S y m p h o n y E n v i r o n m e n t a l l i T e c h n o o g e s p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 6 www.symphonyenvironmental.com Annual Report & Accounts 2016 Symphony Environmental Technologies plc Symphony develops and produces a wide range of technologies, to make plastic smarter. Symphony has developed a range of protective plastic technologies under the d2p (designed to protect) brand, which offer extra protection from bacteria, insects, fungi, algae, odour, fouling and fire. We will continue to add to this family of products in the coming year. Symphony is also a world leader in controlled-life plastic and supplies pro-degradant additives and finished plastic products. Our d2w additive is the only technology of this type to be awarded an Eco-label, which distinguishes it from all similar products on the market. In addition to the above, our d2t tag and trace technologies give our customers the ability to accurately determine the authenticity of their products, helping to protect brand owners from counterfeits and fraud. The Board do not anticipate any revenues from this in the short term. Our products are marketed through a worldwide network of distributors in nearly 100 countries. Business Review 01 Highlights 02 Symphony at a Glance 04 Chairman’s Statement 06 Chief Executive’s Review 08 2016 Roundup 09 Corporate Social Responsibility Corporate Governance 10 Board of Directors 12 Strategic Report 13 Directors’ Report 15 Remuneration Report Financial Statements 16 Independent Auditor’s Report 17 Consolidated Statement of Comprehensive Income 18 Consolidated Statement of Financial Position 19 Consolidated Statement of Changes in Equity 20 Consolidated Cash Flow Statement 21 Notes to the Annual Report and Accounts 41 Company Balance Sheet 42 Company Statement of Changes in Equity 43 Notes to the Company Balance Sheet 47 Company information Highlights 2016 HIGHLIGHTS Revenues increase by 6.8% to £6.80 million (2015: £6.37 million) Gross profit increases by 16.3% to £3.41 million (2015: £2.93 million) Operating profit before non-recurring costs of £0.20 million (2015: loss £0.97 million) Non-recurring costs of £0.05 million (2015: £1.31 million) Profit before tax of £0.12 million (2015: loss £2.30 million) Profit after tax of £0.17 million (2015: loss £3.33 million) Basic earnings per share of 0.11p (2015: loss per share 2.26p) Operating performance ahead of market expectations POST YEAR-END Launch of d2p antimicrobial gloves and UK product listing Launch of d2p treated water pipes 02 SYMPHONY AT A GLANCE 06 CHIEF EXECUTIVE’S REVIEW BOARD OF DIRECTORS 10 16 FINANCIAL STATEMENTS CHAIRMAN’S STATEMENT 04 For more information visit: www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 01 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Symphony at a glance FROM A ONE PRODUCT COMPANY TO A BROAD TECHNOLOGIES GROUP Symphony is now an international company, reaching every corner of the globe. We have distributors giving us a presence in nearly 100 countries worldwide. Our product information Overview d2w is a masterbatch system which, when included at the manufacturing stage, turns ordinary plastic at the end of its useful life into a material with a different molecular structure. It is then no longer a plastic and has become a material which is inherently biodegradable in the open environment in the same way as a leaf. d2w products include: • Bin liners • Bottles, tubs and cups • Bubble wrap • Carrier bags • Cling film • Food packets • Frozen food packaging • Garbage sacks • Gloves and aprons • Newspaper and magazine wrappers • Paint ball spheres • Pallet wrap • Parachutes • Shrink wrap Overview The d2Detector is a portable XRF (x-ray) device that allows customers, and the authorities in countries with relevant legislation to determine in less than 60 seconds whether or not a plastic product contains d2w, d2p or d2t additives as specified, and whether it contains any undesirable substances. www.symphonyenvironmental.com/d2t/d2detector With proven performance in terms of degradation, biodegradation and eco-toxicity by test methods prescribed by ASTM D6954-04, AFNOR Accord T51-808, BS8472 and ESMA Standard 5009:2009. Our d2w masterbatch is the only biodegradable additive in the world to be awarded an ABNT Eco-label and certified by the Oxo-biodegradable Plastics Association. www.symphonyenvironmental.com/d2w www.symphonyenvironmental.com/what-is-d2w-2 Overview d2p is a family of masterbatches which offer extra protection to plastic products from bacteria, insects, fungi, algae, odour, fouling, and fire. Antibacterial Fights healthcare and food industry infections. Tested against dangerous organisms including MRSA, E-coli, Listeria, Salmonella, Pseudomonas and Aspergillus Niger. Natural Antibacterial suitable for use in food and non-food applications. In compliance with FDA Food and Drug Administration, USA and EFSA (European Food Safety Authority) requirements. Antimicrobial The primary purpose is to prevent bacterial and fungal contamination whilst preserving the aesthetic and functional properties of the plastic article. Odour adsorber Inorganic masterbatches and additives designed to inhibit the development of odours in plastic products and to prevent spoilage of fruit and vegetables. Insecticide technology Insecticidal plastic masterbatches used to control pests. Typically used in mosquito nets, agriculture, horticulture, forestry and home applications. Flame retardant Flame retardants decrease the ignitability of materials and inhibit the combustion process – limiting the amount of heat released. Pest control Rodents can cause dangerous damage to plastic products such as cable insulation, warehouse pallets, non-food packaging and boxes etc. Symphony has developed additive masterbatches with products that repel these pests. Anti-fouling Anti-fouling paint is a specialised coating applied to the hull of a ship or boat to reduce the growth of aquatic organisms. Overview d2t is a suite of technologies that provide anti- counterfeiting performance. They offer the ability to determine the authenticity of your plastic packaging and other plastic products through a unique and sophisticated tracer system. d2t is complemented by Symphony’s portable d2Detector device. www.symphonyenvironmental.com/d2t d2p products include: • Water pipes and tanks • Agriculture • Clothing and accessories • Gloves • Credit/debit cards • Cutting/chopping boards • Electronic devices • Flexible food packaging • Food containers • Fridges • Home: roofing, wall cladding and decking, tubing, piping, bed pans • Kitchen utensils • Kitchen worktop coating • Pet food packaging • Refuse sacks and long-life carrier bags • Sanitary: toilet seats, shower heads, shower curtains, hand dryers, toothbrush handles • Sports: ski boots, bowling shoes, insoles • Transportation: car interiors, tube, train, plane www.symphonyenvironmental.com/d2p 02 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 03 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Chairman’s Statement Nirj Deva, DL, FRSA, MEP I am very pleased to report a profit before tax of £123,000. This positive performance compares well with the loss of £2.3 million reported in 2015. This result was achieved by an increase in revenues to £6.80 million (2015: £6.37 million) and resultant 16.3% increase in gross profits to £3.41 million, but in particular, a substantial reduction in overheads. DELIVERING TECHNOLOGY & PRODUCTS During the year, d2w continued to generate the majority of its revenues in markets mainly outside of Europe. The political momentum has been encouraging in several overseas territories where governments aim to resolve the plastic litter crisis, as regularly highlighted in the media. As communicated by me last year, the opportunities for d2w oxo-biodegradable technology remain good even though Symphony’s investment levels in the technology have reduced. d2w remains the only oxo-biodegradable technology to have an Eco-label, a Life Cycle Assessment, and reports on Recycling Studies, Bio-degradation and Eco-toxicity on land and in the sea. d2w oxo-biodegradable technology fits well with the circular economy as well as overall strategies to improve the environment. We also advised last year that your Board intended to focus more on delivering products and technologies that will create value for shareholders in the near term. For our d2p “designed to protect” range, we have progressed significantly, and our suite of technologies now includes anti-fungal, antibacterial, odour absorber, insecticide and flame-retardants. We have now begun commercialising d2p antimicrobial gloves and d2p antimicrobial water pipes, with launches announced for early 2017. These product developments have been the result of an extensive pipeline of activities over the last three years, and we are planning further technology commercialisations in the short term. We have a valuable asset in our global distributor network and are working with them and their customers to develop products as well as selling the completed technologies through them. The Board would like to thank its management, distributors and staff for all their hard work over the last year and we look forward to further progress in 2017. N Deva, DL, FRSA, MEP Chairman 8 March 2017 04 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 05 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Chief Executive’s Review Michael Laurier In the year under review we achieved an increase in sales, gross and net profit - and all from a lower cost base. Sales of d2w products continued to account for the greater part of turnover, with the majority exported outside Europe in US and Euro currencies. EXPANDING OUR PRODUCT OFFERING d2w Controlled-life Plastic Technology The Group has continued to invest in enhancing its credentials for oxo-biodegradable plastic technology. Within the period, two new international recycling studies were completed that further evidenced that plastic products made with d2w could be safely recycled with normal plastic, and are not harmful to the recycling process nor to products made with the recycled raw material. An additional two biodegradation studies were also completed that showed that plastics made with d2w technology would safely and harmlessly degrade and biodegrade in both the terrestrial and marine environments. These further studies and reports are being used when presenting d2w as a viable and credible option for resolving the many issues caused by plastic leakage on land and into the oceans. Plastic products made with d2w technology have been proven not to leave micro-particles of plastics in the environment - which is a major topic of concern. The global momentum forcing change in current waste management practices, together with a need to resolve plastic leakage into the environment, has created more interest and opportunities for products made with d2w controlled-life plastic technology. In both corporate and political situations, Symphony has seen, and is continuing to see, a substantial increase in activity. d2p “Designed to Protect” As reported in earlier announcements, Symphony has expanded its product-offering to new and existing customers for its d2p technologies. We have more than 100 live projects in development with a wide range of customers and potential customers from the majority of our global distribution network. These projects include anti-fungal, antibacterial, odour absorber, insecticide and flame retardant masterbatches and finished products. As previously advised, some of these technologies may require regulatory clearance before commercial use in some countries, and the Group is working hard to obtain these with our distributors. Trading results Group revenues were 6.8% higher at £6.80 million (2015: £6.37 million) with an increased gross profit margin at 50.1% from 46.0% in 2015, driven mainly by a more profitable sales mix and favourable currency movements. As a result, the contribution from gross profit increased by 16.3% to £3.41 million from £2.93 million in 2015. Recurring administrative expenses decreased by 17.6% to £3.03 million (2015: £3.68 million) due to cost reductions as part of a strategic review completed in early 2016. Non-recurring administrative expenses of £0.05 million were incurred as part of the implementation this review, following the non-recurring costs in 2015 which were £1.31 million, and included a £1.28 million impairment charge relating to development cost within intangible fixed assets and £0.03 million relating to staff costs. Outlook Our expectations for the short term are that more countries outside Europe will pass legislation in favour of a d2w-type oxo-biodegrading plastic solution, and that other countries who already have legislation will progress their enforcement programs. If these expectations are met, then this should lead to an increase in demand for our d2w products. As mentioned earlier in this report, we have over 100 customer-led development projects for the wide range of d2p technologies, for both masterbatches and finished products. A good foundation has therefore been created to further increase revenues and profitability going forward. The Group’s focus will continue to be the delivery of products and technologies that create value in the near term for its shareholders. We expect to build on the positive momentum and are optimistic for a successful year ahead, in an environment that is becoming more receptive to our growing range of technologies and products. Michael Laurier Chief Executive Officer 8 March 2017 The Group’s operating profit before non-recurring items was £0.20 million - an improvement of more than £1.17 million compared with 2015. Even when taking into account the non-recurring items, the Group made an operating profit of £0.15 million in 2016 compared to an operating loss of £2.29 million in 2015. This resulted in a profit before tax of £0.12 million in 2016 (2015: loss £2.30 million). The taxation credit of £0.05 million is in respect of a Research and Development (‘R&D’) tax credit. The 2015 tax charge of £1.03 million comprises a deferred tax asset impairment of £1.14 million and an R&D tax credit of £0.11 million. The Group therefore reports a profit for the year of £0.17 million (2015: loss £3.33 million) with basic earnings per share of 0.11 pence (2015: loss per share 2.26 pence). The Group’s primary selling currency is the US Dollar and therefore a strong dollar is beneficial for the Group. The Group self-hedges where possible by purchasing in US Dollars, and has banking facilities in place in order to secure rates going forward. As at 31 December 2016, the Group had a net balance of US Dollar assets totalling $0.91 million (2015: $0.82 million). The Board has reviewed its policy on segmental reporting and now consider there is ultimately just one operating segment as defined under IFRS8. This is as a result of no material costs being incurred in Waste to Value projects over the last two accounting periods, and having no plans to incur any material costs in that segment going forward. Management reviews the performance of the Group by reference to the total performance of the whole business. The Group expensed R&D costs of £514,000 in 2016 (2015: £521,000). Balance sheet and cash flow The Group had net cash in the bank of £0.26 million at the year-end (2015: £0.12 million) and consumed cash of £0.30 million from operations (2015: cash generated £0.02 million). The increase in cash consumed was as a result of an increase in trade receivables to £1.42 million as at 31 December 2016 (31 December 2015: £0.72 million). The increase in trade receivables was primarily due to a change in terms for one of the Group’s major customers from letter of credit to 90-day open account, covered by credit insurance. The increase in trade receivables was funded by an increase in the Group’s trade finance facility to £0.63 million at 31 December 2016 (31 December 2015: £0.16 million). The Group has a £1.50 million trade finance facility with HSBC Bank plc, and the Board do not envisage any working capital constraints should sales materially increase. 06 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 07 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S 2016 Roundup Corporate Social Responsibility As an organisation we are dedicated to creating a sustainable future by finding low cost solutions to the world’s environmental and public health problems. Symphony is accredited to the environmental standard ISO 14001 and to ISO 9001 for quality management and environmental responsibility. We carefully monitor the energy we consume as a company and the waste we generate, mindful of our carbon footprint, and we are committed to reducing our energy requirements and waste year on year. We believe in the principles of the circular economy and are working towards reducing waste and avoiding pollution either by design or intention and embedding these principles into our business models and activities. Our offices and laboratories use low-energy lighting and all products and equipment are responsibly sourced. We are also committed to recycling and have a dedicated member of staff to monitor our recycling activities, as well as following the principles of reduce, reuse and recycle whenever practicable. We work wherever possible with paperless administration and use the best-practice document- management systems, utilising electronic communications and video conferencing to reduce postal costs and the need for business travel. Our production facilities in several locations around the world minimise the need to transport supplies and help to reduce our carbon-footprint. We regularly support charities and this year we held events to support a local children’s hospice as well as Mencap, Save the Children and Breast Cancer UK. We believe that the most valuable assets of our business are our staff. We therefore facilitate the career development of our staff with training courses and seminars where appropriate, as well as encouraging our distributors to develop and update their knowledge and skills through webinars and conferences and sharing best practice. We also provide training opportunities and work experience for students in the UK and abroad either in our laboratory or in the sales, marketing, supply-chain, accountancy, or administration teams. Pakistan International Airlines Symphony stand at the K Show, Dusseldorf, October 2016 January saw the launch of the new Symphony website, designed and built to accommodate an expanding range of products and to support our growing distribution network. The new website is easier to navigate and offers a more flexible platform with plenty of room to grow. Congratulations were in order for Pakistan International Airlines (PIA), who in June 2016 signed a three year agreement with Symphony’s distributor in Pakistan (Business Dynamics Pvt Ltd). This agreement made them the first airline in the world to convert all of their flexible plastics to d2w oxo-biodegradable technology and thus enabled them to be certified as a green company by Pakistan’s Environmental Protection Agency as a zero pollution airline. Of course the airline does not encourage littering, but is realistic enough to know that some of its flexible plastics will find their way into the open environment. All plastics will fragment as they degrade, but as a responsible company PIA has taken steps to ensure that its flexible plastics will convert automatically into biodegradable materials which will be harmlessly bio assimilated in the same way as a leaf, and much more quickly than ordinary plastics. At the same time, if these items do get collected they can be safely recycled together with ordinary plastics. Of all the technologies available at the present time, oxo- biodegradable plastic offers a low cost, instantly implementable, practical alternative to ordinary plastic, which could help reduce the amount of plastic waste persisting in the open environment and thereby the amount of plastic waste finding its way into the world’s oceans and remaining there for decades. At the end of July, we were pleased to announce our participation in a scientific research project on plastics in the marine environment. Marine plastic litter is a global environmental problem, with 80% of the plastic litter in the oceans originating on land. The study, which is funded by the French National Agency (ANR) commenced in January 2017 and will run for 36 months. In October Symphony attended the K show in Dusseldorf (19-26th October) to showcase oxo- biodegradable plastic, as well as antimicrobial, flame retardant, odour adsorbing and insecticidal plastic technologies. Over 600 visitors came to the Symphony stand over the eight days of the show, from more than 30 countries. Symphony was pleased to leave the show with more than 20 exciting trials and development projects to follow up during 2017. 08 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 09 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Board of Directors Nirj Deva, DL, FRSA, MEP Chairman of the Board BACKGROUND AND EXPERIENCE Nirj Deva has been a Member of the European Parliament since 1999 and is Vice-chairman of the Parliament’s International Development Committee. He is also Chairman of the EU-China Friendship Group. From 1992 to 1997 he was a member of the UK Parliament. He has held a number of senior political appointments and has advised the boards of a number of public companies including International Leisure Group, Air Europe Plc, Tricentrol Oil Co Plc, EDS, Television South West, Thomas Howell Group, John Laing Plc, Aitken Spence, and Rothmans International Plc. Michael Laurier Chief Executive Officer BACKGROUND AND EXPERIENCE Michael Laurier is the Chief Executive of the Company. Michael’s career began with his long established family packaging business, Brentwood Sack and Bag Co Limited. He took over responsibility for sales and production in the mid-seventies and changed the emphasis of the company’s business from jute products to polythene packaging, introducing the then innovative high density and medium density polythene bags into the UK market in 1975. He co-founded Symphony Plastics in 1995. Ian Bristow, FCCA Finance Director and Company Secretary BACKGROUND AND EXPERIENCE Ian Bristow was in private practice for seven years, qualifying as a Chartered Certified Accountant in 1992. In 1994, he joined Brentapac UK Plc until it was sold in 1994. He went on to co-found Symphony Plastics in 1995. Michael Stephen, LL.M Commercial Director and Deputy Chairman BACKGROUND AND EXPERIENCE Michael Stephen was a member of the UK Parliament from 1992 to 1997 and was a member of the Trade and Industry Select Committee and the Environment Select Committee of the House of Commons. He is Commercial Director and Deputy Chairman of the plc, and Chairman of its subsidiary companies since 2007. He qualified as a Solicitor with Distinction in Company Law. He was called to the Bar, and practised from chambers in London for many years, dealing with civil cases in the High Court and Court of Appeal. Nicolas Clavel Non-Executive Director BACKGROUND AND EXPERIENCE Nicolas Clavel started his career in international banking in the mid-seventies and his area of expertise has been structured trade finance and equity investments with a particular focus on Emerging Markets. He is Chief Investment Officer of Scipion Capital Ltd., (the Investment Manager of Scipion African Opportunities Fund SPC). Nicolas is Swiss, and is based in London and Geneva. Shaun Robinson Non-Executive Director BACKGROUND AND EXPERIENCE Shaun Robinson has nearly 20 years’ corporate finance, restructuring and active asset management experience, focusing on operational real estate with key specialities in hotels and healthcare. A Chartered Certified Accountant, Shaun Robinson joined the Somerston Group in 2004 and is responsible for business development, M&A and tax/corporate structuring. Shaun is Executive Director of Somerston Capital, Richmount Management Ltd, Somerston Health and St James’ Hotels; and a director of Deutsche Real Estate Fund Advisors, advising to a leading German student housing business. 10 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 11 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Strategic Report Directors’ Report Principal activities and business review The primary business activities of the Group are the development and supply of environmental plastic products to a global market. The Group also supplies other flexible polythene and related conventional products. A review of the business is given in the Chairman’s Statement on pages 4 and 5 together with the Chief Executive’s Review on pages 6 and 7. Future developments are summarised in the Outlook section of the Chief Executive’s Review on page 7. Key performance indicators The Directors have monitored the progress of the overall Group strategy by reference to certain financial and non-financial key performance indicators. Key performance indicator 2016 2015 Method of calculation Revenue (£’000) 6,801 6,365 Revenues for the Group. Gross profit margin (%) 50% 46% The ratio of gross profit to sales. These are discussed within the Chairman’s Statement and the Trading Results section of the Chief Executive’s Review. Principal risks and uncertainties The Directors have identified and continually monitor the principal risks and uncertainties of the Group. These may change over time as new risks emerge and others cease to be of concern. The principal risks of the Group are detailed below. Foreign exchange risk The Group sells products in many countries and generates revenues in US Dollars and Euros. Foreign exchange rates fluctuate and, as such, assets created in foreign currencies are liable to constant revaluations into their Sterling equivalent. The Group mitigates this risk by purchasing, where practicable, in currencies to match revenues. The Group also has exchange facilities with its bank to use as and when appropriate. Competition risk The Group faces competition from suppliers of similar products which could affect revenues and/or gross margins. The Group mitigates this risk by having a large number of distributors globally who can concentrate on any competition issues within their market, and also by differentiating the Group’s products by branding and marketing activities. Raw material pricing and availability The Group uses commodity and speciality materials in the make-up of its products. There is a risk of price volatility and material availability. The Group mitigates this risk by using more than one supplier of its products and continually researching separate supply alternatives for the materials used. BY ORDER OF THE BOARD I Bristow Company Secretary 8 March 2017 The Directors present their report and the audited financial statements of the Group for the year ended 31 December 2016. The Directors as referred to in these financial statements are the directors of Symphony Environmental Technologies plc only. Results and dividends The trading results for the year and the Group’s financial position at the end of the year are shown in the attached financial statements. The profit for the year after taxation amounted to £168,000 (2015: loss £3,332,000). The Directors do not recommend a dividend (2015: £nil). Research and development The Group is involved in the research and development of environmental plastic products. The Directors and their interests The Directors who served during the year were as follows: N Deva, DL, FRSA, MEP – Non-Executive Chairman M Laurier - Chief Executive Officer I Bristow, FCCA - Finance Director M Stephen, LL.M – Commercial Director & Deputy Chairman N Clavel – Non-Executive Director S Robinson – Non-Executive Director The Directors’ interests in the shares of the Company are shown in the Remuneration Report. Directors’ responsibilities statement The Directors are responsible for preparing the Strategic Report, the Directors’ Report, and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). The parent Company’s own financial statements continue to be prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs or UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: • so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • the Directors have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 12 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 13 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Directors’ Report continued Remuneration Report Going concern Management have prepared a cash flow forecast for the ensuing twelve months from the approval of the financial statements. Operating results for the start of 2017 have been in line with these forecasts. The Group anticipates sales growth from the launch of new products in the forthcoming year after the significant investments made in previous years. Having reviewed the cash flow forecasts and the available headroom within existing facilities the Directors believe that the Group has sufficient cash resources to meet debt obligations as they fall due. For these reasons, the Directors are of the opinion that it is appropriate to continue to adopt the going concern basis in preparing these financial statements. Corporate governance The Group is committed to developing and adhering to high standards of corporate governance. As an AIM listed company, Symphony Environmental Technologies plc is not required to and does not apply the UK Corporate Governance Code as issued by the UK’s Listing Authority, however, it seeks to follow the principles of good governance as far as management believes it is practical for a Group of its size, nature and circumstances. Financial risk management policies The Group’s financial risk management policies are detailed in note 3 to the financial statements. Auditor A resolution to appoint Mazars as auditor for the ensuing year will be proposed at the Annual General Meeting. BY ORDER OF THE BOARD I Bristow Company Secretary 8 March 2017 Directors’ emoluments N Deva M Laurier I Bristow M Stephen M F Stephens (resigned from the Board 26 June 2015) N Clavel S Robinson Basic salary £’000 Benefits £’000 2016 Total Emoluments £’000 2015 Total Emoluments £’000 16 200 137 145 – 16 16 530 – 11 8 16 – – – 35 16 211 145 161 – 16 16 565 36 258 177 183 88 29 30 801 The Directors’ pensions, where applicable, are administered by those Directors. The Company has taken out insurance for its officers against liabilities in relation to the Company under Section 233 of the Companies Act 2006. Directors’ interests The Directors in office at the end of the year, together with their beneficial interests in the shares of the Company, were as follows: Ordinary Shares of £0.01 each N Deva M Laurier I Bristow M Stephen N Clavel S Robinson At 31 December 2016 363,925 23,424,510 1,163,925 933,998 550,000 10,912,449 At 1 January 2016 363,925 22,952,317 1,163,925 933,998 550,000 10,912,449 Share options and warrants The Directors have share options and warrants, or interests in share options and warrants as follows: N Deva N Deva M Laurier M Laurier I Bristow I Bristow M Stephen M Stephen M Stephen N Clavel N Clavel S Robinson S Robinson Number of share options or warrants Exercise price (pence per share) Exercisable from Exercisable to 1,500,000 250,000 1,851,500 350,000 3,000,000 280,000 1,200,000 2,000,000 210,000 500,000 250,000 893,110 293,260 4.500 9.875 4.500 9.125 4.500 9.125 6.250 4.500 9.125 4.500 9.875 15.000 15.000 26 November 2008 18 December 2010 26 November 2008 31 March 2010 26 November 2008 31 March 2010 28 April 2007 26 November 2008 31 March 2010 16 October 2009 18 December 2010 14 November 2015 09 June 2016 26 November 2018 18 December 2019 26 November 2018 30 March 2020 26 November 2018 30 March 2020 28 April 2017 26 November 2018 30 March 2020 16 October 2018 18 December 2019 14 November 2017 09 June 2018 The above share options and warrants are HM Revenue and Customs unapproved. See note 18 to the financial statements for the terms of the above options and warrants. 14 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 15 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Consolidated Statement of Comprehensive Income for the year ended 31 December 2016 Revenue Cost of sales Gross profit Distribution costs Administrative expenses – recurring Administrative expenses – non-recurring Administrative expenses Operating profit/(loss) – before non-recurring items Operating loss – non-recurring Operating profit/(loss) Finance costs Profit/(loss) for the year before tax Taxation Profit/(loss) for the year Total comprehensive income for the year Basic earnings/(loss) per share Diluted earnings/(loss) per share 2016 2015 Note £’000 £’000 £’000 £’000 5 6 6 8 9 10 10 6,801 (3,395) 3,406 (176) 6,365 (3,437) 2,928 (221) (3,031) (54) 199 (54) (3,679) (1,313) (3,085) (4,992) (972) (1,313) 145 (22) 123 45 168 168 0.11p 0.10p (2,285) (16) (2,301) (1,031) (3,332) (3,332) (2.26)p (2.26)p All results are attributable to the parent Company equity holders. There were no discontinued operations for either of the above periods. The accompanying notes form an integral part of these financial statements. Independent Auditor’s Report to the members of Symphony Environmental Technologies plc Independent Auditor’s Report to the members of Symphony Environmental Technologies plc We have audited the financial statements of Symphony Environmental Technologies plc for the year ended 31 December 2016 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, the Company Balance Sheet, the Company Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of Directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 13, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report is made solely to the company’s members, as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body for our audit work, for this report, or for the opinions we have formed. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Separate opinion in relation to IFRSs as issued by the IASB As explained in note 2 to the Group financial statements, the Group, in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the Group financial statements comply with IFRSs as issued by the IASB. Opinion on the other matter prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Samantha Russell Senior Statutory Auditor for and on behalf of Mazars LLP Chartered Accountants and Statutory Auditor Tower Bridge House St Katharine’s Way London E1W 1DD 8 March 2017 16 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 17 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Consolidated Statement of Changes in Equity for the year ended 31 December 2016 Equity attributable to the equity holders of Symphony Environmental Technologies plc: For the year to 31 December 2016 Balance at 1 January 2016 Total comprehensive income for the year Balance at 31 December 2016 For the year to 31 December 2015 Balance at 1 January 2015 Issue of share capital Transactions with owners Total comprehensive loss for the year Balance at 31 December 2015 Share capital £’000 1,499 – 1,499 1,446 53 53 – 1,499 Share premium £’000 Retained deficit £’000 3,533 – (4,139) 168 Total equity £’000 893 168 3,533 (3,971) 1,061 3,077 456 456 – (807) – – (3,332) 3,716 509 509 (3,332) 3,533 (4,139) 893 The accompanying notes form an integral part of these financial statements. Consolidated Statement of Financial Position as at 31 December 2016 Assets Non-current Property, plant and equipment Intangible assets Current Inventories Trade and other receivables Cash and cash equivalents Total assets Equity Equity attributable to shareholders of Symphony Environmental Technologies plc Ordinary shares Share premium Retained deficit Total equity Liabilities Non-current Interest bearing loans and borrowings Current Interest bearing loans and borrowings Trade and other payables Total liabilities Total equity and liabilities Note 2016 £’000 2015 £’000 11 12 15 16 17 298 62 360 416 1,576 437 2,429 2,789 397 73 470 477 852 122 1,451 1,921 18 18 18 1,499 3,533 (3,971) 1,499 3,533 (4,139) 1,061 893 19 19 20 2 6 808 918 1,726 1,728 2,789 170 852 1,022 1,028 1,921 These financial statements were approved by the Board of Directors on 8 March 2017 and authorised for issue on 8 March 2017. They were signed on its behalf by: I Bristow, FCCA Finance Director The accompanying notes form an integral part of these financial statements. 18 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 19 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Consolidated Cash Flow Statement for the year ended 31 December 2016 Operating activities Net cash used in operations Tax received – R&D tax credits Net cash generated/(used) in operating activities Investing activities Additions to property, plant and equipment Additions to intangible assets Proceeds from sale of property, plant and equipment Net cash generated/(used) in investing activities Financing activities Repayments of borrowings Movement in working capital facility Movement in finance lease liability Proceeds from share issue Interest paid Net cash generated/(used) in financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Note 21 2016 £’000 2015 £’000 (343) 45 (298) (8) (2) 11 (91) 111 20 (141) (212) - 1 (353) - 464 (4) - (22) (650) 15 7 509 (16) 438 (135) 141 117 258 (468) 585 117 The reconciliation to the cash and cash equivalents as reported in the statement of financial position is as follows: Loans and receivables: Cash at bank and in hand Financial liabilities measured at amortised cost: Bank overdraft Cash and cash equivalents, end of year The accompanying notes form an integral part of these financial statements. Note 2016 £’000 2015 £’000 17 20 437 (179) 258 122 (5) 117 Notes to the Annual Report and Accounts 1. General information Symphony Environmental Technologies plc (‘the Company’) and subsidiaries (together ‘the Group’) develop and supply environmental plastic additives and products, and develop waste to value systems. The Company, a public limited company, is the Group’s ultimate parent company. It is incorporated and domiciled in England (Company number 03676824). The address of its registered office is 6 Elstree Gate, Elstree Way, Borehamwood, Hertfordshire, WD6 1JD, England. The Company’s shares are listed on the AIM market of the London Stock Exchange and as a level 1 ADR in New York. 2. Summary of significant accounting policies These consolidated financial statements have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRS) as adopted by the European Union and also as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared under the historical cost convention except as started in the accounting policies. Financial information is presented in pounds sterling unless otherwise stated, and amounts are express in thousands (£’000) and rounded accordingly. The accounting policies have remained unchanged from the previous year except as follows in respect to IFRS8. The Board have reviewed it policy on segmental reporting and now consider there is ultimately just one operating segment as define under IFRS8. This is as a result of no material costs being incurred in Waste to Value projects over the last two accounting periods, and having no plans to incur any material costs in that segment going forward. Management reviews the performance of the Group by reference to total results of the whole business. Consolidation The consolidated financial statements incorporate those of Symphony Environmental Technologies plc and all of its subsidiary undertakings. Subsidiaries acquired during the year are consolidated using the acquisition method. Under the acquisition method, their results are incorporated from the date that control passes. The difference between the cost of acquisition of shares in subsidiaries and the fair value of the separable net assets acquired is capitalised as goodwill. All financial statements are made up to 31 December 2016. All intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. Going concern Management have prepared a cash flow forecast for the ensuing twelve months from the approval of the financial statements. Operating results for the start of 2017 have been in line with these forecasts. The Group anticipates sales growth from the launch of new products in the forthcoming year after the significant investments made in previous years. Having reviewed the cash flow forecasts and the available headroom within existing facilities the Directors believe that the Group has sufficient cash resources to meet debt obligations as they fall due. For these reasons, the Directors are of the opinion that it is appropriate to continue to adopt the going concern basis in preparing these financial statements. Revenue Degradable and non-degradable plastic goods, and associated products Revenue is stated at the fair value of the consideration receivable and excludes VAT and trade discounts. The Group’s revenue is from sale of goods. Revenue from the sale of goods is recognised when all of the following conditions have been satisfied: a) ownership of the significant risks and rewards has been transferred to the buyer. The buyer may be one of the Group’s distributors or an end customer. This may be based upon shipment or delivery depending upon specific contractual terms, whereby the Group relies on INCOTERMs (a series of pre-defined commercial terms published by the International Chamber of Commerce) to assess this; b) the amount of revenue can be measured reliably whereby the Group sells goods after receipt of confirmed orders; c) it is probable that the economic benefits associated with the transaction will flow to the entity; d) the costs incurred or to be incurred in respect of the transaction can be measured reliably; and e) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; Non-recurring items Expenditure is classified as non-recurring where the cost is considered to be material, one-off, and will not continue in future. Intangible assets Research and development costs Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied: • completion of the intangible asset is technically feasible so that it will be available for use or sale; 20 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 21 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued • the Group intends to complete the intangible asset and use or sell it; • the Group has the ability to use or sell the intangible asset; • the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; • there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the expenditure attributable to the intangible asset during its development can be measured reliably. Development costs not meeting the criteria for capitalisation are expensed as incurred. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. The nature of the Group’s activities in the field of development work renders some internally generated intangible assets unable to meet the above criteria at present. Amortisation commences upon completion of the asset and is shown within administrative expenses and is included at the following rate: Plastic masterbatches and other additives - 15 years straight line. Careful judgement by the Directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each balance sheet date. All amounts disclosed within note 12 in development costs relate to plastic masterbatches and other additives. Trademarks Trademarks represent the cost of registration and are carried at cost less amortisation. Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Trademarks – 10 years straight line. Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. The cost comprises of the purchase price of the asset plus directly attributable costs. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Plant and machinery Fixtures and fittings Motor vehicles Office equipment 20% reducing balance. 10% straight line. 25% reducing balance. 25% straight line. The residual value and useful economic lives are reconsidered annually. Impairment testing of intangible assets and property, plant and equipment All individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Inventories Inventories are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Cost is determined on the basis of purchase value plus all directly attributable costs of bringing the inventory to the current location and condition, on a first-in first-out basis. Leased assets In accordance with International Accounting Standard (IAS) 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to profit or loss on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. Employee costs Employee compensation Employee benefits are recognised as an expense. Termination benefits Termination benefits are those benefits which are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Post employment obligations The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group. The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets, insofar as Group companies are entitled to UK tax credits on qualifying research and development expenditure, such amounts are recognised when received and presented in the income tax line within profit and loss. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they either relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity, or where they relate to items charged or credited in other comprehensive income the deferred tax change is recognised in other comprehensive income. Foreign currencies Monetary assets and liabilities in foreign currencies are translated into Sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating result. The Group uses derivatives such as foreign currency hedges to hedge its current or future positions against foreign exchange rate risks. These derivatives are measured at fair value, determined by reference to observable market prices at the reporting date. Financial assets Financial assets held by the Group are divided into the following categories: loans and receivables and available- for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are initially recognised at fair value plus transaction costs. The Group currently has the following financial assets: Trade and other receivables Trade receivables are categorised as loans and receivables. Trade receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in profit or loss. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Group’s available-for-sale financial assets are the equity investments in Symphony Bin Hilal LLC, American Plastic Technologies LLC and Oxobioplast Inc. The equity investments in Symphony Bin Hilal LLC, American Plastic Technologies LLC and Oxobioplast Inc. are measured at cost less any impairment charges, as their fair values cannot currently be estimated reliably. Impairment charges are recognised in profit or loss. An assessment for impairment is undertaken at least at each balance sheet date. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. 22 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 23 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued The Group’s financial liabilities include trade payables, other payables, bank overdraft, bank loans and other loans. These are classified as financial liabilities measured at amortised cost. Financial liabilities measured at amortised cost are initially recognised at fair values net of direct issue costs. Finance charges are charged to profit and loss, where applicable, on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent they are not settled in the period in which they arose. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Equity settled share-based payments All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2007 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of the instrument granted are determined using the Black-Scholes model. This fair value is appraised at the grant date. The fair value is charged to profit and loss between the date of issue and the date the share options vest with a corresponding credit taken to equity. Equity Equity comprises the following: • “Share capital” represents the nominal value of equity shares; • “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue; and • “Retained earnings” represents non-distributed reserves. Standards and interpretations in issue but not yet effective At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the pronouncements will be adopted in the Group’s accounting policy for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. IFRS 9 “Financial Instruments” The IASB have released IFRS 9 following completion of the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018 and has been endorsed by the European Union. IFRS 15, “Revenue from Contracts with Customers” IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. IFRS 15 is effective for reporting periods beginning on or after 1 January 2018. This standard has been endorsed by the European Union. IFRS 16 “Leases” The IASB has published IFRS 16 ‘Leases’, completing its long-running project on lease accounting. The new Standard, which is effective for accounting periods beginning on or after 1 January 2019, requires lessees to account for leases ‘on-balance sheet’ by recognised a ‘right-of-use’ asset and a lease liability. It will affect most companies that report under IFRS and are involving in leasing, and will have a substantial impact on the financial statements of lessees of property and high value equipment. This standard has been endorsed by the European Union. 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 as noted below: • IFRS 9 will impact both the measurement and disclosure of financial instruments; • IFRS 15 may have an impact on revenue recognition and related disclosures; and • IFRS 16 will have material impact on the reported assets, liabilities, income statement and cash flows of the Group. Furthermore, extensive disclosures will be required by IFRS 16. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed. The Group’s management will undertake a review of the impact on the Group of the above new standards during 2017. Note 22 details the future minimum lease payments that would be reclassified were IFRS 16 to apply to the current financial period. I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S 3. Financial risk management The main risks arising from the Group’s financial instruments are liquidity risk, interest rate risk, currency risk and credit risk. The Directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years. The Group’s financial assets and liabilities are summarised as follows: Financial assets: Cash and cash equivalents Loans and receivables Financial liabilities: Financial liabilities measured at amortised cost 2016 £’000 437 1,430 1,867 1,534 1,534 2015 £’000 122 727 849 576 576 Liquidity risk The Group seeks to manage financial risk to ensure financial liquidity is available to meet foreseeable needs and to invest cash assets safely and profitability. Short term flexibility is achieved through trade finance arrangements and overdrafts. Having reviewed the maturity of financial liabilities and the forecast cash flows for the forthcoming twelve month period, the Directors believe that sufficient cash will be generated from trading operations to meet debt obligations as they fall due. The maturity of financial liabilities as at 31 December 2016 is summarised as follows: Gross cash flows: Zero to sixty days Sixty one days to three months Four months to six months Seven months to one year One year to three years Trade payables and accruals £’000 855 – – – – 855 Finance leases £’000 Loans £’000 Bank £’000 1 – 1 2 2 6 625 – – – – 625 179 – – – – 179 Total £’000 1,660 – 1 2 2 1,665 The maturity of financial liabilities as at 31 December 2015 is summarised as follows: Gross cash flows: Zero to sixty days Sixty one days to three months Four months to six months Seven months to one year One year to three years Trade payables and accruals £’000 775 – – – – 775 Finance leases £’000 1 – 1 2 6 10 Loans £’000 Bank £’000 Total £’000 161 – – – – 161 5 – – – – 5 942 – 1 2 6 951 25 24 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Notes to the Annual Report and Accounts continued Interest rate risk The Group seeks to reduce its exposure to interest rate risk where possible, but this is offset by the availability of trade finance arrangements which are transaction specific to meet liquidity needs and so have variable interest rate terms. Sensitivities have been looked at in the range of an absolute rate increase of 5% or a decrease of 1% which enable an objective calculation to be made depending on any interest rate changes in the future. Any rate changes would be outside the control of the Group. The Group’s exposure to interest rate risk as at 31 December 2016 is summarised as follows: Currency risk The Group operates in overseas markets and is subject to currency exposure on transactions undertaken during the year. The Group hedges the transactions where possible by buying goods and selling them in the same currency. The Group also has bank facilities available for hedging purposes. A summary of foreign currency financial assets and liabilities as stated in the statement of financial position together with a sensitivity analysis showing the effect of a 10% change in rate with Sterling is shown below: Cash and cash equivalents Trade receivables Other debtors Trade payables Other payables Bank overdraft Lease purchase Other loans Sensitivity: increase in interest rates of 5% Sensitivity: decrease in interest rates of 1% Fixed £’000 Variable £’000 – – – – – – – (6) – (6) – – 437 – – 437 – – (179) – (625) (367) (18) 4 The Group’s exposure to interest rate risk as at 31 December 2015 is summarised as follows: Cash and cash equivalents Trade receivables Other debtors Trade payables Other payables Bank overdraft Lease purchase Other loans Sensitivity: increase in interest rates of 5% Sensitivity: decrease in interest rates of 1% Sensitivity shows the effect on equity profit and loss. Fixed £’000 Variable £’000 – – – – – – – (10) – (10) – – 122 – – 122 – – (5) – (161) (44) (2) – Zero £’000 – 1,418 12 1,430 (708) (16) – – – 706 – – Zero £’000 – 724 3 727 (400) (77) – – – 250 – – Total £’000 437 1,418 12 1,867 (708) (16) (179) (6) (625) 333 (18) 4 Total £’000 122 724 3 849 (400) (77) (5) (10) (161) 196 (2) – Financial assets Financial liabilities Net balances Effect of 10% Sterling increase Effect of 10% Sterling decrease Financial assets Financial liabilities Net balances Effect of 10% Sterling increase Effect of 10% Sterling decrease Currency Euro Euro Euro USD USD USD Currency balance 2016 ’000 ¤133 ¤(210) ¤(77) $2,165 $(1,251) $914 Sterling 2016 £’000 113 (179) (66) 6 (7) 1,755 (1,014) 741 (67) 82 Sterling 2015 £’000 131 (190) (59) 5 (6) 769 (213) 556 (50) 61 Currency balance 2015 ’000 ¤178 ¤(258) ¤(80) $1,130 $(312) $818 Sensitivity shows the effect on equity and profit and loss. A 10% change is shown to enable an objective calculation to be made on exchange rates which may be assumed for the future. As at 31 December 2016 the company had entered into forward foreign currency contacts which all mature within 9 months of the year end and commit the company to selling US Dollars 1,500,000 and to receive a fixed sterling amount (2015 : US Dollars Nil). The forward currency contracts are measured at fair value, which is determined using the valuation techniques that utilise observable inputs. The key inputs used in valuing the derivatives are the forward exchange rates for USD:GBP. The fair value of the forward-foreign currency contracts at 31 December 2016 is a loss of £4,656. Credit risk The Group’s exposure to credit risk is limited to the carrying value of financial assets at the balance sheet date, summarised as follows: Loans and receivables: Trade receivables Other debtors Cash and cash equivalents 2016 £’000 1,418 12 437 1,867 2015 £’000 724 - 122 846 The credit risk associated with the cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from trade receivables. The seven largest customer balances at the end of the year make up 76% (2015: 75%) of the above trade receivables. In order to manage credit risk the Directors set limits for customers based on a combination of payment history, third party credit references and use of credit insurance. These limits are reviewed regularly. The maturity of overdue debts and details of impairments and amounts written off are set out in note 16. 26 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 27 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued Recognition of deferred tax assets Judgements and estimates relating to a deferred tax asset are detailed in note 9a. In particular, estimates are made as to future revenues which derive profit and loss projections. Functional currency A significant proportion of the revenues generated by entities within the Group are denominated in United States Dollars (USD). The functional currency of the Company and of all individual entities within the Group has been determined to be Sterling. Identification of functional currencies requires a judgement as to the currency of the primary economic environment in which the companies of the Group operate. This is based on analysis of the economic environment and cash flows of the subsidiaries of the Group, which has determined, based upon the currency of funding and operating costs, that the functional currency continues to be Sterling. Capital requirements Interest bearing loans and borrowings are monitored regularly to ensure the Group has sufficient liquidity and its exposure to interest rate risk is mitigated. Management consider the capital of the Group comprises the share capital and interest bearing loans and borrowings as detailed in note 25. The Company satisfies the Companies Act 2006 requirement to hold £50,000 issued and authorised share capital. The rule that 25% must be paid up is also satisfied, by reference to note 18. 4. Critical accounting estimates and judgements Estimates and judgements are evaluated continually and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those actions. Material changes to the estimates and judgements made in the preparation of the interim statements are detailed in the notes. In preparing these accounts the following areas were considered to involve significant judgements and estimates: Capitalisation of development costs Judgements and estimates relating to the capitalisation of development costs are detailed in note 2. In particular, estimates are made in respect to future economic benefits based on market judgements at the time and over attributable internal staff time allocated to each product. Recoverability of capitalised development cost Judgements and estimates relating to capitalised development costs are detailed in note 12. In particular, estimates are continued to be made in respect to future economic benefits and any changes to market conditions. Share option judgements Judgements and estimates relating to share-based payment charges are detailed in note 2. Estimates are made on the fair value of the option using the Black-Scholes model. Going concern Judgements and estimates relating to going concern are detailed in note 2. In particular, estimates are made as to future revenues expectations which derive cash flow projections. Bad debts Provisions for bad debts are shown in note 16. Bad debt provisions are made when there is objective evidence of impairment. Where there is no provision then it is due to cash having been received since the end of the year, or adequate information exists to support the recoverability of the debt. 5. Revenue information The Board has reviewed the requirements of IFRS 8 “Operating Segments”, including consideration of what results and information the Board (the Chief Operating Decision Maker) reviews regularly to assess performance and allocate resources, and concluded that all revenue falls under a single business segment. The Directors consider the business does not have separate divisional segments as defined under IFRS 8. The Board assesses the commercial performance of the business based upon a single set of revenues, margins, operating costs and assets. The revenues of the Group are divided in the following geographical areas: I B U S N E S S R E V E W I Geographical areas UK Europe Americas Other Total 2016 £’000 Revenue 268 850 3,242 2,441 6,801 2015 £’000 Revenue 238 714 3,174 2,239 6,365 C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Major customers There was one customer that accounted for greater than 10% of total Group revenues for 2016 (2015: no customers). In 2016 one customer accounted for £1,465,000 or 22% of the total Group revenues. 6. Operating profit/(loss) The operating profit/(loss) is stated after charging: Non-recurring items: • Impairment of intangible assets • Redundancy costs Depreciation Amortisation Loss on disposal of property, plant and equipment Research and development expenditure not capitalised Operating lease rentals: • Land and buildings • Plant and equipment Fees payable to the Company’s auditor: Audit related services: • Audit of the financial statements • Audit of the financial statements of the Company’s subsidiaries Non-audit related services: • Other assurance related services • Tax compliant services Net foreign exchange gain 2016 £’000 - 54 86 13 10 514 114 5 10 15 3 5 (37) 2015 £’000 1,279 34 101 29 14 521 109 5 18 36 4 10 (31) Non-recurring items within administrative expenses total £54,000 for 2016 (2015: £1,313,000). The non-recurring charge for 2016 relates to staff termination costs. The non-recurring charge for 2015 relates to an impairment charge against intangible assets and staff termination costs. 28 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 29 Notes to the Annual Report and Accounts continued 7. Employee benefit expense Wages and salaries Social security costs Other pension costs Average number of people employed: Testing and technical Selling Administration Management Marketing Total average headcount Remuneration in respect of the Directors was as follows: Emoluments Pension contributions Key management remuneration: Short-term employee benefits Post-employment benefits 2016 £’000 1,335 162 56 1,553 2015 £’000 1,612 205 97 1,914 2016 2015 5 7 9 6 1 28 2016 £’000 565 - 565 2016 £’000 565 - 565 5 6 10 7 1 29 2015 £’000 721 80 801 2015 £’000 721 80 801 The Directors are considered to be the key management personnel of the Group. Further details on Directors’ remuneration and share options are set out in the Remuneration Report. 8. Finance costs Interest expense: • Bank borrowings • Other interest Total finance costs Net finance costs 9. Taxation Net deferred tax (see note 9a) R&D tax credit Total income tax credit/(charge) No tax arises on the profit for the year. 2016 £’000 2015 £’000 9 13 22 22 2016 £’000 - 45 45 5 11 16 16 2015 £’000 (1,142) 111 (1,031) The tax assessed for the year is different from the standard rate of corporation tax in the UK of 20% (2015: 20%). The differences are explained as follows: Profit/(loss) for the year before tax Tax calculated by rate of tax on the result Effective rate for year at 20% (2015: 20.25%) Expenses not deductible for tax purposes Difference between capital allowances and depreciation Intangible impairment provision R&D tax relief Tax losses carried forward Short term timing differences Movement in deferred income tax asset (see note 9a) R&D tax credit Total income tax (credit)/charge 2016 £’000 123 25 - 7 7 - (41) - 2 - (45) (45) 2015 £’000 (2,301) (460) (6) 5 - 259 (11) 213 - 1,142 (111) 1,031 30 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 31 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued 9a. Deferred income tax asset 11. Property, plant and equipment Deferred income tax asset brought forward Impairment of deferred income tax asset Deferred income tax asset carried forward 2016 £’000 – – – 2015 £’000 1,142 (1,142) – The Group has not recognised a deferred tax asset is respect of losses available for use against future taxable profits. The Group has tax losses of approximately £16,000,000 (2015: £14,500,000). These tax losses have no expiry date. The unrecognised deferred tax asset in respect of these losses based on latest profit projections is approximately £2,459,000. These losses may be subject to new loss restriction rules but are expected to fall below the annual £5m threshold. The new loss restriction rules are expected to be introduced from 1 April 2017 as part of changes included within the 2017 Finance Bill. The main rate of corporation tax will be reduced from 20% to 19% from 1 April 2017. A further reduction in the UK corporation tax rate was substantively enacted on 6 September 2016 reducing the headline corporation tax rate from 18% to 17% applicable from 1 April 2020. The Group also has gross fixed asset temporary timing differences of £87,000 (2015: £131,000) which gives rise to a deferred tax liability of £15,000 (2015: £25,000) and other gross temporary timing differences of £9,000 (2015: £Nil) which gives rise to a deferred tax asset of £2,000 (2015: £Nil). A deferred tax liability of £13,000 is recognised but it is sheltered by an equivalent deferred asset in respect of losses. The recognition of the deferred tax asset is based on sensitising management forecasts to estimate the future taxable profits against which the losses will be relieved. Judgements have been made in respect to profitability going forward based upon current sales leads and market receptiveness to anticipated product launches. 10. Earnings per share and dividends The calculation of basic earnings per share is based on the profit/(loss) attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options and warrants. Reconciliations of the loss and weighted average numbers of shares used in the calculations are set out below: Basic and diluted 2016 2015 At 1 January 2015 Cost Accumulated depreciation Net book amount Year ended 31 December 2015 Opening net book amount Additions Disposals Depreciation charge Eliminated on disposal Closing net book amount At 1 January 2016 Cost Accumulated depreciation Net book amount Year ended 31 December 2016 Opening net book amount Additions Disposals Depreciation charge Eliminated on disposal Closing net book amount At 31 December 2016 Cost Accumulated depreciation Profit/(loss) attributable to equity holders of the Company £168,000 £(3,332,000) Net book amount Plant & machinery £’000 Fixtures & fittings £’000 Motor vehicles £’000 Office equipment £’000 Total £’000 374 (221) 153 153 81 (26) (44) 14 178 429 (251) 178 178 4 (48) (34) 34 134 385 (251) 134 285 (109) 176 176 8 (1) (31) - 152 292 (140) 152 152 1 - (29) - 124 293 (169) 124 105 (86) 19 19 17 (20) (10) 18 24 102 (78) 24 24 - (40) (6) 34 12 62 (50) 12 188 (164) 952 (580) 24 372 24 35 (100) (16) 100 372 141 (147) (101) 132 43 397 123 (80) 946 (549) 43 397 43 3 (2) (17) 1 28 397 8 (90) (86) 69 298 124 (96) 864 (566) 28 298 Weighted average number of ordinary shares in issue Basic earnings/(loss) per share Dilutive effect of weighted average options and warrants Total of weighted average shares together with dilutive effect of weighted options Diluted earnings/(loss) per share 149,939,377 147,616,172 0.11 pence (2.26) pence 15,794,717 – 165,734,094 147,616,172 0.10 pence (2.26) pence No dividends were paid for the year ended 31 December 2016 (2015: £nil). The effect of options and warrants that are anti-dilutive have not been included in the calculation of diluted earnings per share. A total of 27,456,500 options and warrants were outstanding at the end of the year which may become dilutive in future years. Included within net book value of motor vehicles is £11,000 (2015: £15,000) relating to assets held under finance leases and hire purchase contracts. The depreciation charged to the financial statements in the year in respect of such assets amounted to £4,000 (2015: £3,000). 32 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 33 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued 12. Intangible assets 13. Subsidiary undertakings At 1 January 2015 Cost Accumulated amortisation Accumulated impairment Net book amount Year ended 31 December 2015 Opening net book amount Additions Impairment charge Amortisation charge Closing net book amount At 1 January 2016 Cost Accumulated amortisation Accumulated impairment Net book amount Year ended 31 December 2016 Opening net book amount Additions Disposals Amortisation charge Eliminated on disposal Closing net book amount At 31 December 2016 Cost Accumulated amortisation Accumulated impairment Net book amount Development costs £’000 Trademarks £’000 1,783 (164) (494) 1,125 1,125 189 (1,234) (24) 56 1,972 (188) (1,728) 56 56 - - (12) - 44 1,972 (200) (1,728) 44 87 (43) - 44 44 23 (45) (5) 17 110 (48) (45) 17 17 2 (28) (1) 28 18 84 (21) (45) 18 Total £’000 1,870 (207) (494) 1,169 1,169 212 (1,279) (29) 73 2,082 (236) (1,773) 73 73 2 (28) (13) 28 62 2,056 (221) (1,773) 62 The Group relies on the continued development of its product range and in so doing is maintaining satisfactory goals in fulfilling its strategy (see Chairman’s Statement and Chief Executive’s Review). Development costs are capitalised in accordance with the policy set out in note 2. In capitalising these costs, judgements are made relating to ongoing feasibility and commerciality of products and systems being developed. In making these judgements, cashflow forecasts are used and these include significant estimates in respect to sales forecasts and future foreign exchange rates. Due to the Group’s performance in 2015 a strategic review was carried out of its product developments and operating costs which resulted in an impairment provision of £1,233,578 being made against development costs for the year ended 31 December 2015. Name Country of incorporation Nature of business Symphony Environmental Limited England and Wales Supply of environmental polyolefin products and ancillaries Proportion of ordinary shares held by parent Proportion of ordinary shares held by the Group 100% 100% Symphony Packaging Limited England and Wales Dormant D2W Limited England and Wales Dormant Symphony Plastics (2010) Limited England and Wales Dormant Symphony Recycling Technologies Limited England and Wales Development of recycling systems Symphony Energy Limited England and Wales Dormant Symphony Environmental (Jamaica) Limited Jamaica Dormant 0% 0% 0% 100% 100% 0% 100% 100% 100% 100% 100% 100% All of the above subsidiaries are consolidated in the Group financial statements. The above companies have their registered offices at 6 Elstree Gate, Elstree Way, Borehamwood, WD6 1JD except for Symphony Environmental (Jamaica) Limited which has its registered office at 8 Olivier Road, Saint Andrew, Jamaica. 14. Available for sale financial assets All non-current Beginning and end of year 2016 £’000 – 2015 £’000 – The Company holds 30% of the ordinary share capital of Symphony Bin Hilal Plastics LLC, a company incorporated in the United Arab Emirates. The directors are of the opinion that this is an investment as the directors do not have significant influence because the Group has no representation on the board of directors of the investee, does not participate in policy making processes, and does not receive key financial or management information. A full impairment had been made against this in 2012 due to limited availability of financial information. The Company holds 10% of the ordinary share capital of American Plastic Technologies plc, a company incorporated in the United States of America. The directors are of the opinion that this is an investment as the directors do not have significant influence because they have no financial or management control. The investment in American Plastics Technologies plc is measured at cost less impairment charges as the fair value cannot be estimated readily. The cost of this investment was £nil. The Company holds c.5% of the ordinary share capital of Oxobioplast Inc., a company incorporated in the United States of America. The directors are of the opinion that this is an investment as the directors do not have significant influence because they have no financial or management control. The investment in Oxobioplast Inc. is measured at cost less impairment charges as the fair value cannot be estimated readily. The cost of this investment was £nil. There is no collateral on the above amounts. 34 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 35 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued 15. Inventories 17. Cash and cash equivalents Finished goods and goods for resale 2016 £’000 416 2015 £’000 477 Loans and receivables: • Cash at bank and in hand 2016 £’000 437 2015 £’000 122 The cost of inventories recognised as an expense and included in ‘cost of sales’ amounted to £3,299,000 (2015: £3,297,000). There is a provision of £77,000 for the impairment of inventories (2015: £90,000). The carrying amount of cash equivalents approximates to their fair values. See note 19. There is no collateral on the above amounts. 16. Trade and other receivables Loans and receivables: • Trade receivables • Other receivables VAT Prepayments 2016 £’000 1,418 12 38 108 1,576 The Directors consider that the carrying value of trade and other receivables approximates to their fair values. There is a provision of £88,000 for the impairment of receivables (2015: £203,000), made up as follows: Balance at 1 January Impairment loss made during the year Uncollectible amounts written off Balance at 31 December 2016 £’000 203 22 (137) 88 2015 £’000 724 3 37 88 852 2015 £’000 118 85 - 203 The maximum credit risk exposure at the balance sheet date equates to the carrying value of trade receivables. Further disclosures are set out in note 3. Included in trade receivables at 31 December 2016 are debtors which are past due but where no provision has been made as there has not been a change in the credit worthiness of these debtors and the amounts are considered recoverable. As of 31 December 2016 trade receivables of £15,000 (2015: £nil) were past due and not impaired. The ageing analysis of these trade receivables is as follows: More than three months but less than six months More than six months but not more than one year 2016 £’000 7 8 15 2015 £’000 - - - Due to the different markets that the Group operates in, trade terms vary from proforma payment to payment under letter of credit due 150 days from shipment. Trade receivables are secured against the facilities provided by the Group’s bankers. 18. Equity At 1 January 2015 Loss for the year Proceeds from shares issued At 31 December 2015 At 1 January 2016 Profits for the year At 31 December 2016 Share options and warrants Group and Company Group Ordinary shares Number 144,569,377 - 5,370,000 149,939,377 149,939,377 - 149,939,377 Ordinary shares £’000 Share premium £’000 1,446 - 53 1,499 1,499 – 1,499 3,077 - 456 3,533 3,533 – 3,533 Retained earnings £’000 (807) (3,332) - (4,139) (4,139) 168 (3,971) Total £’000 3,716 (3,332) 509 893 893 168 1,061 As at 31 December 2016 the Group maintained an approved share-based payment scheme for employee compensation. For the options granted to vest, the Group must have achieved an earnings per share in excess of 0.001p and employees must serve a specified amount of time. All share-based employee compensation will be settled in equity. The Group has no legal or constructive obligation to repurchase or settle the options. As at 31 December 2016 there were 2,505,000 approved staff options outstanding. No approved staff options were issued in 2016. The Group has also issued unapproved share options and warrants. The weighted average exercise price of all of the Group’s options and warrants are as follows: Outstanding at 1 January Granted Exercised Forfeited Lapsed Number 27,756,500 - - - (300,000) Outstanding at 31 December 27,456,500 2016 Weighted average exercise price £ 0.09 - - - 0.12 0.09 Number 23,126,500 2,800,000 (370,000) - (800,000) 27,756,500 2015 Weighted average exercise price £ 0.09 0.14 0.03 - 0.12 0.09 There were no options exercised during the year. The weighted average share price of options exercised in 2015 was 9p. The number of share options and warrants exercisable at 31 December 2016 was 27,456,500 (2015: 27,756,500). The weighted average exercise price of those shares exercisable was 9p (2015: 9p). The weighted average option contractual life is nine years (2015: eight years) and the range of exercise prices is 2.375p to 15p (2015: 2.375p to 15p). 36 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 37 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued Directors Directors’ interests in shares and share incentives are contained in the Remuneration Report. 21. Net cash used in operations IFRS2 expense The IFRS share-based charge for the year is £nil (2015: £nil). 19. Interest bearing loans and borrowings Non-current Financial lease liabilities Current Financial liabilities measured at amortised cost: • Bank overdraft • Other loans Finance lease liabilities 2016 £’000 2 179 625 4 808 2015 £’000 6 5 161 4 170 Profit/(loss) after tax Adjustments for: • Depreciation • Amortisation • Impairment of intangible assets • Loss on disposal of tangible assets • Foreign exchange • Tax credit • Impairment of deferred tax asset • Interest expense Changes in working capital: • Inventories • Trade and other receivables • Trade and other payables Cash used in operations 2016 £’000 168 86 13 - 10 (25) (45) - 22 62 (694) 60 (343) The bank overdraft of £179,000 (2015: £5,000) is included within the cash flow statement within cash and cash equivalents. Other loans include: An amount due relating to the invoice financing facility totalling £625,000 (2015: £161,000). Interest is charged at 2.96% over HSBC Bank plc base rate per annum. The bank and invoice finance facility are secured by a fixed and floating charge over the Group’s assets. The finance lease liabilities are secured against the asset that they finance. Commitments under finance leases and hire purchase agreements mature as follows showing both gross and net of finance costs: 22. Operating lease commitments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: No later than one year Later than one year and no later than five years 2016 £’000 136 303 439 2015 £’000 (3,332) 101 29 1,279 14 (11) (111) 1,142 16 99 584 99 (91) 2015 £’000 137 439 576 Amounts payable within one year Amounts payable between one and two years Amounts payable between two and five years The finance leases are for the purchase of motor vehicles (note 11). 20. Trade and other payables Current Financial liabilities measured at amortised cost: • Trade payables • Other payables Social security and other taxes Accruals and deferred income Gross 2016 £’000 Gross 2015 £’000 Net 2016 £’000 Net 2015 £’000 4 2 – 6 4 4 2 10 4 2 – 6 4 4 2 10 Operating lease commitments include the lease for the Group’s head office property which has a ten-year term with a five-year break clause at the option of the Group. The financial obligations are calculated up to the five-year break point. 23. Related party transactions There were no related party transactions during 2016 (2015: £nil). 24. Post balance sheet events There have been no significant post balance sheet events. 2016 £’000 708 16 47 147 918 2015 £’000 400 - 77 375 852 The Directors consider that the carrying value of trade and other payables approximate to their fair value. 38 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 39 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Annual Report and Accounts continued Company Balance Sheet at 31 December 2016 Company number 03676824 25. Capital management The Group’s capital management objectives are: • to ensure the Group’s ability to continue as a going concern; and • to provide an adequate return to shareholders The Group monitors capital on the basis of the gearing ratio calculated as net debt divided by total capital. Net debt is calculated as total borrowings as shown in the consolidated statement of financial position less cash and cash equivalents. Total capital is calculated as equity as shown in the consolidated statement of financial position plus net debt. The Group’s goal in capital management is to maintain an optimal gearing ratio (the ratio of net debt over debt plus equity). Fixed assets Tangible assets Investments Current assets Debtors Cash at bank and in hand The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Creditors: amounts falling due within one year Net current assets Total assets less current liabilities The gearing ratios at 31 December 2016 and 2015 were as follows: Capital and reserves Share capital Share premium account Profit and loss account Total borrowings Cash and cash equivalents Net debt Total equity Borrowings Overall financing Gearing ratio 2016 £’000 810 (437) 373 1,061 810 1,871 20% 2015 £’000 176 (122) 54 893 170 1,063 5% The increase in gearing ratio is in line with the Managements working capital financing strategy with the use of short term financing arrangements such as Invoice finance facility to manage fluctuations in receivables. 26. Capital commitments The Group had capital commitments totalling £nil at the end of the year (2015: £nil). The following pages contain the balance sheet and accompanying notes for the parent Company prepared under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ The Company has applied the exemption under section 408 of the Companies Act 2006 not to present a profit and loss account for the year ended 31 December 2016. These financial statements were approved by the Directors on 8 March 2017 and are signed on their behalf by: I Bristow, FCCA Finance Director The accompanying notes form an integral part of these financial statements. Note 28 29 30 31 33 2016 £’000 1 1,150 1,151 1,210 15 1,225 49 1,176 2,327 2015 £’000 3 1,150 1,153 1,007 5 1,012 63 949 2,102 1,499 3,533 (2,705) 1,499 3,533 (2,930) 2,327 2,102 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S 40 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 41 Company Statement of Changes in Equity for the year ended 31 December 2016 Notes to the Company Balance Sheet For the year to 31 December 2016 Balance at 1 January 2016 Total comprehensive income for the year Balance at 31 December 2016 For the year to 31 December 2015 Balance at 1 January 2015 Issue of share capital Transactions with owners Total comprehensive loss for the year Balance at 31 December 2015 Share capital £’000 1,499 – 1,499 1,446 53 53 - 1,499 Share premium £’000 Retained earnings £’000 Total equity £’000 3,533 – (2,930) 225 3,533 (2,705) 3,077 456 456 – 1,260 – – (4,190) 2,102 255 2,327 5,783 509 509 (4,190) 3,533 (2,930) 2,102 The accompanying notes form an integral part of these financial statements. 27. Principal accounting policies Basis of accounting Symphony Environmental Technologies plc (“The Company”), is a public limited company. It is incorporated and domiciled in England (Company number 03676824). The address of its registered office is 6 Elstree Gate, Elstree Way, Borehamwood, Hertfordshire, WD6 1JD, England. The Company’s shares are listed on the AIM market of the London Stock Exchange and as a level 1 ADR in New York. The principal activity of the Company is to hold investments in subsidiaries which develop and supply environmental plastic additives and products, and develop waste to value systems. The financial statements have been prepared in accordance with United Kingdom accounting standards, including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (‘FRS 102’), and with the Companies Act 2006. The financial statements have been prepared on the historical cost basis. The Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own Profit and Loss in these financial statements. The results for the year are given in note 34. The Company is considered a qualifying entity and has taken advantage of the FRS102 exemption not to include its own Statement of Cash Flow in these financial statements. The financial statements are presented in Sterling, the functional and presentational currency of the Company and are expressed in round thousands unless otherwise stated (£’000s). Fixed assets Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Plant and machinery Motor vehicles 20% reducing balance. 25% reducing balance. Employee costs Employee compensation Employee benefits are recognised as an expense. Termination benefits Termination benefits are those benefits which are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Post employment obligations The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group. The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exception: deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Foreign currencies Monetary assets and liabilities in foreign currencies are translated into Sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit. Investments Investments in subsidiaries are accounted for at cost less impairment in the individual financial statements. Impairment of assets At each reporting date fixed assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset is estimated and compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss. If an impairment loss subsequently reverses, the carry amount of the asset is increased to the revised estimate of its recoverable amount, but not in excess of the amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. 42 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 43 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Company Balance Sheet continued Financial instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual obligations of the financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classified as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classified as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. Equity-settled share-based payments Warrants and options granted to employees which relate to salary sacrifices of employees employed by this company are attributed a fair value by reference to the services provided. This fair value is charged to the profit and loss account when the service is provided with a corresponding credit taken to shareholders’ funds. Significant judgements and estimates Preparation of the financial statements requires management to make significant judgements and estimates. The items in the financial statements where these judgements and estimates have been made include: Judgements - impairment An impairment loss is recognised for the amount by which the asset’s or cash generating unit’s carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows management makes assumptions about future operating results. These assumptions relate to future events and circumstances. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors. Details of assumptions made and impairments recognised in the period are given in notes 29 and 30. 28. Tangible fixed assets Cost At 1 January 2016 Disposals At 31 December 2016 Depreciation At 1 January 2016 Charge for the year Disposals At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Motor vehicles £’000 35 (21) 14 32 1 (20) 13 1 3 Total £’000 35 (21) 14 32 1 (20) 13 1 3 Included within the net book value of £1,000 is £nil (2015: £nil) relating to assets held under finance leases and hire purchase contracts. The depreciation charged to the financial statements in the year in respect of such assets amounted to £nil (2015: £nil). 29. Investments Shares in Group undertakings At beginning of the year Impairment At end of the year 2016 £’000 1,150 – 1,150 2015 £’000 2,150 (1,000) 1,150 Group undertakings are detailed in note 13. An impairment provision of £nil has been made against the Company’s investment in Symphony Environmental Limited (2015: £1,000,000). See Note 30. 30. Debtors Amounts owed by Group undertakings VAT Prepayments 2016 £’000 1,205 3 2 1,210 2015 £’000 1,000 5 2 1,007 An impairment provision of £9,000 has been made against intra-group receivables (2015: £3,394,000). The balance of intra-group receivables and holding investment value in subsidiary companies has been derived from a discounted cash flow projection of Symphony Environmental Limited over five years using an appropriate market rate of interest. 44 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 45 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Notes to the Company Balance Sheet continued Company Information 31. Creditors: amounts falling due within one year Trade creditors Accruals 2016 £’000 14 35 49 2015 £’000 7 56 63 32. Contingent liabilities The Company has guaranteed all monies due to its bankers by Symphony Environmental Limited, Symphony Recycling Technologies Limited and Symphony Plastics (2010) Limited. At 31 December 2016 the net indebtedness of these companies amounted to £383,000 (2015: £49,000). 33. Share capital The Company’s share capital is detailed in note 18 of the Group consolidated accounts. 34. Parent Company own accounts Symphony Environmental Technologies plc has not presented its own profit and loss account and related notes as permitted by Section 408 of the Companies Act 2006. The profit for the financial year dealt with in the financial statements of the parent Company is £225,000 (2015: loss £4,190,000). 35. Directors and employees All employees of Symphony Environmental Technologies plc are Directors. See note 7 of the Group consolidated accounts. The average number of staff employed by the Company during the financial year amounted to: Company registration number 03676824. Registered office 6 Elstree Gate Elstree Way Borehamwood Hertfordshire WD6 1JD Directors N Deva, DL, FRSA, MEP Non-Executive Chairman M Laurier Chief Executive Officer I Bristow, FCCA Finance Director M Stephen, LL.M Commercial Director & Deputy Chairman N Clavel Non-Executive Director S Robinson Non-Executive Director Secretary I Bristow Management The aggregate payroll costs of the above were: Wages and salaries Social security costs 2016 No. 3 2016 £’000 48 3 51 2015 No. 3 2015 £’000 95 10 105 The company has taken advantage of the FRS 102 exemption that allows intra-group transactions with a 100% subsidiary to not be disclosed. There were no other related party transactions throughout the period. Nominated adviser and broker Cantor Fitzgerald Europe One Churchill Place Canary Wharf London EC14 5RD Bankers HSBC Bank Plc 103 Station Road Edgware Middlesex HA8 7JJ Solicitors Olswang 90 High Holborn London WC1V 6XX Auditor Mazars LLP Chartered Accountants Statutory Auditors Tower Bridge House St Katharine’s Way London E1W 1DD Registrars Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 46 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com 47 I B U S N E S S R E V E W I C O R P O R A T E G O V E R N A N C E I I F N A N C A L S T A T E M E N T S 48 Symphony Environmental Technologies plc Annual Report & Accounts 2016 | www.symphonyenvironmental.com Designed by www.designhabit.co.uk | Printed by www.hillandgarwood.co.uk