 May 2016. Harry Wilson received a BSc in physics from Manchester University in 1973. Following graduation he spent 17 years in various roles at British Petroleum and attended the Executive Programme at the INSEAD Business School in France in 1985. Harry has over 35 years business experience, initially in the oil industry but successively in a wide range of business sectors. He has been founder, CEO and Chairman of a number of independent oil companies and led public listings for five companies including Dragon Oil Plc and Eland Oil & Gas Plc. He has been an executive and non-executive director of listed companies in the UK and abroad and has built up an extensive range of London and international contacts in the investment, broking and advisory communities. Throughout his business career Harry has taken a keen interest in collectibles, particularly stamps and antiques. He is a longstanding member of the Royal Philatelic Society London, the Malaya Study Group and the India Study Group. Harry was appointed a Director on 16 May 2016 and became Executive Chairman on 14 July 2016. He is a member of the Nomination Committee. Andrew Cook, Chief Financial Officer Date of Birth: 24 March 1963. Date of Appointment as Director: 14 July 2016. Andrew Cook, who was appointed Group Managing Director on 31 May 2016, joined the Board as Chief Financial Officer on 14 July 2016. Andrew is an experienced finance executive having previously held the position of Group Finance Director at Orchard & Shipman Group plc and at Medina Dairy Ltd. Prior to this Andrew held senior finance, commercial and executive roles for various companies including Kelly Services, The Body Shop and The Virgin Group. Clive Peter Whiley, Director Date of Birth: 16 June 1960. Date of Appointment as Director: 31 March 2016. Clive Whiley became a Member of The London Stock Exchange in 1983 and a Fellow of the Securities Institute in 1995. He has extensive main board executive director experience across a broad range of financial services, engineering, manufacturing, distribution & leisure businesses covering the UK, Europe, North America, Australasia and the People’s Republic of China. Mr Whiley is currently Managing Director of Evolution Securities China Limited, and Chief Executive of Camper & Nicholsons Marinas Ltd and a Director of Camper & Nicholsons Marina Investments Limited. He is also Chairman of China Venture Capital Management Limited, First China Venture Capital Limited and Y-Lee Limited. Martin Paul Magee, Non-Executive – Independent Date of birth: 26 June 1960. Date of appointment as Director: 1 August 2012 Martin qualified as a Chartered Accountant in Scotland in 1984. Following qualification he worked for nine years with Stakis plc, (now part of the Hilton Hotels Group) and then with Scottish Power plc in a variety of senior finance roles. In 2002 he was appointed Finance Director of Jersey Electricity plc. The Stanley Gibbons Group plc 78 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 79 Directors’ Biographical Details continued He is also Non-Executive Chairman of the Standard Life Offshore Strategy Fund Limited, Chairman of Jersey Deep Freeze Limited and a Director of the Channel Islands Electricity Grid Limited. Additionally, Martin was a member of the States of Jersey Public Accounts Committee for five years until 2011. He is Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees. Henry Arthur John Turcan, Non-Executive Date of Birth: 31 January 1974. Date of Appointment as Director: 23 May 2016. Henry Turcan is an experienced corporate financier based in London, having worked in the City for approaching two decades. In 2015, he joined Henderson Volantis Capital as a director of UK Smaller Companies. Before joining Henderson Volantis Capital, he was a director of Novum Securities, an independent UK based stockbroking house which he cofounded in 2006. Prior to this, Henry was a corporate finance director at Evolution Group. His focus areas are corporate finance advice and broking within equity capital markets and he has extensive experience on a broad range of transactions including IPOs on the Main Market and AIM, rights issues, takeovers and corporate finance advice to unquoted companies. Henry is Chairman of the Remuneration Committee. The Stanley Gibbons Group plc 79 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 80 Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of The Stanley Gibbons Group plc (“Company”) will be held at Banjo Jersey, 8 Beresford Street, St Helier, Jersey JE2 4WN on Thursday 27 October 2016 at 11.30 a.m. for the purpose of considering and, if thought fit, adopting the following resolutions relating to the ordinary and special business of the Company at the Annual General Meeting or any adjournment thereof: To consider, and if thought fit, to pass the following resolutions as Ordinary Resolutions: Ordinary Business 1. 2. 3. 4. 5. 6. “THAT the Company’s audited accounts for the year ended 31 March 2016 and the Directors’ and Auditors’ Reports thereon be approved and adopted.” “THAT HG Wilson, who retires in accordance with the Articles of Association of the Company, and, being eligible, be re-elected as a Director of the Company.” “THAT A Cook, who retires in accordance with the Articles of Association of the Company, and, being eligible, be re-elected as a Director of the Company.” “THAT CP Whiley, who retires in accordance with the Articles of Association of the Company, and, being eligible, be re-elected as a Director of the Company.” “THAT HAJ Turcan, who retires in accordance with the Articles of Association of the Company, and, being eligible, be re-elected as a Director of the Company.” “THAT BDO Limited be appointed as Auditors of the Company to hold office until the conclusion of the next Annual General Meeting and to authorise the Directors to fix the Auditors’ remuneration.” To consider, and if thought fit, to pass the following resolution as a Special Resolution: Special Business Authority to purchase own Ordinary Shares 7. “THAT the Company be generally and unconditionally authorised to make one or more market purchases of its own Ordinary Shares, such purchases to be of Ordinary Shares of one pence (1p) each in the capital of the Company (“Ordinary Shares”), provided that: (a) (b) (c) (d) (e) the maximum number of Ordinary Shares authorised to be purchased shall be 26,000,000 Ordinary Shares, being approximately 15 per cent of the issued capital of the Company; and the minimum price which may be paid for any such Ordinary Shares shall be 1p per Ordinary Share (exclusive of expenses); and the maximum price (exclusive of expenses) which may be paid for such Ordinary Shares shall be an amount equal to 5 per cent above the average middle market quotations of an Ordinary Share as derived from the Daily Official List of the UKLA for the five business days immediately preceding the day on which any such Ordinary Shares are purchased or contracted to be purchased; unless otherwise varied renewed or revoked the authority hereby conferred shall expire at the earlier of 31 January 2018 and the conclusion of the Annual General Meeting of the Company to be held in 2017; and prior to expiry of the authority hereby conferred the Company may enter into a contract or contracts for the purchase of Ordinary Shares which may be executed in whole or in part after such expiry and may The Stanley Gibbons Group plc 80 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 81 Notice of Annual General Meeting continued purchase Ordinary Shares pursuant to such contract or contracts as if the authority hereby conferred had not so expired.” To consider, and if thought fit, to pass the following resolution as an Ordinary Resolution: Authority to allot Ordinary Shares 8. “THAT the Directors be generally and unconditionally authorised to exercise all powers of the Company to issue or grant equity securities (as defined in the articles of association of the Company (the “Articles”)) in accordance with article 2.2(b) of the Articles: (a) up to a maximum number of 71,083,357 Ordinary Shares (such number to be reduced by the number of Ordinary Shares allotted pursuant the authority in sub-paragraph (b) below) in connection with an offer by way of a rights issue: (1) (2) to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their respective holdings; and to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and (b) in any other case, up to a maximum of 59,000,000 Ordinary Shares (such number to be reduced by the number of any Ordinary Shares allotted pursuant to the authority in sub-paragraph (a) above in excess of 59,000,000), provided that this authority shall, unless renewed, varied or revoked by the Company, expire on the earlier of 31 January 2018 and the conclusion of the Annual General Meeting of the Company to be held in 2017, save that the Company may, before such expiry, make offers or agreements which would or might require equity securities to be issued or granted and the Directors may issue or grant equity securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired.” To consider, and if thought fit, to pass the following resolution as a Special Resolution: Disapplication of pre-emption rights 9. THAT, subject to the passing of the ordinary resolution numbered 8 in this notice of Annual General Meeting, the Directors be given the general power to issue or grant equity securities (as defined in the Articles) for cash either pursuant to the authority conferred by the ordinary resolution numbered 8 in this notice of Annual General Meeting or by way of a sale of treasury shares, as if the pre-emption rights contained in article 2.7 of the Articles did not apply to any such issue or grant, provided that this power shall be limited to: (a) the allotment or grant of equity securities in connection with an offer of equity securities (but, in the case of the authority granted under sub-paragraph (a) of the ordinary resolution numbered 8 in this notice of Annual General Meeting, by way of a rights issue only): (1) to the holders of Ordinary Shares in proportion (as nearly as may be practicable) to their respective holdings; and The Stanley Gibbons Group plc 81 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 82 Notice of Annual General Meeting continued (2) to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and (b) the allotment or grant (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to a maximum of 44,500,000 Ordinary Shares. The power granted by this resolution will expire on the earlier of 31 January 2018 and the conclusion of the Annual General Meeting of the Company to be held in 2017 (unless renewed, varied or revoked by the Company prior to or on such date) save that the Company may, before such expiry make offers or agreements which would or might require equity securities to be allotted or granted after such expiry and the Directors may allot or grant equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired.” by order of the board of Directors of The Stanley Gibbons Group plc RK Purkis, Secretary Dated: 3 October 2016 Registered Office Address: 2nd Floor, Minden House, Minden Place, St Helier, Jersey JE2 4WD, Channel Islands. NOTES: 1. 2. 3. 4. 5. A member of the Company entitled to attend and vote at the meeting convened by the notice set out above is entitled to appoint a proxy to exercise all or any of your rights to attend, speak (with permission of the Chairman) and vote on your behalf at a general meeting of the Company. An instrument for the purposes of appointing a proxy is enclosed. A proxy does not need to be a member of the Company but must attend the meeting to represent you. To appoint a person other than the Chairman of the meeting as your proxy, insert their full name in the box on your proxy form. If you sign and return your proxy form with no name inserted in the box, the Chairman of the meeting will be deemed to be your proxy. Where you appoint as your proxy someone other than the Chairman, you are responsible for ensuring that they attend the meeting and are aware of your voting intentions. If you wish your proxy to make any comments on your behalf, you will need to appoint someone other than the Chairman and give them the relevant instructions directly. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different Ordinary Shares. In the event of a conflict between a blank proxy form and a proxy form which states the number of Ordinary Shares to which it applies, the specific proxy form shall be counted first, regardless of whether it was sent or received before or after the blank proxy form, and any remaining Ordinary Shares in respect of which you are the registered holder will be apportioned to the blank proxy form. You may not appoint more than one proxy to exercise rights attached to any one Ordinary Share. To appoint more than one proxy you must complete a separate Form of Proxy for each proxy or, if appointing multiple proxies electronically, follow the instructions given on the relevant electronic facility. Members can copy their original Form of Proxy, or additional Forms of Proxy can be obtained from Capita Registrars (Jersey) Limited, PXS1, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF. The return of a completed proxy form, other such instrument or any CREST proxy instruction (as described in paragraph 13 below) does not preclude you from attending the meeting and voting in person. If you have appointed a proxy and attend the meeting in person, your proxy appointment will automatically be terminated. To direct your proxy how to vote on the resolutions mark the appropriate box on your proxy form with an ‘X’. To abstain from voting on a resolution, select the relevant “Vote withheld” box. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. The Stanley Gibbons Group plc 82 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 83 Notice of Annual General Meeting continued 6. 7. 8. 9. completed and signed; sent or delivered to Capita Registrars (Jersey) Limited, PXS1, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF; and received by Capita Registrars (Jersey) Limited no later than 11.30 am on 25 October 2016. To be valid any proxy form or other instrument appointing a proxy must be: • • • In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). In the case of a member which is a company, your proxy form must be executed under its common seal or signed on its behalf by a duly authorised officer of the Company or an attorney for the Company. Any power of attorney or any other authority under which your proxy form is signed (or a duly certified copy of such power or authority) must be included with your proxy form. 10. As an alternative to completing your hard-copy proxy form, you can appoint a proxy electronically at www.capitashareportal.com. For 11. 12. an electronic proxy appointment to be valid, your appointment must be received by no later than 11.30 am on 25th October 2016. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. You may not use any electronic address provided in your proxy form to communicate with the Company for any purposes other than those expressly stated. 13. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting to be held on 27 October 2016 and any adjournment(s) thereof 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 sponsors or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the Company’s agent, Capita Asset Services (CREST Participant ID: RA10), no later than 48 hours before the time appointed for the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsor or voting service provider should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. 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 sponsor or voting service provider are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Article 34 of the Companies (Uncertified Securities) (Jersey) Order 1999. Pursuant to Article 40 of the Companies (Uncertificated Securities) (Jersey) Order 1999, the Company specifies that only those members entered on the register of members of the Company as at close of business on 25 October 2016 or, if the meeting is adjourned, 48 hours before the time fixed for the adjourned meeting shall be entitled to attend and vote at the meeting in respect of the number of Ordinary Shares registered in their name at that time. Changes to entries on the register of members after close of business on 25 October 2016 or, if the meeting is adjourned, on the register of members 48 hours before the time fixed for the adjourned meeting shall be disregarded in determining the rights of any person to attend or vote at the meeting. 14. 15. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its 16. powers as a member provided that they do not do so in relation to the same Ordinary Shares. Any member attending the meeting has the right to ask questions. The Company has to answer any questions raised by members at the meeting which relate to the business being dealt with at the meeting unless: • • • to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; the answer has already been given on a website in the form of an answer to a question, or; it is undesirable in the interests of the company or the good order of the meeting to answer the question. 17. Copies of the directors’ service contracts and letters of appointment are available for inspection at the registered office of the Company during normal business hours on any business day and will be available for inspection at the place where the meeting is being held from 15 minutes prior to and during the meeting. EXPLANATORY NOTES Resolutions 2 – 5: Directors seeking re-election Harry Wilson, Andrew Cook, Clive Whiley and Henry Turcan, each of whom was appointed as a Director by the Board after the last Annual General Meeting of the Company, will retire from office, and offer himself for re-election, at this year’s Annual General Meeting in accordance with the Company’s Articles of Association. Martin Magee will retire, and will not seek re-election as a Director at the Annual General Meeting. Biographical details of the Directors seeking re-election are contained in the Annual Report 2016. The Stanley Gibbons Group plc 83 242519 Stanley Gibbons RA_pp36-imp 05/10/2016 23:24 Page 84 Notice of Annual General Meeting continued Resolution 6: Appointment of auditor At each general meeting at which the accounts are laid before the members, the Company is required to appoint an auditor to serve until the next such meeting. The resolution also authorises the Board to determine the remuneration of the Company’s auditor. Resolution 7: Authority for Company to purchase its own Ordinary Shares The previous authority granted by the shareholders to the Directors for the Company to purchase its own Ordinary Shares will shortly expire and the Directors recommend that a further authority in this respect be obtained. The authority, if renewed at the Annual General Meeting, would permit the Company to purchase up to approximately 15% of its issued Ordinary Shares for a price (exclusive of expenses) which is not less than the nominal value of an Ordinary Share and not more than 5% above the average market value of an Ordinary Share for the five business days prior to the day the purchase is made. The authority granted by this resolution will expire on the earlier of 31 January 2018 and the conclusion of the next Annual General Meeting of the Company. The Board would only authorise such purchases after careful consideration, taking account of other investment opportunities, appropriate gearing levels, the overall financial position of the group and whether the effect would be an increase on earnings per share and in the best interests of shareholders generally. Resolution 8: Authority to allot Ordinary Shares This resolution deals with the Directors’ authority to allot Ordinary Shares in accordance with article 2.2 of the Articles and will, if passed, authorise the Directors to allot: (a) in relation to a pre-emptive rights issue only, up to a maximum of 71,083,357 Ordinary Shares (which represents the Company’s unissued Ordinary Shares as at the date of this notice. This maximum is reduced by the number of Ordinary Shares allotted under the authority referred to in sub-paragraph (b) below; and (b) in any other case, up to a maximum of 59,000,000 Ordinary Shares (which represents approximately one-third of the Company’s issued Ordinary Shares as at the date of this notice). This maximum is reduced by the number of Ordinary Shares allotted under the authority referred to in sub-paragraph (a) above in excess of 59,000,000 Ordinary Shares. Therefore, the maximum number of Ordinary Shares which may be allotted under this resolution is 71,083,357 Ordinary Shares. The authority granted by this resolution will expire on the earlier of 31 January 2018 and the conclusion of the next Annual General Meeting of the Company. Resolution 9: Disapplication of pre-emption rights This resolution will, if passed, give the Directors power, pursuant to the authority to allot granted by resolution 8, to allot Ordinary Shares or sell treasury shares for cash up to a maximum of 44,500,000 of Ordinary Shares (which represents approximately 25% of the Company’s issued Ordinary Shares as at the date of this notice) without first offering them to existing shareholders in proportion to their existing holdings. The power granted by this resolution will expire on the earlier of 31 January 2018 and the conclusion of the next Annual General Meeting of the Company. The Stanley Gibbons Group plc 84 P r i n t 2 4 2 5 1 9 P e r i v a n F n a n c a i i l 242519 Stanley Gibbons RA Cover 05/10/2016 23:22 Page 1 The Stanley Gibbons Group plc 2nd Floor, Minden House, Minden Place, St Helier, Jersey JE2 4WQ, Channel Islands Tel: 01534 766711 and 399 Strand, London WC2R 0LX Tel: 020 7836 8444 Email: info@stanleygibbons.com www.stanleygibbons.com 

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