Tandem Group plc Annual report and accounts Year ended 31 December 2015 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Welcome to Tandem Group plc Tandem Group plc is a designer, developer and distributor of sports, leisure and mobility products. Contents Directors and advisers Brands Chairman’s statement Strategic report Directors’ report Corporate governance statement Report of the Independent Auditor Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Notes to the financial statements Five year history Company balance sheet under FRS101 Company statement of changes in equity Notes to the FRS101 financial statements 01 01 02 03 06 09 10 11 11 12 13 14 15 44 45 46 47 Financial calendar Annual General Meeting Interim results for six months to 30 June 2016 Annual results for year ending 31 December 2016 28 June 2016 September 2016 April 2017 24745.04 18 April 2016 4:05 PM Proof 5 PB ❘ 01 ❘ 01 Directors and advisers Directors M P J Keene Non-Executive Chairman S J Grant Chief Executive Officer J C Shears Group Finance Director P Ratcliffe Group Commercial Director J S T Morris Non-Executive Director A Q Bestwick Non-Executive Director Company Secretary J C Shears Registered office 35 Tameside Drive, Castle Bromwich, Birmingham, B35 7AG Registration Registered in England No. 616818 Website www.tandemgroup.co.uk Nominated Adviser And Broker Cairn Financial Advisers LLP 61 Cheapside, London, EC2V 6AX Chartered Accountants and Statutory Auditor Grant Thornton UK LLP Colmore Plaza, 20 Colmore Circus, Birmingham, B4 6AT Solicitors Shoosmiths LLP 2 Colmore Square, 38 Colmore Circus, Birmingham, B4 6BJ Registrars Capita Registrars The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Telephone 0871 664 0300 Brands Bicycles and accessories Boss British Eagle CBR Claud Butler Elswick Exile Explorer Falcon Scorpion Townsend Zombie Football training Kickmaster Golf Ben Sayers Bioflow* Outdoor play Hedstrom Snooker & pool Pot Black Table Sports Pot Black Wheeled toys Batman* Batman v Superman* Ben & Holly’s Little Kingdom* Bob the Builder* Bored Bratz* Clangers* Disney Pixar Cars* Disney Pixar Finding Dory* Disney Princess* Electrick E-moto Fireman Sam* Grow & Go In the Night Garden* Marvel’s Avengers* My Little Pony* Noddy Toyland Detective* Paw Patrol* Peppa Pig* Power Rangers* Ready Steady Ride Shopkins* Star Wars* Stunted Teletubbies* The Angry Birds Movie* Thomas & Friends* Thunderbirds Are Go!* Transformers* Trolls* Twista Wired *under licence/distribution 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015GovernanceFinancials Chairman's statement Introduction I am pleased to present the results for the year ended 31 December 2015. Results Revenue for the year ended 31 December 2015 was £34,385,000 compared to £31,320,000 in the year ended 31 December 2014. This was an increase of 9.8%. Excluding the ESC acquisition referred to below, Group revenue increased by 4.7%. Profit before tax and non-underlying items was £1,214,000 for the year ended 31 December 2015. This compared to £1,283,000 for the year ended 31 December 2014, a decrease of 5.4%. Non-underlying items, which do not represent the trading performance of the Group, were a charge of £85,000 (year ended 31 December 2014 – £309,000 credit). Following the acquisition, cash and cash equivalents reduced from £1,805,000 to £878,000 at 31 December 2015. There was an increase of £1,233,000 in net assets from £6,586,000 at 31 December 2014 to £7,819,000 at 31 December 2015. Further details of operational activities and a segment review of performance can be found in the Strategic report on page 4. Dividend We are proposing to pay a final dividend of 2.50 pence per share (year ended 31 December 2014 – 2.40 pence per share) which, when combined with the interim dividend of 1.25 pence per share (year ended 31 December 2014 – 1.20 pence per share), gives a total dividend of 3.75 pence for the year (year ended 31 December 2014 – 3.60 pence per share). Subject to shareholder approval at the Annual General Meeting to be held on 28 June 2016, the final dividend will be paid on or around 4 July 2016 to shareholders on the share register as at 27 May 2016. The ex–dividend date will be 26 May 2016. Pensions The Group operates two defined benefit pension schemes with both schemes closed to new members. There are no active members in either scheme. Although gilt yields continued to be low, a change in assumptions, particularly the discount rate, enabled a reduction in the deficit in both schemes to £3,608,000 compared to £4,147,000 at the prior year end. During the year to 31 December 2015 total payments in respect of these schemes were £403,000 (year ended 31 December 2014 – £327,000) comprising deficit contributions of £256,000 (year ended 31 December 2014 – £243,000) and government levies and administration costs of £147,000 (year ended 31 December 2014 – £84,000). Acquisition On 1 September 2015 the Group acquired a leading online retailer of gazebos, party tents, fishing products, household and kitchen appliances, E.S.C. (Europe) Limited (“ESC”), for initial consideration of £2,386,000 in cash. Additional consideration will be paid, subject to ESC fulfilling certain profitability criteria. The acquisition provides critical mass for our direct to consumer business which we intend to develop further in 2016 and beyond with a more automated order picking system and despatching process. In addition to this we are in the process of redeveloping all websites including the introduction of a new headline website under the ‘Expressco’ brand. We believe this investment will provide us with a springboard for future profitable growth. Employees We are fortunate to employ a number of skilled and dedicated employees. The Board thanks them all for their effort, hard work and focus during the year and contribution to the profitability of the Group. Strategy Our strategic objectives continue to broaden and whilst we seek to maintain our position as a leading supplier to the UK bicycle and wheeled toy markets, we are also developing our direct to consumer product range across a number of indoor and outdoor leisure and mobility categories. Import duty As we recently reported, the Company is investigating several import duty classification codes used for certain Pro Rider and ESC products and discussing them with HMRC. There have been no material developments since our announcement on 9 March 2016. The Company continues to receive specialist advice. Until there is clarification on the applicability of certain codes, it is not currently possible to accurately quantify the extent of any underpaid duty, if any. However where duty is underpaid, the Company will make an appropriate provision and seek recovery of any underpayments and other losses from the sellers of Pro Rider and ESC in accordance with the agreements entered into at the time of purchase. Outlook In our bicycles businesses we have produced a strong range of cycles for the 2016 year, particularly the new range of hybrid and junior models. The mid–tier independent cycle market continues to be challenging. However, over recent weeks our order books have improved which is encouraging. We continue to work exceptionally hard to maintain our position in a competitive market. In our MV Sports business, feedback to our 2016 toy range at the recently held Toy Fair in London was very positive. New licences for 2016, including Finding Dory, Paw Patrol, Teletubbies and Shopkins, are showing good potential. When combined with our evergreen licences including Disney Princess, Peppa Pig and Thomas & Friends and our own brands including Stunted, Hedstrom, Kickmaster and Ben Sayers, we have a strong platform for growth in 2016. larger premises Following the relocation to substantially in Northampton and the integration of ESC into this operation, we expect 2016 to be a further year of investment in our direct to consumer Expressco business. We believe that the improvements that we are making to our order processing and fulfilment systems and the redevelopment of all websites coupled with the investment in additional customer services, product development, marketing, design and warehousing personnel will help to facilitate growth in our direct to consumer operation. M P J Keene Chairman 19 April 2016 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 02 ❘ 03 Strategic report Operating and Financial Review Revenue and operating profit Group revenue for the year ended 31 December 2015 was £34,385,000 compared to £31,320,000 in the prior year. The completion on 1 September 2015 of the acquisition of ESC, a leading online retailer of outdoor leisure products, contributed £1,587,000 of revenue. Operating expenses increased from £8,107,000 for the year ended 31 December 2014 to £8,840,000 for the year ended 31 December 2015 due to costs incurred in respect of the ESC acquisition and overheads subsequently incurred. Operating profit before non-underlying items for the year ended 31 December 2015 was £1,420,000 which compared to £1,458,000 in the prior year. Non-underlying items Non-underlying items are material items which have arisen from unusual non-recurring or non-trading events. For the year ended 31 December 2015 non-underlying items comprised: • acquisition and moving expenses of £140,000 (year ended 31 December 2014 – £nil); • exceptional restructuring costs of £47,000 (year ended 31 December 2014 – £73,000); • the release of deferred consideration £54,000 in respect of the Pro Rider acquisition (year ended 31 December 2014 – £nil); • a fair value income adjustment for foreign currency derivative contracts under IAS39 of £104,000 (year ended 31 December 2014 – £657,000); • pension finance costs under IAS19 of £140,000 (year ended 31 December 2014 – £151,000), and • deferred tax income of £84,000 (year ended 31 December 2014 – £124,000 charge) in respect of IAS39, IAS19 and share options. Finance costs For the year ended 31 December 2015, total net finance costs were £242,000 compared to total net finance income of £331,000 for the year ended 31 December 2014. Interest payable on bank loans, overdrafts, hire purchase and invoice finance facilities increased from £175,000 last year to £206,000. Finance costs in respect of the pension schemes provided in accordance with IAS19 were £140,000 compared to £151,000 for the year ended 31 December 2014. The fair value adjustment in respect of derivative foreign exchange contracts was a credit of £104,000 compared to £657,000 in the prior year. This was calculated in accordance with IAS39. The net cost of pension schemes’ finance costs and derivatives of £36,000 is included in non-underlying items. Taxation The tax expense for the year ended 31 December 2015 was £44,000 compared to £90,000 last year. Current tax was £73,000 which compared to £81,000 in the prior year and comprised corporation tax from the overseas Hong Kong operation partly offset by a prior year UK adjustment. Deferred tax income of £29,000 comprised tax in respect of movements in trading losses, pension schemes’ liabilities, derivatives and share options. Net profit Net profit for the year ended 31 December 2015 after non-underlying items, finance costs and taxation was £1,001,000 compared to £1,626,000 for the year ended 31 December 2014. Capital expenditure Capital expenditure for the year was £132,000 which included racking of the Northampton warehouse and other leasehold improvements (year ended 31 December 2014 – £369,000). Cash flows, working capital and net debt Net cash inflow from operating activities before movements in working capital for the year ended 31 December 2015 was £1,510,000 compared to £1,594,000 in the prior year. Total cash generated from operations was £1,711,000 compared to £1,445,000 last year. Following the acquisition of ESC, net cash outflows from investing activities were £2,512,000 in the year ended 31 December 2015 compared to £2,516,000 in the previous year. Net cash inflows from financing activities were £51,000 in the year ended 31 December 2015 (year ended 31 December 2014 £96,000 outflow). At 31 December 2015 net debt, comprising cash and cash equivalents, invoice financing liabilities and borrowings, was £5,650,000 compared to £4,564,000 at 31 December 2014. Dividends Total dividends paid and proposed for the year ended 31 December 2015 were 3.75 pence per share compared to 3.60 pence per share for the year ended 31 December 2014, an increase of 4.2%. The dividend cover ratio was 5.7 (year ended 31 December 2014 – 9.7). It continues to be the Group’s policy to progressively increase the dividend payment to shareholders where trading performance permits. Earnings per share Basic earnings per share was 21.31 pence per share for the year ended 31 December 2015 compared to 34.82 pence per share in the year ended 31 December 2014. Diluted earnings per share was 20.27 pence per share compared to 34.09 pence per share in the prior year. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015GovernanceFinancials Strategic report continued Acquisition On 1 September 2015 the Group completed the acquisition of ESC. The initial consideration for the acquisition was £2,386,000 in cash with potential additional consideration of £601,000, subject to ESC fulfilling certain profitability criteria. ESC is a leading online retailer of gazebos, party tents, household, kitchen and fishing products under the Airwave, Windbar, Jack Stonehouse and Carpzone brands. We continue to implement our online strategy to become a leading internet retailer of outdoor and indoor leisure, household and mobility products. The acquisition of ESC has further broadened the Group’s distribution channels and its customer base by introducing a further online trading platform. During 2016, it is our intention to invest further to modify and improve our IT systems which will ultimately enable a more automated order picking and despatching process. Further, we plan to redevelop all websites to facilitate our plans. We believe this investment will provide us with a springboard for future profitable growth. For the period from 1 September 2015 to 31 December 2015 ESC delivered £1,587,000 of revenue and an operating profit of £38,000. Bicycles, bicycle accessories and mobility Revenue in our bicycles, bicycle accessories and mobility businesses was £15,478,000 for the year ended 31 December 2015 compared to £16,074,000 in the prior year. Operating profit for the year before the allocation of corporate charges and exceptional income was £895,000 compared to £874,000 for the year ended 31 December 2014. The corporate bicycles business performed ahead of the prior year although the Claud Butler and Dawes businesses were behind. Strong cost control and margin management enabled an increase in operating profit. The mid-tier independent bicycle market continued to be highly competitive. Notwithstanding these challenges, the range of new bicycles for 2016 has been well received in the market. We are also pleased with the progress that continues to be made with our national retailer customers. Sports, leisure and toys Revenue in our sports, leisure and toys business for the year ended 31 December 2015 was £18,907,000 compared to £15,246,000 in the prior year. Operating profit before the allocation of corporate charges was £1,300,000 for the year ended 31 December 2015 compared to £1,452,000 in the year ended 31 December 2014. It was a further year of turnover growth in our MV Sports business. In licensed properties, Disney Princess, Star Wars and Batman performed strongly. In own brands, Kickmaster, Bored and Pot Black showed growth over the prior year. Despite turnover growth, operating profits reduced with pressure on national retailer margins and royalty rates. For 2016 we have a number of new licenses including Finding Dory, Paw Patrol and Shopkins which we believe have the potential to make a strong contribution to the year. Key performance indicators A wide variety of daily key performance indicators are produced for all of our businesses to enable us to monitor performance against budget and the previous year. The key performance indicators that the Directors consider salient to the Group’s performance are shown below: Gross profit margin The ratio of gross profit to sales expressed as a percentage Turnover per employee The total of sales invoiced to customers, excluding value added tax, divided by the average number of employees during the period Net operating expenses % of sales The ratio of net operating expenses, before goodwill amortisation and exceptional items, to the total of sales invoiced to customers, excluding value added tax, expressed as a percentage Interest cover The ratio of operating profit before goodwill amortisation and exceptional items, to net interest payable on bank loans, overdrafts and invoice finance facilities Shareholders’ return The ratio of net profit before goodwill amortisation and exceptional items to shareholders’ funds at the start of the year expressed as a percentage Adjusted earnings per share – pence The net profit before goodwill impairment and exceptional items divided by the weighted average number of ordinary shares in issue during the year Year ended 31 December 2015 Actual Year ended 31 December 2015 Target Year ended 31 December 2014 Actual 29.4% 29.2% 30.5% £366,000 £403,000 £330,000 25.7% 24.0% 25.9% 6.7 14.5 9.1 15.3% 19.0% 30.2% 21.5 26.7 36.4 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 04 ❘ 05 Principal risks and uncertainties The management of the business and the nature of the Group’s strategy are subject to a number of risks and uncertainties. The principal risks facing the business are set out as follows: Suppliers In order to achieve competitively priced products the Group has outsourced production, mainly to countries in Asia. Risks and uncertainties of this strategy include management issues at the factories, the possibility of changes in import duties and shipping delays. We manage this risk by having a local office in Hong Kong with a team that works closely with the factories and we develop contingency plans should the need arise to make changes. Fluctuations in currency exchange rates A significant amount of the Group’s purchases are made in US dollars. As a Group, we are therefore exposed to foreign currency fluctuations. The Group manages its foreign exchange risk with forward foreign exchange contracts to reduce the exposure and does not adopt formal hedge accounting. If these activities do not mitigate the exposure, then the results and the financial condition of the Group may be adversely impacted. Licences A number of the Group’s brands are used under licence from global licensors. The licences are generally for between two and three years. If the licences are not renewed the Group would have to seek alternative licences in order to avoid a reduction in revenue. Competition The companies in the Group operate in highly competitive markets. As a result there is constant pressure on margins and the additional risk of being unable to meet customers’ expectations. Policies of supply chain management and product development are in place to mitigate such risks. Volatility in financial markets may require further cash contributions to our pension fund The Group has commitments under defined benefit pension schemes. The Group is obliged to make contributions to the schemes based on actuarial valuations, which in turn are based on long-term assumptions to calculate scheme liabilities. Volatility of the financial markets can also affect the value of the assets in the schemes. This may lead to a requirement to increase the cash contributed by the Group to the schemes. If the Group is required to make significant additional contributions, the financial position of the Group may be materially affected with a significant reduction in operating cash flows. In turn, this may adversely impact future developments of the business. Financial risks The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks. A summary of these risks is disclosed in note 16. S J Grant Chief Executive Officer 19 April 2016 J C Shears Group Finance Director 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015GovernanceFinancials Directors' report The Directors submit their annual report with the audited financial statements for the year ended 31 December 2015. Principal activity The Group is principally engaged in the design, development, sourcing and distribution of sports, leisure and mobility equipment. The Chairman’s statement and Strategic report on pages 2 and 3 should be read in conjunction with this report. Results and dividend The results for the year ended 31 December 2015 are set out in the Consolidated income statement on page 11. An interim dividend of 1.25 pence per ordinary share was paid on 6 November 2015 in respect of the six month period to 30 June 2015 (period ended 30 June 2014 – 1.20 pence). The Directors are proposing a final dividend of 2.50 pence per ordinary share (year ended 31 December 2014 – 2.40 pence) payable to shareholders on the register on 27 May 2016 and will be paid on or around 4 July 2016. Significant shareholders As at 19 April 2016 the Directors have been notified of the following interests representing 3% or more of the issued ordinary share capital. The percentage holdings exclude 1,264,035 shares held in treasury. J C Shears Jim joined the Company as Group Financial Controller in 2002. He was appointed Company Secretary in 2008 and Group Finance Director in June 2010. He previously worked for the Audit Commission, IFG Group plc and AWG plc where he held various financial roles. Jim is a Fellow of the Institute of Chartered Accountants in England and Wales. P Ratcliffe Phil joined MV in 1999 and has many years’ experience in commercial and strategic roles within the consumer goods sector, incorporating well known companies such as Car Plan, Waddingtons Games and Mattel. His experience encompasses marketing, licensing, product development, Far East sourcing and account management. Phil is a Fellow of The Chartered Institute of Marketing and is the current Chairman of The British Toy & Hobby Association (BTHA). J S T Morris Simon has worked in corporate finance for over 30 years, initially at Lazard Brothers and Dillon Read and later with MSB Corporate Finance and Smith & Williamson. He was appointed to the Board in March 2010 and is an experienced Non-Executive Director. Ordinary Shares of 25p 540,941 366,559 312,560 221,560 180,000 A Q Bestwick % 11.4 7.7 6.6 4.7 3.8 Andy was formerly Managing Director of Gardman Holdings Limited. He has considerable experience in product development, sourcing and supply chain management, particularly from Asia, and selling to national and independent retailers. He was appointed to the Board as a Non-Executive Director in April 2010. The interests of the Directors and their immediate families (as defined by the Companies Act 2006) in the shares of the Company are shown below: Held beneficially and fully paid Jupiter Asset Management S Bragg D Waldron M P J Keene S J Grant Directors The present Directors are as follows: M P J Keene Mervyn joined the Company in 1989 and became Managing Director of the former Garden Leisure Division. He was appointed Group Finance Director in 1993 and became Non-Executive Chairman in June 2010. He is a Fellow of the Association of Chartered Certified Accountants. S J Grant Steve joined MV Sports & Leisure Limited (‘MV’) from the accountancy profession in 1990 becoming Finance Director in that year. He was appointed Managing Director of MV in 1996 and became Chief Executive Officer of the Group in June 2010. 19 April 2016 25p ordinary shares 31 December 2015 25p ordinary shares 1 January 2015 25p ordinary shares 221,560 180,000 72,091 71,435 15,000 221,560 180,000 72,091 71,435 15,000 221,560 150,000 60,000 33,835 15,000 M P J Keene S J Grant J C Shears P Ratcliffe J S T Morris In accordance with the Articles of Association, P Ratcliffe and JST Morris, whose service contracts may be terminated by either party giving 12 months’ and six months’ written notice respectively, retire at the Annual General Meeting and offer themselves for re-election. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 06 ❘ 07 Directors' and officers' liability insurance Directors’ and officers’ liability insurance has been purchased by the Group during the year. Business review, key performance indicators (KPIs) and principal risks and uncertainties A review of the Group’s trading operations, KPIs and principal risks and uncertainties is contained in the Strategic Report on page 4. Environmental policies Tandem Group plc recognises its responsibility to protect the environment. The Group manages its operations in ways that are environmentally sustainable and economically feasible and provides appropriate educational programs for staff and other stakeholders. All Directors and managers of Tandem Group plc and its subsidiaries are committed to ensuring that environmental issues are carefully considered during all planning and operational decision making. The Group’s environmental policy applies to all land, premises and activities within its control. The Group promotes the use of sustainable resources and discourages wasteful or damaging practices. Subsidiary companies within the Group develop their own local policies and arrangements for implementing and monitoring the Group’s objectives. As a major supplier of bicycles and wheeled toys in the UK we believe that we are contributing to a sustainable transport strategy, improving the environment by providing an emission free transport alternative and encouraging better health and fitness of the nation. Corporate social responsibility The Group has a Corporate Social Responsibility Committee (CSRC) which meets regularly, with members from each of the Group’s operations, including the Hong Kong office. The CSRC is responsible for ensuring that each business in the Group operates to the same broad guidelines defined in the Group policy statement issued by the CSRC. This statement deals with health and safety, employee wellbeing, the Group’s impact on the environment and its social responsibility. Every new or prospective supplier must satisfactorily complete an audit before being validated by the Group. Follow up audits are undertaken on a regular basis once suppliers are accepted. With the benefits of language and location, the Group’s Hong Kong office is able to control the audits of the suppliers in Asia. Other supplier audits are controlled from the UK. The Group continues to be engaged in a number of projects, in conjunction with stakeholders, to reduce carbon dioxide emissions, safely and efficiently dispose of waste and, where possible, re-use and recycle products and packaging. Employment policies It is the policy of the Group that there should be no unfair discrimination in considering applications for employment, including those from disabled persons. All employees are given equal opportunities for career development and promotion. Health and safety committee meetings are held within the operating businesses. The necessity and importance of good communications and relations with all employees is well recognised and accepted throughout the Group. Employees are kept fully aware of management policies applicable to their respective duties. The Directors are committed to the principle of employee and executive share participation as evidenced by the existence of share option schemes. Options are granted under these schemes in order that employees can participate in the Group’s performance. Statement of Directors' responsibilities The Directors are responsible for preparing the Strategic Report, 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 to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws, including FRS 101 Reduced Disclosure Framework). 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 UK Accounting Standards for the company accounts and IFRSs for the Group accounts have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015GovernanceFinancials Directors' report continued 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 the 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 Company’s 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. Auditor A resolution to re-appoint Grant Thornton UK LLP as the Company’s auditor will be proposed at the forthcoming Annual General Meeting. Annual General Meeting The notice of the Annual General Meeting includes resolution 6 proposed as special business. Resolution 6 is also a special resolution which seeks the authority from shareholders for the Company to make market purchases. The Directors would only exercise these authorities if the effect of doing so would, in their opinion, be in the best interests of shareholders generally. In addition, in exercising such authorities, the Company would comply with the current guidelines of the ABI and the UK Listing Authority. By Order of the Board J C Shears Company Secretary 19 April 2016 Registered number: 00616818 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 08 ❘ 09 Corporate governance statement As the Company’s shares are traded on AIM the Company has not complied with the UK Corporate Governance Code nor is it required to. However, the Company is committed to high standards of corporate governance and draws upon best practice available, including those aspects of the code considered appropriate. The Company is controlled through the Board of Directors which comprises three executive Directors and three independent non- executive Directors. The service contracts of the three executive Directors may be terminated by either party giving 12 months’ written notice. The remuneration and other emoluments of executive Directors and senior managers are determined by the Remuneration Committee, of which M P J Keene, J S T Morris and A Q Bestwick are members. Executive remuneration packages are subject to an annual review and are designed to attract, motivate and retain Directors and senior managers of a high calibre. The Board has a formal schedule of matters reserved to it and meets monthly. It is responsible for overall Group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters. It monitors the exposure to key business risks and reviews the strategic direction of its trading businesses, their annual budgets, their progress towards achievement of those budgets and their capital expenditure programmes. The Board also considers environmental and employee issues and key appointments. All Directors will submit themselves for re-election at least once every three years. The Board has established three committees. The Audit Committee meets as appropriate to review the Group’s accounting policies, reporting procedures and financial matters, with the Group Finance Director and the external auditor in attendance. The Nominations Committee meets when applicable to consider and recommend to the Board changes in the Board’s composition. The Remuneration Committee reviews the terms and conditions of employment of the Directors and senior managers. M P J Keene and J S T Morris are members of the Audit Committee. M P J Keene and A Q Bestwick are members of the Nominations Committee. Independent external advice is taken when appropriate. The Group encourages two-way communication with both its institutional and private investors and endeavors to respond quickly to all queries received verbally or in writing. The executive Directors attended meetings with shareholders in the year ended 31 December 2015. The Group has a comprehensive system for reporting financial results to the Board. Each operating unit prepares monthly results with a comparison against budget. Towards the end of each financial year the operating units prepare detailed budgets for the following year. Budgets and plans are reviewed by the Board before being formally adopted. Quality and integrity of personnel is regarded as vital to the maintenance of the Group’s system of internal control. Due to the relatively small number of key employees within the business, the Board has first hand knowledge of their performance. The executive management has defined the financial controls and procedures with which each operating unit is required to comply. Key controls over major business risks include reviews against performance indicators and exception reporting. The operating units make regular assessments of the extent of their compliance with these controls and procedures. Much of the Group’s financial and management information is processed by and stored on computer systems. Accordingly, the Group has established controls and procedures over the security of data held on these systems. Also, the Group has put in place arrangements for computer processing to continue and data to be retained in the event of the complete failure of the Group’s own data processing facility. With a substantial part of purchases in United States dollars, protecting against foreign exchange fluctuations in this currency is recognised by the Directors as a key responsibility. The use of various financial instruments minimises vulnerability to the volatility of the US dollar. A number of the Group’s key functions, including treasury, taxation and insurance, are dealt with centrally by the Group Finance Director who reports to the Board on a monthly basis. The Group meets its day to day working capital requirements through certain overdraft and invoice financing facilities. The bank facilities were renewed in October 2015 and the Group expects to operate within the facilities currently agreed. Based on the Group’s plans, and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015GovernanceFinancials Report of the Independent Auditor to the members of Tandem Group plc Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception 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. Rebecca Eagle Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Birmingham 19 April 2016 We have audited the financial statements of Tandem Group plc for the year ended 31 December 2015 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the 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). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ responsibilities set out on page 7 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org. uk/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 2015 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 10 ❘ 11 Consolidated income statement Year ended 31 December 2015 Year ended 31 December 2014 Before non- underlying items £’000 Non- underlying items £’000 After non- underlying items £’000 Before non- underlying items £’000 Non- underlying items £’000 After non- underlying items £’000 Note 34,385 (24,265) 10,120 (8,700) 1,420 – 1,420 (206) 1,214 (128) 1,086 – – – (140) (140) 7 (133) (36) (169) 84 (85) 3 4 5 7 8 34,385 (24,265) 10,120 (8,840) 1,280 7 1,287 (242) 1,045 (44) 1,001 Pence 21.31 20.27 31,320 (21,755) 9,565 (8,107) 1,458 – 1,458 (175) 1,283 34 1,317 – – – – – (73) (73) 506 433 (124) 309 31,320 (21,755) 9,565 (8,107) 1,458 (73) 1,385 331 1,716 (90) 1,626 Pence 34.82 34.09 Revenue Cost of sales Gross profit Operating expenses Operating profit before exceptional income/(costs) Exceptional income/(costs) Operating profit after exceptional income/(costs) Finance (costs)/income Profit before taxation Tax (expense)/credit Net profit for the year Earnings per share Basic Diluted Consolidated statement of comprehensive income Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 1,001 1,626 51 163 75 423 (223) 326 1,327 – (778) 89 (526) 1,100 Net profit for the year Other comprehensive income: Items that will be reclassified subsequently to profit and loss: Foreign exchange differences on translation of foreign operations Items that will not be reclassified subsequently to profit or loss: Deferred tax credit on share based payments Actuarial gain/(loss) on pension schemes Movement in pension schemes’ deferred tax provision Other comprehensive income for the year Total comprehensive income for the year attributable to equity shareholders All figures relate to continuing operations. The accompanying notes form an integral part of these financial statements. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance At 31 December 2015 £’000 At 31 December 2014 £’000 Note 9 10 17 11 12 16 13 14 15 14 15 18 19 19 5,612 3,267 1,825 10,704 6,227 5,468 246 878 12,819 23,523 (5,001) (4,034) (559) (9,594) (8) (2,494) (3,608) (6,110) 4,112 3,330 1,990 9,432 5,072 6,501 142 1,805 13,520 22,952 (5,457) (4,869) (232) (10,558) (161) (1,500) (4,147) (5,808) (15,704) (16,366) 7,819 6,586 1,503 (316) 127 2,944 3,561 7,819 1,503 (336) 84 2,893 2,442 6,586 Consolidated balance sheet Non current assets Intangible fixed assets Property, plant and equipment Deferred taxation Current assets Inventories Trade and other receivables Derivative financial asset held at fair value Cash and cash equivalents Total assets Current liabilities Trade and other payables Other liabilities Current tax liabilities Non current liabilities Other payables Other liabilities Pension schemes’ deficits Total liabilities Net assets Equity Share capital Shares held in treasury Share premium Other reserves Profit and loss account Total equity The financial statements were approved by the Board on 19 April 2016 and signed on its behalf by: M P J Keene Director J C Shears Director The accompanying notes form an integral part of these financial statements. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 12 ❘ 13 Consolidated statement of changes in equity Share capital £’000 1,503 Shares held in treasury £’000 Share premium £’000 (336) 84 Capital redemption reserve £’000 1,427 Merger reserve £’000 1,036 – – – – – – – – – – – – – – – _ – – – – – – – _ – – – – – – – – – – – – – – – – Balance at 1 January 2014 Net profit for the year Re-translation of overseas subsidiaries Net actuarial loss on pension schemes Total comprehensive income for the year attributable to equity shareholders Share based payments Exercise of share options Dividends paid Total transactions with owners Balance at 1 January 2015 1,503 (336) 84 1,036 1,427 Net profit for the year Re-translation of overseas subsidiaries Net actuarial gain on pension schemes Total comprehensive income for the year attributable to equity shareholders Share based payments Deferred tax on share options Exercise of share options Dividends paid Total transactions with owners – – – – – – – – – – – – – – 20 – 20 – – – – – – 43 – 43 – – – – – – – – – – – – – – – – – – Balance at 31 December 2015 1,503 (316) 127 1,036 1,427 The share premium was created following the exercise of share options. Translation reserve £’000 267 – 163 – Profit and loss account £’000 1,659 1,626 – (689) Total £’000 5,640 1,626 163 (689) 163 937 1,100 – – – 163 430 – 51 – 9 _ (163) 783 2,442 1,001 _ 200 9 _ (163) 946 6,586 1,001 51 200 51 1,201 1,252 – – – – 51 481 14 75 – (171) 1,119 3,561 14 75 63 (171) 1,233 7,819 The merger reserve was created as a result of merger relief being claimed in respect of previous share issues. Other reserves include a capital redemption reserve and a translation reserve. These reserves are non-distributable. The profit and loss account includes all current and prior period results and share based payments as disclosed in the consolidated income statement. The accompanying notes form an integral part of these financial statements. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Consolidated cash flow statement Cash flows from operating activities Profit before taxation for the year Adjustments: Depreciation of property, plant and equipment Amortisation of intangible fixed assets Finance costs Share based payments Net cash flow from operating activities before movements in working capital Change in inventories Change in trade and other receivables Change in trade and other payables Cash generated from operations Interest paid Tax paid Net cash flows from operating activities Cash flows from investing activities Acquisition of subsidiary net of cash acquired Acquisition of subsidiaries deferred consideration paid Purchases of intangible fixed assets Purchases of property, plant and equipment Sale of property, plant and equipment Net cash flows from investing activities Cash flows from financing activities New loans Loan repayments Finance lease repayments Movement in invoice financing Exercise of share options Dividends paid Net cash flows from financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year The accompanying notes form an integral part of these financial statements. Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 1,045 1,716 193 16 242 14 1,510 (137) 1,814 (1,476) 1,711 (108) (120) 1,483 196 4 (331) 9 1,594 (803) (489) 1,143 1,445 (98) (14) 1,333 (2,057) (2,147) (290) (39) (132) 6 – – (369) – (2,512) (2,516) 1,500 (182) (23) (1,136) 63 (171) 51 (978) 1,805 51 878 – (107) (36) 210 – (163) (96) (1,279) 2,925 159 1,805 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 14 ❘ 15 Foreign currency The Group’s consolidated financial statements are presented in sterling (£), which is also the functional currency of the parent Company. Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary balance sheet items at year end exchange rates are recognised in the consolidated income statement. In the Group’s financial statements, all items and transactions of Group entities with a functional currency other than sterling were translated into sterling upon consolidation. Assets and liabilities have been translated into sterling at the closing rate at the balance sheet date. Income and expenses have been translated into sterling at the average rates over the reporting period. Any differences arising from this procedure have been charged or credited through other comprehensive income to the currency translation reserve in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into sterling at the closing rate. The Group has taken advantage of the exemption in IFRS 1 and has deemed cumulative translation differences for all foreign operations to be £nil at the date of transition to IFRS. The gain or loss on disposal of these operations excludes translation differences that arose before the date of transition to IFRS but includes later translation differences. Income recognition Revenue is measured by reference to the fair value of consideration receivable by the Group for goods supplied, excluding VAT and trade discounts. Revenue is recognised upon the sale of goods or transfer of risk to the customer. Revenue from the sale of goods is recognised when all the following conditions have been satisfied: • • • • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when they are received by the customer at the agreed place of delivery; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Notes to the financial statements 1. General information Tandem Group plc, a public limited company traded on the Alternative Investment Market, is incorporated and domiciled in the United Kingdom. The Company acts as a holding company of the Group. The registered office and principal place of business of the Group is disclosed on the Directors and advisers page to these financial statements. The Group’s principal activity is disclosed on page 6. The financial statements for the year ended 31 December 2015 (including the comparatives for the year ended 31 December 2014) were approved by the Board of Directors on 19 April 2016. The Group does not have an ultimate controlling related party. 2. Accounting policies Non-underlying items Non-underlying items are material items which arise from unusual non-recurring or non-trading events. They are disclosed in aggregate on the Consolidated income statement where in the opinion of the Directors such disclosure is necessary in order to fairly present the results for the period. Non-underlying items comprise one off acquisition costs, non-recurring relocation costs, exceptional costs of Group restructuring, the finance cost related to the Group’s pension schemes calculated in accordance with IAS19, the impact of the movement in respect of derivative foreign exchange contracts held at fair value through the profit and loss in accordance with IAS39 and the release of the over provision in respect of contingent consideration. Basis of preparation The principal accounting policies of the Group are set out below and are consistent with those applied in the prior year financial statements. Overall considerations The consolidated financial statements have been prepared using the measurement bases specified by IFRS as adopted by the EU for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. All accounting estimates and assumptions that are used in preparing the financial statements are consistent with the Group’s latest approved budget where applicable. Judgements are based on the information available at each balance sheet date. Disclosure of the significant accounting estimates and judgements can be found on page 19. Basis of consolidation Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through voting rights. The consolidated financial statements of the Group incorporate the financial statements of the parent Company as well as those entities controlled by the Group by full consolidation. Intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 2. Accounting policies continued Business combinations and goodwill The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition- date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss immediately. Goodwill is carried at cost less accumulated impairment losses and is tested annually for impairment as described below. Contingent consideration Where an acquisition is subject to deferred or contingent consideration it is recorded as part of the cost of the investment at the net present value of future expected cash flows. Future expected cashflows are estimated using forecasts prepared by management based on the likely future performance of the acquired business. The consideration is classified as a financial liability and is measured at fair value with any changes in the estimated value being recognised in the income statement. Intangible assets Assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group based on its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. The intangible is then amortised over the economic life of the asset as detailed below. Brands The fair value of acquired brands is calculated using the royalty relief method. It is capitalised and then amortised over its useful economic life of 20 years. The amortisation is calculated so as to write off the fair value less the estimated residual value over their estimated lives. An impairment review is undertaken when events or circumstances indicate the carrying amount may not be recoverable. Other intangible assets Intangible assets separately purchased, such as software, are capitalised at cost and amortised on a straight-line basis over their useful economic life of 10 years. Impairment The Group’s goodwill and property, plant and equipment is subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash- generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows. Cash-generating units that include goodwill are tested for impairment at least annually. All other individual assets or cash-generating units that do not include goodwill are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Property, plant and equipment Property, plant and equipment is carried at acquisition cost less subsequent depreciation and impairment losses. Depreciation is charged on these assets on a straight line basis over the estimated useful economic life of each asset. Material residual value estimates and useful economic lives are updated as required and at least annually. The useful lives of property, plant and equipment can be summarised as follows: Land Freehold building not depreciated 50 years Short leasehold land and buildings Length of lease Vehicles Plant and machinery 3 – 4 years 3 – 20 years Inventories All inventories and work in progress are stated at the lower of cost and net realisable value. Cost is based on the first in first out method. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 16 ❘ 17 Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the consolidated income statement. Changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that are charged directly to other comprehensive income or equity are charged or credited directly to other comprehensive income or equity respectively. Employee benefits Defined contribution pension schemes Pensions to employees are provided through contributions to individual personal pension plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. The contributions recognised in respect of personal pension plans are expensed as they fall due. Liabilities and assets may be recognised if an underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short term nature. Defined benefit pension schemes Scheme assets are measured at fair values. Scheme liabilities are measured on an actuarial basis using the projected unit method and are discounted at appropriate high quality corporate bond rates that have terms to maturity approximating to the terms of the related liability. Appropriate adjustments are made for unrecognised actuarial gains or losses and past service costs. Actuarial gains and losses are recognised immediately in the consolidated statement of comprehensive income. The net surplus or deficit is presented in non current assets or liabilities on the consolidated balance sheet. The related deferred tax is shown with other deferred tax balances. A surplus is recognised only to the extent that it is recoverable by the Group. The service cost and costs from settlements and curtailments are charged to operating expenses. Net interest costs or income are included in finance costs or income in the consolidated income statement. Post-employment benefits other than pensions are accounted for in the same way. 2. Accounting policies continued Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers whose members are responsible for allocating resources and assessing performance of the operating segments. Leases In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable in advance at the date of inception of the lease. All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis. Associated costs, such as maintenance and insurance, are expensed as incurred. The Group does not act as a lessor. Taxation Current income tax assets or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised on the initial recognition of goodwill, nor on the initial recognition of assets or liabilities unless acquired in a business combination or in a transaction that affects tax or accounting profit. This applies also to temporary differences associated with shares in subsidiaries if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, 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. Deferred tax liabilities are provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, 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. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 2. Accounting policies continued Financial assets The Group’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the entity becomes party to the contractual provisions of an instrument. All financial assets are initially recognised at fair value, plus transaction costs, and are subsequently measured at amortised cost using the effective interest rate. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. Interest and other cash flows resulting from holding financial assets are recognised in the consolidated income statement using the effective interest rate method, regardless of how the related carrying amount of financial assets is measured. Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the 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 at the original effective interest rate. Cash and cash equivalents For the purposes of the consolidated cash flow statement, cash and cash equivalents include cash at bank and in hand and short term highly liquid investments such as bank deposits less advances from banks repayable within three months from the date of advance. Equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. When the Company purchases its own equity share capital, the consideration paid is deducted from equity attributable to the Company’s equity shareholders until the shares are cancelled or reissued. Share capital is determined using the nominal value of shares that have been issued. The merger reserve was created as a result of merger relief being claimed in respect of previous share issues. Other reserves include a capital redemption reserve and a translation reserve. These reserves are non-distributable. The profit and loss account includes all current and prior period results and share based payments as disclosed in the consolidated income statement. Share based employee remuneration The Group operates equity settled share based remuneration plans for its senior employees. All employee services received in exchange for the grant of any share based remuneration are measured at their fair values. These are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions. is ultimately recognised as All share based remuneration an expense in the consolidated income statement with a corresponding credit to reserves, net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment is made to the expense recognised in prior periods if fewer share options ultimately are exercised than originally estimated. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium. Financial liabilities The Group’s financial liabilities include trade and other payables, invoice finance and forward exchange contracts. Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised in the consolidated income statement. Finance charges are charged to the consolidated income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost less settlement payments. Invoice finance liabilities are recognised at the time the Group becomes a party to the contractual provisions of the invoice finance agreement. Forward exchange contracts are financial liabilities held at fair value through profit and loss in accordance with the policy below. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 2. Accounting policies continued Foreign exchange forward and option contracts From time to time the Group enters into forward and option contracts for the purchase or sale of foreign currencies. These are classified as derivatives and carried at fair value through profit or loss in the consolidated financial statements. Any re- measurement gains or losses are taken to the consolidated income statement. Forward and option exchange contracts are entered into to mitigate exposure to foreign exchange fluctuations relating to purchases made in foreign currencies, principally the US dollar. The Group’s policy is to reduce substantially the risk associated with purchases denominated in foreign currencies by using forward fixed rate currency purchase contracts, taking into account any foreign currency cash flows. The foreign exchange contracts do not meet the criteria for treatment as an effective hedge and accordingly any gain or loss is recognised immediately in the consolidated income statement as a finance cost. Significant accounting estimates and judgements Certain estimates and judgements need to be made by the Directors of the Group which affect the results and position of the Group as reported in the financial statements. Estimates and judgements are required if, for example, as at the reporting date not all liabilities have been settled and certain assets and liabilities are recorded at fair value which requires a number of estimates and assumptions to be made. Key areas of estimation uncertainty Impairment of goodwill The annual impairment assessment in respect of goodwill requires estimates of the value in use of cash generating units to which goodwill has been allocated to be calculated. As a result, estimates of future cash flows are required, together with an appropriate discount factor for the purpose of determining the present value of those cash flows. The basis of review of the carrying value of goodwill is as detailed in note 9 to the consolidated financial statements. Financial instruments valuation Forward contracts and options are used to minimise the impact of foreign exchange fluctuations on the group. An asset or liability is recognised representing the fair value of the instruments in place at the year end. The fair value is calculated using certain estimates and valuation models by reference to significant inputs including; implied volatilities in foreign currency and historical movements in foreign currency exchange rates. Changes in the fair value of the instruments are recognised in profit or loss in the income statement. 18 ❘ 19 Pension scheme valuation The liabilities in respect of defined benefit pension schemes are calculated by qualified actuaries and reviewed by the Group, but are necessarily based on subjective assumptions. The principal uncertainties relate to the estimation of the discount rate, life expectancies of scheme members, future investment yields and general market conditions for factors such as inflation and interest rates. The specific assumptions adopted are disclosed in detail in note 18 to the consolidated financial statements. Profits and losses in relation to changes in actuarial assumptions are taken directly to reserves and therefore do not impact on the profitability of the business, but the changes do impact on net assets. Inventory provisioning The Group reviews the net realisable value of and demand for its inventory on an ongoing basis to ensure recorded inventory is stated at the lower of cost or net realisable value. Factors that could impact estimated demand and selling prices are the timing and success of future technological innovations, competitor actions, suppliers prices and economic trends. If total inventory losses differ, the Group’s consolidated net income in the year would have improved or declined, depending upon whether the actual results were better or worse than expected. Bad debt provision At each reporting period, the Directors review outstanding debts and determine appropriate provision levels. The recovery of certain debts is dependent on the individual circumstances of customers. As disclosed in note 12 there are a number of debts which remain outstanding past their due date, which the Directors believe to be recoverable. Intangible asset valuation In attributing value to intangible assets arising on acquisition, management has made certain assumptions in terms of cash flows attributable to intellectual property and customer relationships. The key assumptions relate to the trading performance of the acquired business, royalty rates applied in the royalty relief calculation and discount rates applied to calculate the present value of future cash flows. The directors consider the resulting valuation to be a reasonable approximation as to the value of the intangibles acquired. information. Estimates and Key judgements Deferred tax assets In determining the deferred tax asset to be recognised the Directors carefully review the recoverability of these assets on a prudent basis and reach a judgement based on the best in available the financial statements are based on historical experience and other assumptions that the Directors and management consider reasonable and are consistent with the Group’s latest budgeted forecasts where applicable. Judgements are based on the information available at each balance sheet date. Although these estimates are based on the best information available to the Directors, actual results may ultimately differ from those estimates. judgements used 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 2. Accounting policies continued Standards and interpretations not yet applied The following new standards and interpretations, which are yet to become mandatory, have not been applied in the Group’s consolidated financial statements for the year ended 31 December 2015: IFRS 9 Financial Instruments (IASB effective date 1 January 2018)^^ IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016)^^ && IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)^^ IFRS 16 Leases effective 1 January 2019)^^ • • • • • Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) (IASB effective date 1 July 2014) $$ (Endorsed) • • Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (IASB effective date 1 January 2016) (Endorsed) Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (IASB effective date 1 January 2016) (Endorsed) Annual Improvements to IFRSs 2010–2012 Cycle (IASB effective date generally 1 July 2014) $$ (Endorsed) Annual Improvements to IFRSs 2012-2014 Cycle (effective 1 January 2016) (Endorsed) Amendments to IAS 16 and IAS 41: Bearer Plants (effective 1 January 2016) (Endorsed) Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016) (Endorsed) Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (effective 1 January 2016)^^ • • • • • • Disclosure Initiative: Amendments to IAS 1 Presentation of Financial Statements (effective 1 January 2016) (Endorsed) • Disclosure Initiative: Amendments to IAS 7 Statement of Cash Flows (effective 1 January 2017)^^ • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (effective 1 January 2016)** Amendments to IAS 12: Recognition of Deferred Tax assets for Unrealised Losses (effective 1 January 2017)^^ • $$ EU mandatory effective date is financial years starting on or after 1 February 2015. ^^ Not adopted by the EU (as at 16 Feb 2016). ** Endorsement postponed indefinitely && It has been decided not to launch the endorsement process – The EC will wait for a completely new standard The Directors consider that there would be no material impact on the financial statements as a result of the introduction of the above standards and interpretations. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 20 ❘ 21 3. Segmental reporting For management purposes the Group is organised into two operating segments. The revenues, results and net assets for these segments are shown below: Year ended 31 December 2015 Revenue Segment result before corporate charges Allocation of corporate charges Segment result after corporate charges Unallocated corporate charges Operating profit Exceptional income Finance costs Profit before taxation Tax expense Net profit for the year Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Consolidated net assets Capital additions Group Segments Depreciation Group Segments Bicycles, bicycle accessories and mobility £’000 15,478 895 (331) 564 Sports, leisure and toys £’000 18,907 1,300 (512) 788 9,057 9,834 (3,679) (4,554) 80 75 90 80 Total £’000 34,385 2,195 (843) 1,352 (72) 1,280 7 (242) 1,045 (44) 1,001 18,891 4,632 23,523 (8,233) (7,471) (15,704) 7,819 1 170 171 38 155 193 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 3. Segmental reporting continued Year ended 31 December 2014 Revenue Segment result before corporate charges Allocation of corporate charges Segment result after corporate charges Unallocated corporate charges Operating profit Exceptional costs Finance costs Profit before taxation Tax income Net profit for the year Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Consolidated net assets Capital additions Group Segments Depreciation Group Segments Bicycles, bicycle accessories and mobility £’000 16,074 874 (331) 543 Sports, leisure and toys £’000 15,246 1,452 (507) 945 9,961 7,931 (4,921) (4,698) 52 68 78 67 Total £’000 31,320 2,326 (838) 1,488 (30) 1,458 (73) 331 1,716 (90) 1,626 17,892 5,060 22,952 (9,619) (6,747) (16,366) 6,586 248 130 378 61 135 196 Depreciation is included within operating expenses in the Consolidated income statement. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 22 ❘ 23 3. Segmental reporting continued The Group’s revenues and non current assets are divided into the following geographical areas: Year ended 31 December 2015 Revenue Non current assets Year ended 31 December 2014 Revenue Non current assets United Kingdom £’000 32,247 8,873 United Kingdom £’000 28,948 7,436 Europe £’000 1,064 – Europe £’000 1,470 – Rest of the World £’000 1,074 6 Rest of the World £’000 902 6 Total £’000 34,385 8,879 Total £’000 31,320 7,442 There was one customer (year ended 31 December 2014 – one) whose revenue from transactions amounted to 10% or more of the Group’s revenue. 4. Operating expenses Distribution costs Administrative expenses (before exceptional costs) Total operating expenses (before exceptional costs) as shown in the Consolidated income statement The operating expenses disclosed above include the following charges: Employee benefits expense (note 6) Depreciation – owned assets Depreciation – assets under hire purchase agreements Intangible amortisation Operating lease costs Other expenses Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 4,566 4,274 8,840 4,035 181 12 16 469 4,127 8,840 4,291 3,816 8,107 4,078 185 11 4 332 3,497 8,107 Auditor’s remuneration in the capacity as auditor of the parent Company was £3,000 (year ended 31 December 2014 – £3,000) and in the capacity as auditor of the subsidiary companies was £67,000 (year ended 31 December 2014 – £58,000). Non audit remuneration totalled £20,958 relating to due diligence services(year ended 31 December 2014 – £4,000) and in respect of tax services totalled £14,000 (year ended 31 December 2014 – £14,000). Exceptional income during the year of £7,000 (year ended 31 December 2014 – £73,000 cost) related to restructuring costs incurred by the Group of £47,000 offset by the release of an over provision in respect of the earn out arising on the Pro Rider acquisition of £54,000. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 5. Finance costs/(income) Interest payable on bank loans, overdrafts and invoice finance facilities Interest payable on hire purchase agreements Expected return on pension scheme assets less interest on liabilities Fair value adjustment in respect of derivative financial liabilities held at fair value through profit and loss 6. Directors' and employees' remuneration Employee benefits expense Expense recognised for employee benefits is analysed below: Wages and salaries Social security costs Share-based employee remuneration Pension scheme contributions – defined contribution schemes The average number of people (including Directors) employed by the Group during the year was: Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 192 14 140 (104) 242 161 14 151 (657) (331) Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 3,560 316 14 145 4,035 3,568 350 9 16651 4,078 Number Number 56 38 94 62 33 95 Selling and distribution Management and administration Directors' remuneration M P J Keene S J Grant J C Shears P Ratcliffe J S T Morris A Q Bestwick Year ended 31 December 2015 Short term employment benefits Salary/Fee £’000 Performance bonus £’000 Benefits in kind £’000 Pension contribution £’000 50 167 116 140 20 20 513 — 15 15 15 — — 45 — 5 5 7 — — 17 — 33 31 26 — — 90 Year ended 31 December 2014 £’000 50 286 212 232 20 20 820 Total £’000 50 220 167 188 20 20 665 In addition to the above the total charge for Employer’s National Insurance for the period was £66,000 (year ended 31 December 2014 – £98,000). During the year and in the previous year the Group contributed to defined contribution pension schemes for S J Grant, J C Shears and P Ratcliffe. The related share based remuneration charge was £10,000 (year ended 31 December 2014 – £8,000) of which £4,000 (year ended 31 December 2014 – £3,000) related to S J Grant, £3,000 (year ended 31 December 2014 – £3,000) related to J C Shears and £3,000 (year ended 31 December 2014 – £2,000) related to P Ratcliffe. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 24 ❘ 25 6. Directors' and employees' remuneration continued Key management personnel The Group considers the key management of the business to be the Directors of Tandem Group plc. Share based employee remuneration The following options were held at 31 December 2015 under the Group’s share option schemes: Number of shares 2007 Employee Share Option Scheme At 1 January 2015 Granted during year Exercised/ lapsed during year At 31 December 2015 Option price per 25p ordinary share Exercise period Directors M P J Keene S J Grant J C Shears P Ratcliffe Other employees 1996 Approved Share Option Scheme Director P Ratcliffe Other employees 86,400 75,000 27,475 47,525 8,000 67,000 35,000 32,000 14,000 37,400 64,800 23,400 5,600 11,200 534,800 – – – – – – – – – – – – – – – – (30,000) – – (8,000) (4,091) – (32,000) – – – – (5,600) – (79,691) 86,400 45,000 27,475 47,525 78.91p 31/01/10 – 14/06/17 78.91p 31/01/10 – 14/06/17 107.00p 31/01/14 – 14/06/21 79.00p 31/12/15 – 29/10/23 – 78.91p 31/01/10 – 14/06/17 62,909 35,000 107.00p 31/01/14 – 14/06/21 79.00p 31/12/15 – 29/10/23 – 78.91p 31/01/10 – 14/06/17 14,000 37,400 64,800 23,400 107.00p 31/01/14 – 14/06/21 79.00p 31/12/15 – 29/10/23 78.91p 31/01/10 – 14/06/17 107.00p 31/01/14 – 14/06/21 – 62.50p 26/06/09 – 26/06/16 11,200 455,109 62.50p 26/06/09 – 26/06/16 The Group has the following outstanding share options and exercise prices: Date exercisable (option life): 2009 (up to 2016) 2010 (up to 2017) 2014 (up to 2021) 2015 (up to 2023) At 31 December 2015 At 31 December 2014 Number Exercise price (pence) Remaining contractual life (years) 11,200 196,200 127,784 119,925 455,109 62.50 78.91 107.00 190.00 0.5 1.5 5.5 7.8 Number 16,800 266,200 131,875 119,925 534,800 Exercise price (pence) Remaining contractual life (years) 62.50 78.91 107.00 79.00 1.5 2.5 6.5 8.8 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 6. Directors' and employees' remuneration continued The ordinary share mid-market price on 31 December 2015 was 182.5p (31 December 2014 – 106.0p). During the period, the highest mid- market price was 197.5p (31 December 2014 – 130.0p) and the lowest was 103.5p (31 December 2014 – 68.5p). The weighted average exercise price of the options in issue was 86.4p (31 December 2014 – 85.3p). The fair value of options granted was determined for IFRS 2 using the Black–Scholes valuation model. Significant inputs into the calculations were: • • • • • exercise prices of 62.50p (31 December 2014 – 62.50p) to 107.00 (31 December 2014 – 107.0p); 36.3% (31 December 2014 – 36.3%) to 48.0% (31 December 2014 – 48.0%) volatility based on expected and historical share price; a risk-free interest rate of 0.86% (31 December 2014 – 0.86%); all options are assumed to vest after three and a half years from the date of grant of the options; and dividend yield of 4.03% In total £14,000 (31 December 2014 – £9,000) of share-based employee remuneration expense has been included in the Consolidated income statement. 7. Tax expense The relationship between the expected tax expense at 20.25% (year ended 31 December 2014 – 21.5%) and the actual tax income recognised in the Consolidated income statement can be reconciled as follows: Profit before taxation Tax rate Expected tax expense Expenses not deductible for tax purposes Movement in unrecognised deferred tax asset Deferred tax charged to the Consolidated statement of comprehensive income Effect of differing rates on overseas taxation Effect of change in tax rate Adjustments in respect of prior periods Actual tax expense Actual tax expense comprises: Current tax expense Deferred tax expense Year ended 31 December 2015 Year ended 31 December 2014 % 21.5 (3.0) (23.9) 5.2 (1.0) 7.6 (1.2) £’000 1,045 20.25% 212 14 (311) (146) 4 309 (38) 44 73 (29) 44 % 20.25 1.3 (29.8) (14.0) 0.4 29.6 (3.6) £’000 1,716 21.5% 369 (51) (410) 89 (17) 131 (21) 90 81 9 90 At 31 December 2015 there are trading losses and loan relationship deficits of approximately £10,133,000 (31 December 2014 – £14,186,000) available for carry forward against future profits of the same trade. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 26 ❘ 27 8. Earnings per share The calculation of earnings per share is based on the net profit and ordinary shares in issue during the year as follows: Net profit for the year Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 1,001 1,626 Weighted average shares in issue (excluding shares held in treasury) used for basic earnings per share 4,696,752 4,669,754 Weighted average dilutive shares under option Average number of shares used for diluted earnings per share 241,974 100,453 4,938,726 4,770,207 Basic earnings per share Diluted earnings per share 9. Intangible fixed assets Gross carrying amount at 1 January 2014 Acquisition At 1 January 2015 Additions Acquisition (note 24) At 31 December 2015 Amortisation At 1 January 2014 Provided in the year At 1 January 2015 Provided in the year At 31 December 2015 Net book value At 31 December 2015 At 31 December 2014 Pence 21.31 20.27 Goodwill £’000 Software £’000 Brand names £’000 7,193 1,695 8,888 – 1,221 10,109 4,957 – 4,957 – 4,957 5,152 3,931 – – – 39 – 39 – – – 4 4 35 — – 185 185 – 256 441 – 4 4 12 16 425 181 Pence 34.82 34.09 Total £’000 7,193 1,880 9,073 39 1,477 10,589 4,957 4 4,961 16 4,977 5,612 4,112 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 9. Intangible fixed assets continued Goodwill above relates to the following cash generating units: Pot Black Dawes Cycles Ben Sayers Pro Rider ESC Others (fully impaired) Date of acquisition 28 September 2000 26 June 2001 25 February 2002 1 August 2014 1 September 2015 Goodwill on acquisition £’000 1,906 895 715 1,695 1,221 3,677 10,109 Carrying value of goodwill £’000 965 695 576 1,695 1,221 – 5,152 Goodwill arising on consolidation, representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and is tested annually for impairment. The key assumptions for each of the cash generating units include stable growth and profit margins, which have been determined based on past experience in this market. Internal and external market data has been used in setting the assumptions. It is considered that this is the best available input for forecasting this market. The recoverable amounts were determined based on a value-in-use calculation, covering a detailed one year conservative forecast, followed by an extrapolation of expected cash flow over the next four years at growth rates of 3% for each cash generating unit, which represents a conservative long term average growth rate, followed by year five cash flows in perpetuity. The growth rates used do not exceed the long term average growth for the market in which the Group operates. A forecast period of five years has been used representing the expected minimum period that the business model is sustainable assuming no significant changes in the business. The discount rate used is 3.74%, being the Group’s weighted average cost of capital, which is considered to be suitable for each cash generating unit as they operate in similar markets. If the growth rate was assumed to be nil in the Directors’ opinion there would still be no provision for impairment required. The Directors believe that there are no reasonably possible changes in assumptions which would cause recoverable amounts to equal carrying amounts. No further sensitivities have been applied to the calculation. Goodwill and impairment policies are detailed in note 2 to these consolidated financial statements. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 28 ❘ 29 10. Property, plant and equipment Gross carrying amount At 1 January 2014 Additions Acquisition of subsidiary undertaking Disposals Foreign exchange adjustments At 1 January 2015 Additions Acquisition of subsidiary undertaking Disposals Foreign exchange adjustments At 31 December 2015 Depreciation At 1 January 2014 Provided in the year Acquisition of subsidiary undertaking Eliminated on disposals Foreign exchange adjustments At 1 January 2015 Provided in the year Acquisition of subsidiary undertaking Eliminated on disposals Foreign exchange adjustments At 31 December 2015 Net book value At 31 December 2015 At 31 December 2014 Freehold land and buildings £’000 2,745 – – – – 2,745 – – – – 2,745 – 50 – – – 50 25 – – – 75 2,670 2,695 Short leasehold land and buildings £’000 Vehicles £’000 Plant and machinery £’000 Total £’000 622 24 – – 3 649 17 – – 3 669 445 37 – – 3 485 39 – – 3 527 142 164 8 – 31 (6) – 33 1 7 (26) – 15 3 8 17 (5) – 23 4 7 (21) – 13 2 10 2,234 5,609 345 43 (48) 8 369 74 (54) 11 2,582 6,009 114 20 (836) 4 132 27 (862) 7 1,884 5,313 2,033 2,481 101 30 (48) 5 2,121 125 16 (836) 5 1,431 453 461 196 47 (53) 8 2,679 193 23 (857) 8 2,046 3,267 3,330 The net book value of assets held under hire purchase agreements was £224,000 (31 December 2014 – £236,000). The borrowings of the Group are secured by a fixed and floating charge over the assets of the Group. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 11. Inventories Finished goods for resale At 31 December 2015 £’000 At 31 December 2014 £’000 6,227 5,072 Cost of sales includes material costs of £22,100,000 (year ended 31 December 2014 – £20,679,000) and other costs of £2,165,000 (year ended 31 December 2014 – £1,077,000). 12. Trade and other receivables Trade receivables Prepayments and accrued income Other receivables At 31 December 2015 £’000 At 31 December 2014 £’000 4,852 252 364 5,468 5,433 230 838 6,501 Trade and other receivables are usually due within 30 and 90 days and do not bear any effective interest rate. All trade receivables are subject to credit risk exposure. However, the Group does not identify specific concentrations of credit risk with regards to trade and other receivables as the amounts recognised resemble a large number of receivables from various customers. The fair value of these short term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value. All of the Group’s trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and accordingly a provision of £83,000 (year ended 31 December 2014 – £74,000) has been made. The movement in the provision for impairment losses can be reconciled as follows: Amounts brought forward Amounts written off Impairment loss At year end Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 74 (28) 37 83 91 (61) 44 74 Some of the unimpaired trade receivables were past due as at the reporting date. The age of trade receivables at the reporting date was: Not past due Past due 0 – 90 days Past due 91 – 180 days Past due more than 180 days At 31 December 2015 £’000 At 31 December 2014 £’000 3,748 1,085 18 1 2,589 2,804 28 12 4,852 5,433 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 30 ❘ 31 13. Cash and cash equivalents Cash and cash equivalents per consolidated cash flow statement At 31 December 2015 £’000 At 31 December 2014 £’000 878 1,805 Cash and cash equivalents consist of cash at bank and in hand. All cash at bank and in hand held by subsidiary undertakings is available for use by the Group. 14. Trade and other payables Amounts falling due within one year: Trade payables Contingent consideration Other payables Amounts falling due between one and two years: Contingent consideration Other payables At 31 December 2015 £’000 At 31 December 2014 £’000 2,375 685 1,941 5,001 – 8 8 2,474 276 2,707 5,457 150 11 161 The Directors consider, due to their short duration, that the carrying amounts recognised in the Consolidated balance sheet to be a reasonable approximation of the fair value of trade and other payables. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 15. Other liabilities Invoice finance liability Current borrowings with contractual maturities in less than one year – other borrowings – assets held under hire purchase agreements Total current borrowings Non current borrowing with contractual maturities one to two years – other borrowings – assets held under hire purchase agreements Non current borrowings with contractual maturities between two to five years – other borrowings – assets held under hire purchase agreements Non current borrowings with contractual maturities over five years – other borrowings – assets held under hire purchase agreements Total non current borrowings Total borrowings At 31 December 2015 £’000 At 31 December 2014 £’000 3,603 4,739 407 24 4,034 407 25 1,908 87 – 67 2,494 6,528 107 23 4,869 107 24 1,190 82 – 97 1,500 6,369 The invoice finance liability is secured over the trade receivables of the Group and borrowings are secured by a fixed and floating charge over the assets of the Group. Hire purchase liabilities are secured on the assets to which the liabilities relate. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 32 ❘ 33 Total £’000 627 976 14 188 1,805 142 6,501 5,072 13,520 Total £’000 5,457 4,739 107 23 232 10,558 16. Financial assets and liabilities The financial assets of the Group, all of which fall due within one year, comprised: At 31 December 2015 At 31 December 2014 Financial assets held at fair value through profit and loss £’000 Assets not within the scope of IAS 39 £’000 Loans and receivables £’000 Cash and cash equivalents: Sterling US dollars Euro Others Foreign exchange and option derivatives Trade and other receivables Inventories Current assets 334 266 90 188 878 – 5,216 – 6,094 – – – – – 246 – – 246 The financial liabilities of the Group comprised: Loans and receivables £’000 Total £’000 334 266 90 188 878 627 976 14 188 1,805 Financial assets held at fair value through profit and loss £’000 Assets not within the scope of IAS 39 £’000 – – – – – – – – – – – – – – – – – 246 – 142 252 6,227 6,479 5,468 6,227 12,819 5,594 – 7,399 – 142 907 5,072 5,979 At 31 December 2015 At 31 December 2014 Other financial liabilities at amortised cost £’000 Financial liabilities held at fair value through profit and loss £’000 Liabilities not within the scope of IAS 39 £’000 Other financial liabilities at amortised cost £’000 Financial liabilities held at fair value through profit and loss £’000 Liabilities not within the scope of IAS 39 £’000 Total £’000 Trade and other payables Invoice finance liability Current borrowings Hire purchase Current tax liabilities 4,318 683 3,603 407 24 – – – – – Current liabilities 8,352 683 – – – – 559 559 5,001 5,031 426 3,603 407 24 559 4,739 107 23 – – – – – 9,594 9,900 426 – – – – 232 232 Non current borrowings and other liabilities 2,494 – 8 2,502 1,500 – 161 1,661 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 16. Financial assets and liabilities continued The Group is exposed through its operations to one or more of the following financial risks: Interest rate risk The Group’s banking and invoice finance facilities are subject to variable interest rates. As a result, changes in interest rates could have an impact on the net result for the year and to equity. Interest rate sensitivities have not been presented here as the Directors do not consider the amounts to be material to the financial statements. Liquidity risk Liquidity risk is managed centrally on a Group basis. Bank and invoice finance facilities are agreed at appropriate levels having regard to the Group’s forecast operating cash flows and capital expenditure. Credit risk The Group faces credit risk due to the credit it extends to customers in the normal course of business. All customers are subject to strict credit checking and acceptance procedures in order to minimise the risk to the Group. Credit limits are agreed and closely monitored on a local level. Foreign currency risk The Group uses forward foreign exchange contracts to mitigate exchange rate exposure arising from forecast purchases in US dollars and other currencies. All forward exchange contracts are considered by management to be part of economic hedge arrangements but have not been formally designated. The decision to hedge is influenced by the size of the exposure, the certainty of it arising and the exchange rate prevailing at the time. The fair values for these contracts have been estimated using relevant market exchange and interest rates. The Group’s US dollar contracts relate to cash flows that have been forecast for 2016. At 31 December 2015, a gain of £104,000 (year ended 31 December 2014 – gain £657,000) has been recorded in the consolidated balance sheet in respect of outstanding contracts at the balance sheet date in accordance with IAS 39. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into Sterling at the closing rate. At 31 December 2015 At 31 December 2014 Current assets Current liabilities Total exposure USD £’000 1,346 (1,165) 181 GBP £’000 11,162 (8,096) 3,066 Other £’000 311 (333) (22) Total £’000 12,819 (9,594) 3,225 USD £’000 1,479 (1,817) (338) GBP £’000 11,787 (8,741) 3,046 Other £’000 254 – 254 Total £’000 13,520 (10,558) 2,962 Fair value measurement of financial instruments Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement as follows: • • • Level one : quoted prices in active markets for identical assets or liabilities Level two: inputs other than quoted prices included within Level one that are observable for the asset or liability, either directly or indirectly Level three: unobservable inputs for the asset or liability Forward exchange contracts which have a value of £246,000 at 31 December 2015 (year ended 31 December 2014 – £142,000) are financial instruments held at fair value and are disclosed as an asset at the year end. These contracts are Level two financial assets and all expire with 12 months from 31 December 2015. All other financial assets and liabilities are Level one. Other liabilities include £683,000 (year ended 31 December 2014 – £426,000) of contingent consideration which has been measured using management’s estimate of the likely amounts payable in respect of acquisitions made in both the current and prior year. Of the balance brought forward at 1 January 2015, £290,000 was paid, £53k released to the consolidated income statement and the balance was increased by £601k following the acquisition of E.S.C (Europe) Limited (see note 24). Contingent consideration is in the level 3 classification. There were no transfers between Level one and Level two in 2015 or 2014. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 34 ❘ 35 16. Financial assets and liabilities continued Measurement of financial instruments The Group has relied upon valuations performed by third party valuations specialist for complex valuations of the forward exchange contracts. Valuation techniques have utilised observable forward exchange rates and interest rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant for forward exchange contracts. The intangible assets held by the group, as disclosed in note 9, are classified as Level 3 within the hierarchy (see note 16) of non-financial assets measured at fair value on a recurring basis at 31 December 2015. The fair value of the intangible as at 31 December 2015 are included in the statement of financial position as £425,000 (year ended 31 December 2014 - £181,000). The fair value of the intangibles are estimated using an income approach which capitalises the estimated royalty income which would be charged to a third party to use the brand using the group’s discount rate of 3.74%. The most significant inputs, all of which are unobservable, are the estimated royalty rate and the discount rate. The estimated fair value increases if the estimated royalty rate increases or the discount rate declines. The overall valuations are sensitive to both assumptions. 17. Deferred taxation Deferred taxation arising from temporary differences and unused tax losses can be summarised as follows: Provided Pension obligations Property, plant and equipment Current liabilities – provisions Financial instruments Unused tax losses Share based payments Intangible fixed assets Total Presented as: Deferred tax asset Unprovided Property, plant and equipment Current liabilities – provisions Unused tax losses Capital losses ACT Total At 31 December 2013 £’000 Movement in the year £’000 At 31 December 2014 £’000 Movement in the year £’000 At 31 December 2015 £’000 (727) (193) (4) (103) (920) – – (1,947) (102) 45 (6) 131 (148) – 37 (43) (829) (148) (10) 28 (1,068) – 37 (1,990) 181 (67) 10 (28) 111 (88) 46 165 (648) (215) – – (957) (88) 83 (1,825) (1,947) (43) (1,990) 165 (1,825) (1) (5) (1,240) (1,526) (642) (3,414) 55 5 (529) 193 553 277 54 – (1,769) (1,333) (89) (3,137) (71) – 1,050 134 – 1,113 (17) – (869) (1,199) (89) (2,174) The provision of a deferred tax asset is based on the future trading forecasts for the Group. A deferred tax asset has not been recognised in respect of certain trading losses, capital losses, excess management expenses and advance corporation tax (ACT) as the Group does not anticipate sufficient taxable trading profits, capital gains, utilisation of management expenses or recovery of ACT respectively, to arise within the foreseeable future. Of the deferred tax movement in the year of £165,000, a credit of £29,000 has been recognised in the consolidated income statement, a charge of £148,000 in the consolidated statement of comprehensive income and a charge of £46,000 has been recognised on acquisition. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 18. Pension scheme arrangements The Group operates two funded pension schemes, The Tandem Group Pension Plan and The Casket Group Retirement and Death Benefit Scheme. In addition, subsidiary companies of the Group contribute to other defined contribution schemes and individual pension plans. For both schemes, the trustees have responsibility for setting the overall investment strategy, and delegate the day to day management of the schemes to the scheme advisors, including investment managers. The Tandem Group Pension Plan A contributory pension scheme, the Tandem Group Pension Plan, has two sections. One provides benefits based on final pensionable salary, the other provides benefits based on defined contributions. The scheme is closed to new members. The assets of the scheme are held separately from those of the Group, being invested with managed funds. Contributions to the final salary section are determined by an independent qualified actuary on the basis of the triennial valuation using the Defined Accrued Benefit Method. The date of the last triennial valuation was 1 October 2013. The present value of the defined benefit obligations as at the balance sheet dates is as follows: Defined benefit obligation at the beginning of the year Interest cost Actuarial gains due to scheme experience Actuarial gains due to changes in demographic assumptions Actuarial (gains)/losses due to changes in financial assumptions Benefits paid 31 December 2015 £’000 31 December 2014 £’000 10,924 10,411 371 (12) (156) (418) (637) 455 (431) – 1,099 (610) Defined benefit obligation at the end of the year 10,072 10,924 For determination of the pension obligation, the following actuarial assumptions were used: Discount rate Increase in pensionable salaries* Increase in pensions in payment Increase in deferred pensions Inflation assumption Mortality assumption table * There are no members whose benefits are linked to salaries The mortality assumptions in the table above imply the following life expectancies: Male retiring in 2015 Female retiring in 2015 Male retiring in 2035 Female retiring in 2035 31 December 2015 31 December 2014 3.70% –% 3.50% –% Up to 5.00% Up to 5.00% 3.00 to 5.00% 3.00 to 5.00% 3.00% 2.80% S1 PxA (YOB) S1 PxA (YOB) Life expectancy at age 65 (years) 20.3 22.6 21.6 24.1 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 36 ❘ 37 18. Pension scheme arrangements continued The assets held for the defined benefit obligations can be reconciled from the opening balance to the balance sheet date as follows: Fair value of scheme assets at the beginning of the year Interest income Return on plan assets Contributions Benefits paid Fair value of scheme assets at the end of the year The actual return on scheme assets over the period ended 31 December 2015 was £28,000. Equities – UK Equities – overseas Property Diversified growth assets Gilts Corporate Bonds Cash and other Total fair value of assets 31 December 2015 £’000 31 December 2014 £’000 7,342 7,279 249 (221) 155 (637) 6,888 317 214 142 (610) 7,342 At 31 December 2015 £’000 At 31 December 2014 £’000 387 2,215 744 1,055 947 1,337 203 6,888 401 2,894 760 1,114 321 1,809 43 7,342 None of the fair value of the assets shown above include any of the company’s own financial instruments or any property occupied by, or other assets used by, the company. All debt and equity instruments have quoted prices in active markets (Level one). Fair values of real estate properties do not have quoted prices and have been determined based on professional appraisals that would be classed as Level three of the fair value hierarchy as defined in IFRS13 ‘Fair value measurements’. Sensitivities to the principal assumptions of the present value of the defined benefit obligation may be analysed as follows: Discount rate Rate of mortality Change in assumptions Change in liabilities Decrease of 0.25% per annum Increase in life expectancy of 1 year Increase by 2.6% Increase by 4.4% The Directors believe that changes in the other assumptions noted above do not have a material impact on the defined benefit obligation. The sensitivity analyses are based on a change in one assumption while not changing all other assumptions. This analysis may not be representative of the actual changes in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. The average duration of the defined benefit obligation at 31 December 2015 is 13 years. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 18. Pension scheme arrangements continued The reconciliation of movements in the year were as follows: Deficit at the beginning of the year Movement in year: Contributions Finance cost Actuarial gain/(loss) Deficit at the end of the year Related deferred tax asset Net deficit at the end of the year 31 December 2015 £’000 31 December 2014 £’000 (3,582) (3,132) 155 (122) 365 (3,184) 571 (2,613) 142 (138) (454) (3,582) 716 (2,866) The expected contributions in the year ending 31 December 2016 are £159,000 in accordance with the agreed schedule of contributions. The trustees and employer have agreed a schedule of contributions covering the period to March 2029. Defined benefit costs recognised in profit or loss are as follows: Net interest cost Defined benefit costs recognised in profit or loss Defined benefit costs recognised in other comprehensive income are as follows: 31 December 2015 £’000 31 December 2014 £’000 122 122 138 138 31 December 2015 £’000 31 December 2014 £’000 Return on plan assets (excluding amounts included in net interest cost) – (loss)/gain Experience gain arising on the defined benefit obligation Effects of changes in the demographic assumptions underlying the present value of the defined benefit obligation – gain Effects of changes in the financial assumptions underlying the present value of the defined benefit obligation – gain/(loss) Total actuarial gains and losses and total amount recognised in other comprehensive income – gain/(loss) (221) 12 156 418 365 214 431 — (1,099) (454) 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 38 ❘ 39 18. Pension scheme arrangements continued The Casket Group Retirement and Death Benefit Scheme Prior to 1995, Casket Limited operated a defined benefits pension scheme. On 31 May 1995 proceedings commenced to wind up this scheme. On 1 June 1995 a new defined contribution scheme commenced. Current employees at that time had an amount transferred to individual accounts in the new scheme. Former employees had their deferred benefits transferred to be payable out of a contingency fund. The present value of the defined benefit obligations as at the balance sheet dates are as follows: Defined benefit obligation at the beginning of the year Interest cost Actuarial (gains)/losses due to scheme experience Actuarial gains due to changes in demographic assumptions Actuarial losses due to changes in financial assumptions Benefits paid Defined benefit obligation at the end of the year For determination of the pension obligation, the following actuarial assumptions were used: Discount rate Increase in pensions in payment Increase in pensionable salaries * Increase in deferred pensions Inflation assumption Mortality assumption table * There are no members whose benefits are linked to salaries The mortality assumptions in the table above imply the following life expectancies: Male retiring in 2015 Female retiring in 2015 Male retiring in 2035 Female retiring in 2035 31 December 2015 £’000 31 December 2014 £’000 3,121 104 (15) (36) 1 (231) 2,944 2,753 119 192 — 217 (160) 3,121 31 December 2015 £’000 31 December 2014 £’000 3.70% 3.00% – 3.00% 3.00% 3.50% 2.80% —% 2.80% 2.80% S1 PxA (YOB) S1 PxA (YOB) Life expectancy at age 65 (years) 20.3 22.6 21.6 24.1 The assets held for the defined benefit obligations can be reconciled from the opening balance to the balance sheet date as follows: Fair value of scheme assets at the beginning of the year Interest income Return on plan assets (excluding amounts included in interest income) Contributions Benefits paid Fair value of scheme assets at the end of the year The actual return on scheme assets over the period ended 31 December 2015 was £94,000. 31 December 2015 £’000 31 December 2014 £’000 2,556 86 8 101 (231) 2,520 2,424 106 85 101 (160) 2,556 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 18. Pension scheme arrangements continued The value of assets in the scheme were: Equities Property Gilts Corporate bonds Cash and other Total fair value of assets At 31 December 2015 £’000 At 31 December 2014 £’000 1,692 1,707 42 554 122 110 38 571 126 114 2,520 2,556 None of the fair value of the assets shown above include any of the company’s own financial instruments or any property occupied by, or other assets used by, the company. All debt and equity instruments have quoted prices in active markets (Level one). Fair values of real estate properties do not have quoted prices and have been determined based on professional appraisals that would be classed as Level three of the fair value hierarchy as defined in IFRS13 ‘Fair value measurements’. Sensitivities to the principal assumptions of the present value of the defined benefit obligation may be analysed as follows: Discount rate Rate of mortality Rate of inflation Change in assumptions Change in liabilities Decrease of 0.25% per annum Increase in life expectancy of 1 year Increase 0.25% per annum Increase by 3.7% Increase by 3.4% Increase by 3.7% The Directors believe that changes in the other assumptions noted above do not have a material impact on the defined benefit obligation. The sensitivity analyses are based on a change in one assumption while not changing all other assumptions. This analysis may not be representative of the actual changes in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. The average duration of the defined benefit obligation at 31 December 2015 is 13 years. The reconciliation of movements in the year were as follows: Deficit at the beginning of the year Movement in year: Contributions Finance cost Actuarial gain/(loss) Deficit at the end of the year Related deferred tax asset Net deficit at the end of the year 31 December 2015 £’000 31 December 2014 £’000 (565) 101 (18) 58 (424) 77 (347) (329) 101 (13) (324) (565) 113 (452) The expected contributions in the year ending 31 December 2016 are £101,000 in accordance with the agreed schedule of contributions. The trustees and employer have agreed a schedule of contributions covering the period to July 2019. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 18. Pension scheme arrangements continued Defined benefit costs recognised in profit or loss are as follows: Net interest cost Defined benefit costs recognised in profit or loss Defined benefit costs recognised in other comprehensive income are as follows: 40 ❘ 41 31 December 2015 £’000 31 December 2014 £’000 18 18 13 13 31 December 2015 £’000 31 December 2014 £’000 Return on plan assets (excluding amounts included in net interest cost) – gain Experience gain/(loss) arising on the defined benefit obligation Effects of changes in the demographic assumptions underlying the present value of the defined benefit obligation – gain Effects of changes in the financial assumptions underlying the present value of the defined benefit obligation – loss Total actuarial gains and losses and total amount recognised in other comprehensive income – gain/(loss) 8 15 36 (1) 58 85 (192) — (217) (324) Group pension scheme deficit Deficit The Tandem Group Pension Plan The Casket Group Retirement and Death Benefit Scheme Related deferred tax asset The Tandem Group Pension Plan The Casket Group Retirement and Death Benefit Scheme Net deficit at the end of the year 31 December 2015 £’000 31 December 2014 £’000 (3,184) (424) (3,608) 571 77 (3,582) (565) (4,147) 716 113 (2,960) (3,318) The amounts recognised in the Consolidated statement of comprehensive income in the year ended 31 December 2015 are a gain of £365,000 in respect of the Tandem Group Pension Plan and a gain of £58,000 in respect of the Casket Group Retirement and Death Benefit Scheme. The net cumulative actuarial loss taken directly to the Consolidated statement of comprehensive income since the date of transition to IFRS on 1 February 2006 is £1,392,000 in total in respect of both schemes. Deferred tax liabilities and assets have been recognised in respect of the surpluses and deficits on the Tandem and Casket schemes to the extent that it is believed probable that a benefit will arise. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 19. Equity Allotted, called up and fully paid At 1 January 2014 and 1 January 2015 – ordinary shares 25p each Exercise of share options At 31 December 2015 – ordinary shares 25p each 20. Financial commitments Number of Shares 4,669,754 79,691 4,749,445 £’000 1,167 20 1,187 The total charge for the year for operating lease rentals in respect of land and buildings was £355,000 (year ended 31 December 2014 – £214,000) and for other operating leases was £114,000 (year ended 31 December 2014 – £118,000). Operating lease commitments Total future minimum payments under operating leases: Within one year Within two to five years After five years 21. Related parties Transactions with the Directors are disclosed in note 6. During the period dividends were paid to the Directors as follows: M P J Keene S J Grant J C Shears P Ratcliffe J S T Morris At 31 December 2015 At 31 December 2014 Land and buildings £’000 378 514 152 1,044 Other £’000 194 255 – 449 Land and buildings £’000 250 194 – 444 Other £’000 185 322 2 509 31 December 2015 £’000 31 December 2014 £’000 8 5 2 1 1 17 8 5 2 1 1 17 There were no other related party transactions during the current or prior year. 22. Contingent liabilities The Company is investigating several import duty classification codes used for certain Pro Rider and ESC products and discussing them with HMRC. Until there is clarification on the applicability of certain codes, it is not possible to accurately quantify the extent of any underpaid duty, if any. Accordingly, no provision has been made in these financial statements. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 42 ❘ 43 23. Capital management policies and procedures The Group’s capital management objectives are: • • • To ensure the Group has adequate resources to support the plans of the business To ensure the Group’s ability to continue as a going concern; and To provide an adequate return to shareholders In order to maintain or adjust the capital structure, the Group may adopt a number of approaches to meet these objectives. The principal instruments which are used to meet the Group’s working capital requirements are equity, bank overdrafts and invoice finance arrangements. In order to maintain or adjust the capital structure, the Group may adjust the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Strategic report on pages 3 to 5 details the working capital and net debt measures used by the Group. 24. Acquisition On 1 September 2015, the Group acquired 100% of the issued share capital and voting rights of E.S.C (Europe) Limited for an initial consideration of £2,386,000. The business is engaged in the supply of mobility and leisure products. The acquisition has been accounted for using acquisition accounting principles. The net assets acquired have been adjusted to their provisional fair values. Details of the acquisition are as follows: Intangible fixed assets Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax Net assets acquired Goodwill arising on acquisition Provisional fair value of assets acquired Satisfied by: Cash Contingent consideration Total consideration Book value on acquisition £’000 Fair value adjustments £’000 Recognised value on acquisition £’000 – 4 1,072 868 329 (474) – 1,799 256 – (55) – – (188) (46) (33) 256 4 1,017 868 329 (662) (46) 1,766 1,221 2,987 2,386 601 2,987 Intangible assets have been calculated using a royalty relief calculation and applicable discount to calculate the present value of future cash flows. Fair value adjustments reflect the value of intangible assets acquired and associated deferred tax and variances in inventory and trade payables. Changes to provisional fair values occurring within 12 months of the acquisition date will be reflected in goodwill at the acquisition date. Goodwill, which is not separately identifiable as other intangible assets, is the consideration in excess of net assets acquired. No goodwill is deductible for corporation tax. The contingent consideration has been estimated at the net present value of future expected cash flows using forecasts prepared by the Directors based on the likely future performance of the business. For the period from 1 September 2015 to 31 December 2015 revenues were £1,587,000 and profit after tax £38,000. If the acquisition had occurred on 1 January 2015, Group revenue would have increased by £7,028,000 and operating profit by approximately £985,000. These figures are based on the assumption that the fair value adjustments arising on acquisition would have been the same had the acquisition completed on 1 January 2015. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Five year history Revenue Cost of sales Gross profit Operating expenses Operating profit before exceptionals Exceptional items Operating profit after exceptionals Finance costs Finance income Profit before taxation Tax (expense)/credit Net profit for the year/period Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 Year ended 31 December 2013 £’000 11 month period ended 31 December 2011 £’000 Year ended 31 January 2011 £’000 34,385 (24,265) 10,120 (8,840) 1,280 7 1,287 (346) 104 1,045 (44) 1,001 31,320 (21,755) 9,565 (8,107) 1,458 (73) 1,385 (329) 660 1,716 (90) 1,626 28,347 (20,061) 8,286 (7,314) 29,042 (20,784) 8,258 (7,391) 972 (142) 830 (814) – 16 338 354 867 – 867 (96) 49 820 (179) 641 34,610 (24,777) 9,833 (8,628) 1,205 – 1,205 (120) – 1,085 – 1,085 The five year history does not form part of the audited financial statements. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 44 ❘ 45 Note 4 5 6 10 7 7 8 9 8 9 13 11 11 At 31 December 2015 £’000 At 31 December 2014 Restated £’000 213 8,924 2,895 659 12,691 4,054 246 4,300 213 5,937 2,932 687 9,769 4,101 142 4,243 16,991 14,013 (4,448) (2,296) (432) (27) (130) (21) (4,907) (2,447) – (2,494) (3,184) (5,678) (10,585) (151) (1,500) (3,582) (5,233) (7,680) 6,406 6,333 1,503 (316) 127 2,463 2,629 6,406 1,503 (336) 84 2,463 2,619 6,333 Company balance sheet Non current assets Goodwill Investments Property, plant and equipment Deferred taxation Current assets Trade and other receivables Derivative financial asset held at fair value Total assets Current liabilities Trade and other payables Other liabilities Current tax liabilities Non current liabilities Other payables Other liabilities Pension scheme deficit Total liabilities Net assets Equity Share capital Shares held in treasury Share premium Other reserves Profit and loss account Total equity The financial statements were approved by the Board of Directors on 19 April 2016. M P J Keene Director J C Shears Director The accompanying notes on pages 47 to 61 form part of these financial statements. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Statement of changes in equity Balance at 1 January 2014 Net profit for the year Net actuarial loss on pension schemes Total comprehensive income for the year attributable to equity shareholders Share based payments Dividends paid Total transactions with owners Balance at 1 January 2015 Net loss for the year Net actuarial gain on pension schemes Total comprehensive income for the year attributable to equity shareholders Share based payments Deferred tax on share options Exercise of share options Dividends paid Total transactions with owners Balance at 31 December 2015 Share capital £’000 1,503 Shares held in treasury £’000 Share premium £’000 Merger reserve £’000 Capital redemption reserve £’000 (336) 84 1,036 1,427 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,503 (336) 84 1,036 1,427 – – – – – – – – – – – – – 20 – 20 – – – – – 43 – 43 – – – – – – – – – – – – – – – – Profit and loss account £’000 restated 1,291 1,902 Total £’000 5,005 1,902 (420) (420) 1,482 1,482 9 9 (163) (163) 1,328 2,619 (87) 179 1,328 6,333 (87) 179 92 14 75 – 92 14 75 63 (171) 10 (171) 73 1,503 (316) 127 1,036 1,427 2,629 6,406 The share premium was created following the exercise of share options. The merger reserve was created as a result of merger relief being claimed in respect of previous share issues. Other reserves include a capital redemption reserve and a translation reserve. These reserves are non-distributable. The profit and loss account includes all current and prior period results and share based payments as disclosed in the consolidated income statement. The accompanying notes form an integral part of these financial statements. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc Notes to the financial statements 1. Accounting policies Statement of compliance These financial statements have been prepared in accordance with applicable accounting standards and in accordance with Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have all been applied consistently throughout the year unless otherwise stated. The financial statements have been prepared on a historical cost basis except for the revaluation of certain properties and financial instruments. Changes in accounting policies This is the first year in which the financial statements have been prepared in accordance with FRS 101. The date of transition to FRS 101 is 1 January 2014. An explanation of the transition is included in note 16 to the financial statements. In applying FRS 101 for the first time the Company has applied early the amendment to FRS 101 which permits a first time adopter not to present an opening statement of financial position at the beginning of the earliest comparative period presented. Parent company The Company is a parent company which prepares publicly available consolidated financial statements in accordance with IFRS. This Company is included in the consolidated financial statements of Tandem Group plc for the year ended 31 December 2015. These accounts are available from Tandem Group plc, 35 Tameside Drive, Castle Bromwich, Birmingham B35 7AG. 46 ❘ 47 Disclosure exemptions adopted In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these financial statements do not include: • • • • A statement of cash flows and related notes the requirement to produce a balance sheet at the beginning of the earliest comparative period the requirements of IAS 24 related party disclosures to disclose related party transactions entered in to between two or more members of the group as they are wholly owned within the group Presentation of comparative reconciliations for property, plant and equipment, intangible assets and investment properties. • Disclosure of key management personnel compensation • • Capital management disclosures Presentation of comparative reconciliation of the number of shares outstanding at the beginning and at the end of the period The effect of future accounting standards not adopted Certain share based payment disclosures Business combination disclosures • • • • Disclosures in relation to impairment of assets • Disclosures instruments (other than disclosures required as a result of recording financial instruments at fair value) in respect of financial Investments Investments in the Company are included at cost less amounts written off. Where the consideration for the acquisition of a subsidiary undertaking includes shares in the Company to which the provisions of sections 612 and 613 of the Companies Act 2006 apply, cost represents the nominal value of shares issued together with the fair value of any additional consideration given and costs. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 1. Accounting policies continued Goodwill Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued. Goodwill is capitalised as an intangible asset and is not amortised. Instead it is reviewed annually for impairment with any impairment in carrying value being charged to profit or loss. The Companies Act 2006 requires acquired goodwill to be reduced by provisions for depreciation calculated to write off the amount systematically over a period chosen by the directors, not exceeding its useful economic life. It has been deemed, however, the non-amortisation of goodwill is a departure from the requirements of the Companies Act 2006, for the overriding purpose of giving a true and fair view. The effect of this departure has not been quantified because it is impracticable and, in the opinion of the directors, would be misleading. Contingent consideration Where an acquisition is subject to deferred or contingent consideration it is recorded as part of the cost of the investment at the net present value of future expected cash flows. Future expected cashflows are estimated using forecasts prepared by management based on the likely future performance of the acquired business. The consideration is classified as a financial liability and is measured at fair value with any changes in the estimated value being recognised in the income statement. Tangible fixed assets Tangible fixed assets are held at cost less depreciation unless the value is impaired at which point they are carried at the higher of net realisable value or the present value of future cash flows arising from that asset. Depreciation is provided on a straight line basis to write off the assets over their economic lives as follows: Plant and machinery 3 – 20 years Impairment of assets For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash- generating units that are expected to benefit from synergies of a related business combination and represent the lowest level at which management monitors goodwill. for impairment at Cash-generating units to which goodwill has been allocated are tested least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s (or cash-generating units) carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine the value-in-use, 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. The data used for impairment testing procedures are directly linked to the latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash- generating unit and reflect current market assessments of the time value of money and asset-specific risk factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount. Investment property The Company has applied the cost accounting model to investment property. Investment property comprises property held by the Company for the purpose of earning rental income and/or capital appreciation. Investment property is initially stated at cost and is subsequently stated at fair value at the reporting date with changes in fair value being recognised in profit or loss. The Company does not classify any property held on an operating lease as investment property. Depreciation is provided on a straight line basis to write off the assets over their economic lives as follows: Land not depreciated Freehold building 50 years Foreign exchange Foreign currency transactions are translated into the Company’s functional currency using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the re- measurement of monetary in foreign currency at year-end exchange rates are recognised in profit or loss. items denominated Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. Where a gain or loss on a non-monetary item is recognised in other comprehensive income the foreign exchange component of that gain or loss is also recognised in other comprehensive income. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 48 ❘ 49 1. Accounting policies continued Financial assets The company's financial assets comprise cash, other receivables and forward exchange contracts. Forward exchange contracts are financial assets held at fair value through profit and loss in accordance with the policy below. Financial Liabilities The Company’s financial liabilities include trade and other payables, invoice finance and forward exchange contracts. Financial liabilities are recognised when the Company becomes a party to the contractual agreements of the instrument. All interest related charges are recognised in the Income statement. Finance charges are charged to the Income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost less settlement payments. Invoice finance liabilities are recognised at the time the Company becomes a party to the contractual provisions of the invoice finance agreement. Foreign exchange forward and option contracts From time to time the Company enters into forward and option contracts for the purchase or sale of foreign currencies. These are classified as derivatives and carried at fair value through profit or loss in the financial statements. Any re-measurement gains or losses are taken to the income statement. Forward and option exchange contracts are entered into to mitigate exposure to foreign exchange fluctuations relating to purchases made in foreign currencies, principally the US dollar. The Company’s policy is to reduce substantially the risk associated with purchases denominated in foreign currencies by using forward fixed rate currency purchase contracts, taking into account any foreign currency cash flows. The foreign exchange contracts do not meet the criteria for treatment as an effective hedge and accordingly any gain or loss is recognised immediately in the income statement as a finance cost. Deferred taxation Calculation of deferred tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the reporting period that are expected to apply when the asset is realised or the liability is settled. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the entity expects to recover the related asset or settle the related obligation. Certain of the Company’s investment property portfolio is to be recovered through sale whereas investment property occupied by group companies is expected to be recovered through use. Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Company’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. Deferred tax assets are not discounted. Deferred tax liabilities are generally recognised in full with the exception on the initial recognition of goodwill on investments in subsidiaries and joint ventures where the Company is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future on the initial recognition of a transaction that is not a business combination and at the time of the transaction affects neither accounting or taxable profit. Pension costs Retirement benefits to employees are funded by contributions from the Company and employees. Payments to the Company’s pension plans, which are financially separate and independent from the Company, are made in accordance with periodic calculations by independent consulting actuaries. The costs of funding the plans are accounted for over the period covering the employees’ service. The difference between the fair values of the assets held in the Company’s defined benefit pension scheme and the scheme’s liabilities measured on an actuarial basis using the projected unit method are recognised in the Company’s balance sheet as a pension scheme asset or liability as appropriate, adjusted for deferred taxation. The carrying value of any resulting pension scheme asset is restricted to the extent that the Company is able to recover the surplus either through reduced contributions in the future or through refunds from the scheme. For further pension information see note 13. Equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. When the Company purchases its own equity share capital, the consideration paid is deducted from equity attributable to the Company’s equity shareholders until the shares are cancelled or reissued. Share capital is determined using the nominal value of shares that have been issued. The merger reserve was created as a result of merger relief being claimed in respect of previous share issues. Other reserves include a capital redemption reserve and a translation reserve. These reserves are non-distributable. The profit and loss account includes all current and prior period results and share based payments as disclosed in the consolidated income statement. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued Financial instruments valuation Forward contracts and options are used to minimise the impact of foreign exchange fluctuations on the group. An asset or liability is recognised representing the fair value of the instruments in place at the year end. The fair value is calculated using certain estimates and valuation models by reference to significant inputs including; implied volatilities in foreign currency and historical movements in foreign currency exchange rates. Changes in the fair value of the instruments are recognised in profit or loss in the income statement. Pension scheme valuation The liabilities in respect of defined benefit pension schemes are calculated by qualified actuaries and reviewed by the Company, but are necessarily based on subjective assumptions. The principal uncertainties relate to the estimation of the discount rate, life expectancies of scheme members, future investment yields and general market conditions for factors such as inflation and interest rates. The specific assumptions adopted are disclosed in detail in note 18 to the consolidated financial statements. Profits and losses in relation to changes in actuarial assumptions are taken directly to reserves and therefore do not impact on the profitability of the business, but the changes do impact on net assets. information. Estimates and Key judgements Deferred tax assets In determining the deferred tax asset to be recognised the Directors carefully review the recoverability of these assets on a prudent basis and reach a judgement based on the best in available the financial statements are based on historical experience and other assumptions that the Directors and management consider reasonable and are consistent with the Group’s latest budgeted forecasts where applicable. Judgements are based on the information available at each balance sheet date. Although these estimates are based on the best information available to the Directors, actual results may ultimately differ from those estimates. judgements used 1. Accounting policies continued Share based employee remuneration All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 February 2006 are recognised in the financial statements. The Company operates equity settled share based remuneration plans for its senior employees. All employee services received in exchange for the grant of any share based remuneration are measured at their fair values. These are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions. Where equity settled share options are awarded by the parent company to employees of this Company the fair value of the options at the date of grant is charged to profit or loss over the vesting period with a corresponding entry in retained earnings. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied. Significant accounting estimates and judgements Certain estimates and judgements need to be made by the Directors of the Company which affect the results and position of the Company as reported in the financial statements. Estimates and judgements are required if, for example, as at the reporting date not all liabilities have been settled and certain assets and liabilities are recorded at fair value which requires a number of estimates and assumptions to be made. Key areas of estimation uncertainty Impairment of goodwill The annual impairment assessment in respect of goodwill requires estimates of the value in use of cash generating units to which goodwill has been allocated to be calculated. As a result, estimates of future cash flows are required, together with an appropriate discount factor for the purpose of determining the present value of those cash flows. The basis of review of the carrying value of goodwill is as detailed in note 9 to the consolidated financial statements. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 50 ❘ 51 2. Profit for the financial year The Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Company’s loss for the year was £87,000 (year ended 31 December 2014 – profit £1,902,000 restated). 3. Directors' and employees' remuneration Expense recognised for employee benefits is analysed below: Auditor’s remuneration incurred by the Company during the period for audit services totalled £3,000 (year ended 31 December 2014 – £3,000), and for tax compliance services totalled £1,000 (year ended 31 December 2014 – £1,000). Salaries Benefits in kind Social security costs Share-based employee remuneration Pension scheme contributions – defined contribution schemes The average number of persons employed by the Company during the year Year ended 31 December 2015 £’000 Year ended 31 December 2014 £’000 662 21 79 14 97 873 740 16 95 8 79 938 Number Number 8 7 During the year and in the previous year the Company contributed to a defined contribution pension scheme for S J Grant, J C Shears and P Ratcliffe. An analysis of Directors’ remuneration is shown in note 6 to the consolidated financial statements. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 3. Directors' and employees' remuneration continued Share based employee remuneration The following options were held at 31 December 2015 under the Company’s share option schemes: At 1 January 2015 Granted during year Exercised/ lapsed during year At 31 December 2015 Option price per 25p ordinary share Exercise period Number of shares 2007 Employee Share Option Scheme Director M P J Keene S J Grant J C Shears P Ratcliffe Other employees 1996 Approved Share Option Scheme Director P Ratcliffe Other employees 86,400 75,000 27,475 47,525 8,000 67,000 35,000 32,000 14,000 37,400 64,800 23,400 5,600 11,200 534,800 – – – – – – – – – – – – – – – – (30,000) – – (8,000) (4,091) – (32,000) – – – – (5,600) – (79,691) 86,400 45,000 27,475 47,525 78.91p 31/01/10 – 14/06/17 78.91p 31/01/10 – 14/06/17 107.00p 31/01/14 – 14/06/21 79.00p 31/12/15 – 29/10/23 – 78.91p 31/01/10 – 14/06/17 62,909 35,000 107.00p 31/01/14 – 14/06/21 79.00p 31/12/15 – 29/10/23 – 78.91p 31/01/10 – 14/06/17 14,000 37,400 64,800 23,400 107.00p 31/01/14 – 14/06/21 79.00p 31/12/15 – 29/10/23 78.91p 31/01/10 – 14/06/17 107.00p 31/01/14 – 14/06/21 – 62.50p 26/06/09 – 26/06/16 11,200 455,109 62.50p 26/06/09 – 26/06/16 The Group has the following outstanding share options and exercise prices: Date exercisable (option life): 2009 (up to 2016) 2010 (up to 2017) 2014 (up to 2021) 2015 (up to 2023) At 31 December 2015 At 31 December 2014 Exercise price (pence) Remaining contractual life (years) 62.50 78.91 107.00 79.00 0.5 1.5 5.5 7.8 Number 16,800 266,200 131,875 119,925 534,800 Exercise price (pence) Remaining contractual life (years) 62.50 78.91 107.00 79.00 1.5 2.5 6.5 8.8 Number 11,200 196,200 127,784 119,925 455,109 The ordinary share mid-market price on 31 December 2015 was 182.5p (31 December 2014 – 106.0p). During the period, the highest mid- market price was 197.5p (31 December 2014 – 130.0p) and the lowest was 103.5p (31 December 2014 – 68.5p). The weighted average exercise price of the options in issue was 86.4p (31 December 2014 – 85.3p). 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 52 ❘ 53 3. Directors' and employees' remuneration continued The fair value of options granted was determined for IFRS 2 using the Black–Scholes valuation model. Significant inputs into the calculations were: • • • • • exercise prices of 62.50p (31 December 2014 – 62.50p) to 107.00 (31 December 2014 – 107.0p); 36.3% (31 December 2014 – 36.3%) to 48.0% (31 December 2014 – 48.0%) volatility based on expected and historical share price; a risk-free interest rate of 0.86% (31 December 2014 – 0.86%); all options are assumed to vest after three and a half years from the date of grant of the options; and dividend yield of 4.03%. 4. Goodwill Cost At 1 January 2015 Additions At 31 December 2015 Impairment and amortisation provisions At 1 January 2015 and 31 December 2015 Net book value At 31 December 2015 At 31 December 2014 5. Investments Cost At 1 January 2015 Additions At 31 December 2015 Impairment and amortisation provisions At 1 January 2015 and 31 December 2015 Net book value At 31 December 2015 At 31 December 2014 Goodwill £’000 Restated 2,506 – 2,506 2,293 2,293 213 213 Unlisted investments in subsidiary undertakings £’000 15,171 2,987 18,158 9,234 9,234 8,924 5,937 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 5. Investments continued The principal wholly owned subsidiary undertakings of the Company at the year end are listed below. M.V. Sports (Hong Kong) Limited was incorporated in and operates in Hong Kong. The other companies were incorporated in and operate in the United Kingdom. Tandem Group Cycles Limited* MV Sports & Leisure Limited* M.V. Sports (Hong Kong) Limited# Pro Rider Limited* E.S.C. (Europe Limited)* *denotes 100% of issued ordinary shares #denotes 100% indirect ownership of issued ordinary shares Design, development, sourcing and distribution of: Sports, leisure and toy products Bicycles and accessories Sports, leisure and toy products Mobility and leisure products Leisure products On 1 September 2015 the Company acquired 100% of the issued share capital of E.S.C. (Europe) Limited for provisional total consideration of £2,987,000 consisting of cash of £2,386,000 and contingent consideration of £601,000. 6. Tangible fixed assets Cost At 1 January 2015 Additions At 31 December 2015 Depreciation At 1 January 2015 Charge for the year At 31 December 2015 Net book value At 31 December 2015 At 31 December 2014 Investment property £’000 Plant and equipment £’000 2,745 – 2,745 50 25 75 2,670 2,695 255 1 256 18 13 31 225 237 Total £’000 3,000 1 3,001 68 38 106 2,895 2,932 A valuation of the Investment property was carried out in respect of the year ended 31 December 2015 by CBRE Ltd in accordance with the RICS Valuation – Professional Standards January 2014, published by The Royal Institution of Chartered Surveyors. The value placed on the property was £2,680,000 at 31 December 2015. During the year rental income of £336,000 was received from subsidiary companies within the Group. The borrowings of the Group are secured by a fixed and floating charge over the assets of the Group. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 54 ❘ 55 At 31 December 2015 £’000 At 31 December 2014 £’000 20 4,034 4,054 7 4,094 4,101 7. Trade and other receivables Amounts due within one year Prepayments and accrued income Other receivables Forward exchange contracts Forward exchange contracts are held at fair value and have a value of £246,000 (year ended 31 December 2014 – £142,000) and are disclosed as an asset at the year end. These contracts are Level two financial liabilities and all expire with 12 months from 31 December 2015. 8. Trade and other payables Amounts falling due within one year: Bank overdraft Trade payables Contingent consideration Other payables Amounts falling due between one and two years: Contingent consideration At 31 December 2015 £’000 At 31 December 2014 £’000 3,494 1,549 99 685 170 42 276 429 4,448 2,296 – 151 The Directors consider, due to their short duration, that the carrying amounts recognised in the Company balance sheet to be a reasonable approximation of the fair value of trade and other payables. Contingent consideration is a financial instrument held at fair value and has been measured using management’s estimate of the likely amounts payable in respect of acquisitions made in both the current and prior year. Of the balance brought forward at 1 January 2015, £290,000 was paid, £53k released to the Income statement and the balance was increased by £601k following the acquisition of E.S.C (Europe) Limited (see note 24 to the consolidated financial statements). Contingent consideration is in the level 3 classification of the fair value hierarchy. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 9. Other liabilities Current borrowings with contractual maturities in less than one year – other borrowings – assets held under hire purchase agreements Current borrowings Non current borrowing with contractual maturities one to two years – other borrowings – assets held under hire purchase agreements Non current borrowings with contractual maturities between two to five years – other borrowings – assets held under hire purchase agreements Non current borrowings with contractual maturities over five years – other borrowings – assets held under hire purchase agreements Non current borrowings Total borrowings At 31 December 2015 £’000 At 31 December 2014 £’000 407 25 432 407 25 1,908 87 – 67 2,494 2,926 107 23 130 107 24 1,190 82 – 97 1,500 1,630 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 56 ❘ 57 10. Deferred taxation Deferred taxation arising from temporary differences and unused tax losses can be summarised as follows: Provided Pension obligations Financial instruments Share based payments Total Presented as: Deferred tax asset Unprovided Property, plant and equipment Unused tax losses Capital losses ACT Total 11. Equity Allotted, called up and fully paid At 1 January 2014 – ordinary shares 25p each Exercise of share options At 31 December 2015 – ordinary shares 25p each 12. Contingent liabilities At 31 December 2013 £’000 Movement in the period £’000 At 31 December 2014 £’000 Movement in the year £’000 At 31 December 2015 £’000 658 – – 658 658 6 33 553 45 637 57 (28) – 29 (47) 83 – 6 42 715 (28) – 687 687 (41) 116 553 51 679 (144) 28 88 (28) 51 (57) (56) – (62) Number of Shares 4,669,754 79,691 4,749,445 571 – 88 659 659 10 59 497 51 617 £’000 1,167 20 1,187 A cross guarantee exists between all companies in the Group for all amounts payable to HSBC Bank Plc. The maximum potential liability to the Company at the year end in respect of bank overdrafts was £1,223,000 (31 December 2014 – £974,000). 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 13. Pension arrangements The Tandem Group Pension Plan A contributory pension scheme, the Tandem Group Pension Plan, has two sections. One provides benefits based on final pensionable salary, the other provides benefits based on defined contributions. The scheme is closed to new members. The assets of the scheme are held separately from those of the Group, being invested with managed funds. Contributions to the final salary section are determined by an independent qualified actuary on the basis of the triennial valuation using the Defined Accrued Benefit Method. The date of the last triennial valuation was 1 October 2013. The present value of the defined benefit obligations as at the balance sheet dates is as follows: Defined benefit obligation at the beginning of the year Interest cost Actuarial gains due to scheme experience Actuarial gains due to changes in demographic assumptions Actuarial (gains)losses due to changes in financial assumptions Benefits paid 31 December 2015 £’000 31 December 2014 £’000 10,924 10,411 371 (12) (156) (418) (637) 455 (431) – 1,099 (610) Defined benefit obligation at the end of the year 10,072 10,924 For determination of the pension obligation, the following actuarial assumptions were used: Discount rate Increase in pensionable salaries* Increase in pensions in payment Increase in deferred pensions Inflation assumption Mortality assumption table * There are no members whose benefits are linked to salaries The mortality assumptions in the table above imply the following life expectancies: Male retiring in 2015 Female retiring in 2015 Male retiring in 2035 Female retiring in 2035 31 December 2015 £’000 31 December 2014 £’000 3.70% –% 3.50% –% Up to 5.00% Up to 5.00% 3.00 to 5.00% 3.00 to 5.00% 3.00% 2.80% S1 PxA (YOB) S1 PxA (YOB) Life expectancy at age 65 (years) 20.3 22.6 21.6 24.1 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 58 ❘ 59 13. Pension arrangements continued The assets held for the defined benefit obligations can be reconciled from the opening balance to the balance sheet date as follows: Fair value of scheme assets at the beginning of the year Interest income Return on plan assets Contributions Benefits paid Fair value of scheme assets at the end of the year The actual return on scheme assets over the period ended 31 December 2015 was £28,000. Equities – UK Equities – overseas Property Diversified growth assets Gilts Corporate Bonds Cash and other Total fair value of assets 31 December 2015 £’000 31 December 2014 £’000 7,342 7,279 249 (221) 155 (637) 6,888 317 214 142 (610) 7,342 At 31 December 2015 £’000 At 31 December 2014 £’000 387 2,215 744 1,055 947 1,337 203 6,888 401 2,894 760 1,114 321 1,809 43 7,342 None of the fair value of the assets shown above include any of the company’s own financial instruments or any property occupied by, or other assets used by, the company. All debt and equity instruments have quoted prices in active markets (Level one). Fair values of real estate properties do not have quoted prices and have been determined based on professional appraisals that would be classed as Level three of the fair value hierarchy as defined in IFRS13 ‘Fair value measurements’. Sensitivities to the principal assumptions of the present value of the defined benefit obligation may be analysed as follows: Discount rate Rate of mortality Change in assumptions Decrease of 0.25% per annum Increase in life expectancy of 1 year Change in liabilities Increase by 2.6% Increase by 4.4% The Directors believe that changes in the other assumptions noted above do not have a material impact on the defined benefit obligation. The sensitivity analyses are based on a change in one assumption while not changing all other assumptions. This analysis may not be representative of the actual changes in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. The average duration of the defined benefit obligation at 31 December 2015 is 13 years. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Notes to the financial statements continued 13. Pension arrangements continued The reconciliation of movements in the year were as follows: Deficit at the beginning of the year Movement in year: Contributions Finance cost Actuarial gain/(loss) Deficit at the end of the year Related deferred tax asset Net deficit at the end of the year 31 December 2015 £’000 31 December 2014 £’000 (3,582) (3,132) 155 (122) 365 (3,184) 571 (2,613) 142 (138) (454) (3,582) 716 (2,866) The expected contributions in the year ending 31 December 2016 are £159,000 in accordance with the agreed schedule of contributions. The trustees and employer have agreed a schedule of contributions covering the period to March 2029. Defined benefit costs recognised in profit or loss are as follows: Net interest cost Defined benefit costs recognised in profit or loss Defined benefit costs recognised in other comprehensive income are as follows: 31 December 2015 £’000 31 December 2014 £’000 122 122 138 138 31 December 2015 £’000 31 December 2014 £’000 Return on plan assets (excluding amounts included in net interest cost) – (loss)/gain Experience gain arising on the defined benefit obligation Effects of changes in the demographic assumptions underlying the present value of the defined benefit obligation – gain Effects of changes in the financial assumptions underlying the present value of the defined benefit obligation – gain/(loss) Total actuarial gains and losses and total amount recognised in other comprehensive income – gain/(loss) (221) 12 156 418 365 214 431 – (1,099) (454) 14. Related party transactions As permitted by FRS101 related party transactions with wholly owned members of Tandem Group plc have not been disclosed. 15. Ultimate controlling party The Company has no ultimate controlling party by virtue of being a public company listed on the Alternative Investment Market. 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 60 ❘ 61 16. Transition to FRS101 The Company has adopted FRS 101 for the first time having previously applied UK GAAP that was effective before periods commencing on or after 1 January 2015. The date of transition to FRS 101 was 1 January 2014. The Company has restated its comparatives for the year ended 31 December 2014. Restated Company statement of financial position Shareholders’ funds under previous UK GAAP Effect of changes to: Goodwill (a) Derivatives (b) Restated shareholders’ funds Restated profit Original profit for the financial year Effect of changes to: Goodwill (a) Derivatives (b) Restated profit for the financial year 31 December 2014 £’000 6,124 95 114 6,333 1 January 2014 £’000 6,124 – – 6,124 31 December 2014 £’000 1,693 95 114 1,902 (a) Goodwill Under previous UK GAAP goodwill was amortised to profit or loss over its expected useful life of twenty years. Under FRS 101 goodwill is not amortised but is instead subject to an annual impairment review. This accounting treatment represents a departure from the Companies Act 2006 (see accounting policy). (b) Derivatives Under previous UK GAAP foreign exchange forward contracts were not included on balance sheet at fair value. Instead the Company applied the contracted forward rate to record the related foreign currency expenditure and balance outstanding. Under FRS 101 foreign exchange forward contracts are derivative financial instruments which are required to be carried at fair value. Changes in fair value are recognised in profit or loss immediately unless hedge accounting is applied (see hedge accounting policy). (c) Investment property Under previous UK GAAP land and buildings which are rented to Group companies were carried at cost and explicitly excluded from the classification as an investment property in the Company’s accounts. Under FRS101 there is no exemption for properties let to another Group company. Land and buildings have therefore been recognised as an investment property and the cost model adopted. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Shareholder Information Capita Asset Services is our registrar and they offer many services to make managing your shareholding easier and more efficient. Customer Support Centre You can contact Capita’s Customer Support Centre which is available to answer any queries you have in relation to your shareholding: By phone – UK – 0371 664 0300 (UK calls cost 10p per minute plus network extras). From overseas – +44 371 664 0300. Lines are open 9.00am to 5.30pm, Monday to Friday, excluding public holidays. Choose to receive your next dividend in your local currency If you live outside the UK, Capita has partnered with Deutsche Bank to provide you with a service that will convert your sterling dividends into your local currency at a competitive rate. You can choose to receive payment directly into your local bank account, or alternatively, you can be sent a currency draft. You can sign up for this service by contacting the Customer Support Centre. By email – shareholderenquiries@capita.co.uk By post – Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. Sign up to electronic communications Help us to save paper and get your shareholder information quickly and securely by signing up to receive your shareholder communications via our website. Dividend payment options Re-invest your dividends Capita’s Dividend Re-investment Plan offers a convenient way for shareholders to build up their shareholding by using dividend money to purchase additional shares. The plan is provided by Capita Asset Services, a trading name of Capita IRG Trustees Limited which is authorised and regulated by the Financial Conduct Authority. For more information and an application pack please call 0371 664 0381 (calls to this number cost 12p per minute plus network extras) or if calling from overseas +44 371 664 0300. Lines are open 9.00am to 5.30pm, Monday to Friday, excluding public holidays. Alternatively you can email shares@capita.co.uk It is important to remember that the value of shares and income from them can fall as well as rise and you may not recover the amount of money you invest. Past performance should not be seen as indicative of future performance. This arrangement should be considered as part of a diversified portfolio. Arrange to have your dividends paid direct into your bank account This means that: Your dividend reaches your bank account on the payment date It is more secure – cheques can sometimes get lost in the post You don’t have the inconvenience of depositing a cheque. • • • • Helps reduce cheque fraud. If you have a UK bank account you can sign up for this service by contacting the Customer Support Centre. For further information contact Capita: By phone – UK – 0371 664 0385 (UK calls cost 10p per minute plus network extras). From overseas – +44 371 664 0300. Lines are open 9.00am to 5.30pm, Monday to Friday, excluding public holidays. By e-mail – ips@capita.co.uk Buy and sell shares A simple and competitively priced service to buy and sell shares is provided by Capita Asset Services. There is no need to pre-register and there are no complicated application forms to fill in and by visiting www.capitadeal.com you can also access a wealth of stock market news and information free of charge. For further information on this service, or to buy and sell shares visit www.capitadeal.com or call 0371 664 0445 (calls cost 10p per minute plus network extras, lines are open 8.00am to 4.30pm, Monday to Friday. From outside of the UK dial + 44 371 664 0445). This is not a recommendation to buy and sell shares and this service may not be suitable for all shareholders. The price of shares can go down as well as up and you are not guaranteed to get back the amount you originally invested. Terms, conditions and risks apply. Capita Asset Services is a trading name of Capita IRG Trustees Limited which is authorised and regulated by the Financial Conduct Authority. This service is only available to private shareholders resident in the European Economic Area, the Channel Islands or the Isle of Man. Capita Asset Services is a trading name of Capita Registrars Limited and Capita IRG Trustees Limited. Share registration and associated services are provided by Capita Registrars Limited (registered in England and Wales , No. 2605568). Regulated services are provided by Capita IRG Trustees Limited (registered in England and Wales No. 2729260), which is authorised and regulated by the Financial Conduct Authority. The registered office of each of these companies is The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. www.capitaassetservices.com 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 62 ❘ 63 Donate your shares to charity If you have only a small number of shares which are uneconomical to sell you may wish to donate them to charity free of charge through ShareGift (Registered Charity 10528686). Find out more at www.sharegift.org.uk or by telephoning 020 7930 3737. Share fraud warning Share fraud includes scams where investors are called out of the blue and offered shares that often turn out to be worthless or non- existent, or an inflated price for shares they own. These calls come from fraudsters operating in ‘boiler rooms’ that are mostly based abroad. While high profits are promised, those who buy or sell shares in this way usually lose their money. The Financial Conduct Authority (FCA) has found most share fraud victims are experienced investors who lose an average of £20,000, with around £200m lost in the UK each year. Protect yourself If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you should take these steps before handing over any money: • Get the name of the person and organisation contacting you. • Check the Financial Services Register at http://www.fca.org.uk/ to ensure they are authorised. • Use the details on the FCA Register to contact the firm. • Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date. Search our list of unauthorised firms and individuals to avoid doing business with. • REMEMBER: if it sounds too good to be true, it probably is! If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong. Report a scam If you are approached about a share scam you should tell the FCA using the share fraud reporting form at http://www.fca.org.uk/ scams, where you can find out about the latest investment scams. You can also call the Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040. 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc Annual Report and Accounts for the year ended 31 December 2015FinancialsGovernance Shareholder Notes 24745.04 18 April 2016 4:05 PM Proof 4 www.tandemgroup.co.ukTandem Group plc Annual Report and Accounts for the year ended 31 December 2015Tandem Group plc 24745.04 18 April 2016 4:05 PM Proof 5 Tandem Group plc 35 Tameside Drive Castle Bromwich Birmingham B35 7AG Telephone: +44 (0)121 748 8075 Fax: +44 (0)121 748 8010 www.tandemgroup.co.uk 24745.04 18 April 2016 4:05 PM Proof 5