Triton Minerals Limited Annual Report 2018

Plain-text annual report

2018 Annual Report and Financial Statements Annual Report and Financial Statements for the year ended 30 September 2018 Contents Chairman’s Statement ...................................................................................... 2 Strategic Report................................................................................................ 6 Strategic Report: Corporate and Social Responsibility Report ....................... 10 Strategic Report: Report on Risk Management .............................................. 13 Directors’ Report............................................................................................. 18 Directors’ Remuneration Report ..................................................................... 23 Corporate Governance Report ....................................................................... 28 Audit Committee Report ................................................................................ 31 Independent Auditor’s Report ......................................................................... 33 Consolidated Income Statement .................................................................... 37 Consolidated Statement of Comprehensive Income ...................................... 37 Consolidated Statement of Financial Position ................................................ 38 Company Statement of Financial Position...................................................... 39 Consolidated Statement of Changes in Equity ............................................... 40 Company Statement of Changes in Equity..................................................... 41 Group and Company Statement of Cash Flows ............................................. 42 Notes to the Consolidated Financial Statements............................................ 43 Five Year Summary ........................................................................................ 71 Notice of Annual General Meeting ................................................................. 72 Directors and Advisors ................................................................................... 76 1 Titon Holdings Plc 2018 Annual ReportChairman’s Statement It was another record year for Titon, generating revenue of £30 million and delivering a 20% increase in profit before tax to £3.0 million. The total declared dividend for the year was also increased by 13%. Profit and loss In the year ended 30 September 2018, the Group’s net revenue (which excludes inter-segment activity) rose 7% to £29.9 million (2017: £28.1 million). On a constant currency basis, however, the increase is 8%. The gross margin increased from 25.9% to 26.8% and EBITDA was 16% higher at £2.85 million (2017: £2.46 million). Earnings before interest and tax (EBIT) or operating profit rose 18% to £2.19 million (2017: £1.85 million) with the operating margin higher at 7.3% (2017: 6.6%). Net interest contributed £13,000 (2017: £10,000) while the share of profits from the Group’s associate (in South Korea) rose 23% to £778,000 (2017: £633,000) resulting in profit before tax of £2.98 million, which was an increase of 20% (2017: £2.49 million). On a constant currency basis there was no material change to the 2018 profit before tax. Earnings per share for the year increased 16% to 19.2 pence (2017: 16.5 pence). The effective rate of taxation increased to 12% (2017: 11%). The Directors are proposing a final dividend of 3.0 pence per share (2017: 2.7 pence). When added to the interim dividend of 1.75 pence, paid on 21 June 2018 (2017: 1.5 pence), this represents a total dividend for the year of 4.75 pence (2017: 4.20 pence) a 13% rise on 2017. If approved by shareholders at the forthcoming Annual General Meeting on 20 February 2019, the dividend is payable on 26 February 2019 to shareholders on the register at 18 January 2019. The ex-dividend date is 17 January 2019. Statements of financial position and cash flows Net assets including non-controlling interests rose £2.3 million to £18.5 million with net cash at £3.42 million (2017: £3.27 million) which is equivalent to 18.5% of net assets (2017: 20.2%). Inventory levels at the year- end increased by £997,000 on 2017 due to strong business growth in South Korea and the introduction of new products into the UK and European markets. In turn, this meant that cash generated from operations in the year was £1.94 million (2017: £2.24 million). Capital expenditure increased to £893,000 (2017: £706,000) and dividends paid to the shareholders of Titon Holdings Plc increased by 19% to £489,000 (2017: £410,000). Titon Korea also paid a maiden dividend in the year and this led to a cash outflow from the Group to the Non-Controlling Interests of £416,000 (2017: £0), whilst simultaneously repatriating a similar amount to the UK as a dividend to Titon Holdings Plc. The result of the above is an overall net increase in the Group’s cash reserves in the period of £146,000 (2017: £831,000). Net current assets were £11.2 million (2017: £9.9 million) with a Quick Ratio1 of 1.97 (2017: 2.13). ROCE2 was 15.3% (2017: 15.1%) with Capital Turn at 2.1 (2017: 2.3). Segment analysis The directors look initially at geographical areas to evaluate the Group’s performance and then consider product group splits at the secondary level. UK and Europe Revenue from the UK and Europe increased by 7% in fiscal 2018. This increase was derived chiefly from a strong performance in the Hardware business comprising sales of our traditional trickle vents, and window and door hardware. Here, sales into the aluminium window and door sector continued to perform strongly, up 12%. I am also pleased to report that sales of Titon branded door and window hardware products had a strong year with a 34% annualised revenue increase in the year, which reflects a lot of hard work put into this product area. Results from the Ventilation System’s sales of mechanical ventilation products saw an increase of 7.5% in revenue, with 2 Titon Holdings Plc 2018 Annual ReportSegment analysis (continued) pleasing demand for exports again as new customers have been introduced. The latter reflects a continued targeting of and investment in new geographical markets, particularly Eastern Europe. Within the UK, sales were up marginally on 2017 as we restructured our sales areas outside of London and the South East. Titon continues to invest in research and development which, in turn, yields a continuing number of new products for both the Ventilation Systems and Hardware businesses and this will also be true in 2019. The importance of air quality, both outdoors and indoors, continues to expand as the impact of poor quality air becomes more understood by the medical profession, governments and consumers. Titon has worked with one of our trade associations, Beama (British Electrotechnical & Allied Manufacturers Association), which represents manufacturers of electro technical products, such as ventilation products, to promote the benefits of good indoor air quality. In October 2018, the Healthy Homes and Buildings All Party Parliamentary Group published a White Paper entitled Building our Future, Laying the Foundations for Healthy Homes and Buildings. I am very pleased to say that Titon was a significant contributor to this paper, which we hope will lead to healthier homes and higher sales of ventilation products. The value of UK private and public housebuilding output is forecast to increase in 2018 by 4.5% against calendar 2017 according to the Construction Products Association. At the same time, the expected value of repair, maintenance and improvement (RMI) in the private and public residential sectors is forecast to be flat in 2018 against 2017. South Korea In South Korea, the Group’s subsidiary, Titon Korea (51% owned), manufactures natural window ventilation products and is the national market leader with an estimated market share in this core sub-sector in excess of 75%. In fiscal 2018, it also had another very good year with revenue increasing by 21% to £11.6 million, due to higher private sector demand, and its contribution to Group profit after tax was up by 24% to £1.0 million. The Group’s associate company, Browntech Sales Co. Limited (‘BTS’) also operates exclusively in South Korea and it generated another higher contribution in the year, with the Group recognising a share of profits from BTS of £778,000 (2017: £633,000) up 23% on 2017. In terms of activity, BTS distributes ventilation products in South Korea and both invests in and develops schemes in the domestic residential real estate market. There are three such schemes active at this time: the first in the form of a secured loan, which is expected to be repaid in 2019; the second, a residential refurbishment in Seoul, which is tenanted; and the third, the development of a residential property in Seoul, which has now been completed and is currently being marketed. Taking Titon Korea and BTS together, South Korea is the largest contributor to the Group’s profit after tax at £1.8 million for the year. (2017: £1.5 million). United States Finally, as I noted in the interim results, revenue in the US was substantially lower and this continued in the second half, although the US represents only a small proportion of Group sales (2% in 2018 and 6% in 2017). In fact, sales for the year were down by almost two-thirds against 2017, which was very disappointing and due largely to the ending of a subsidised window replacement programme in New York and a general market slowdown in one of our core markets in Washington State. It is important to add, however, that we benefit from very low fixed costs in our US business and the region has made a positive contribution overall to the Group’s results. Board We have not made any changes to the Board in the last twelve months. However, we have agreed, in connection 3 Titon Holdings Plc 2018 Annual ReportChairman’s Statement (continued) Board (continued) Outlook with our move to AIM, that we will appoint another independent Non-executive Director to the Board in 2019. The process of selecting an appropriate person for this role is underway and an announcement will be made in due course. Employees Once again, I offer my sincere thanks to all of the employees of Titon as the success of the Group is down to their hard work and talents. We continue to grow and develop as a business and it would not be possible without their contribution. As with last year, we have continued to make increases in the wages of our UK weekly paid employees in line with the National Minimum Wage. Investors We have now completed our move from the Main Market of the London Stock Exchange to the AIM market, which was effective from 10 December 2018. We are very pleased that shareholders voted in favour of this change as the Board believes it offers significant benefits to existing shareholders and new investors in Titon. We have continued to engage the corporate research house Hardman & Co. which regularly writes and distributes investment research on Titon and which we believe has both widened interest in the Group and continues to have a positive impact in the share price over the past three years. We have engaged Shore Capital as our Nominated Advisor and Broker for the purposes of the move to AIM and they will initiate research coverage on Titon in early 2019. Finally, here, I would like to mention again the Group’s dividend reinvestment programme (DRIP) which has operated for a number of years. This represents a straight-forward and cost effective way for shareholders to increase their holdings in Titon should they wish to do so. It was another record year for Titon with revenue of £30 million and profit before tax ahead by a fifth to £2.98 million. The dividend for the year was also increased by 13% which is the 6th consecutive year of rising dividends. The UK economy continues to grow at a modest rate in both historic and relative terms with consensus forecasts for GDP growth clustered around 1.5% per annum in both 2019 and 2020. These forecasts, too, are made assuming that the UK reaches an agreement with the EU about withdrawing in an orderly manner and any continuing uncertainty is unwelcome to our business. By way of a failsafe, though, we have already placed orders for certain extra components with our EU suppliers. That said, in the first two months of the new fiscal year, we are very pleased with UK and continental European trading, which is in line with the same period in 2017 when October and November were particularly good months. In South Korea, the World’s 12th largest economy3 and the Group’s largest net profit contributor, Q3 of calendar 2018 saw slightly slower GDP growth in relative terms at 2.0% compared with 2.8% in Q2 due largely to weaker construction and business investment. We anticipate that rising levels of air pollution may raise demand for mechanical ventilation units over natural ventilation products in fiscal 2019, resulting in a slowdown in our core natural ventilation business. We are, however, in the process of developing new solutions for the South Korean ventilation market. Most importantly, the trajectory of the South Korean economy remains enviably positive with FocusEconomics forecasting GDP growth of 2.6% in both 2019 and 2020 as Government spending increases and monetary policy remains accommodative. We are therefore positive on the medium-term outlook for our South Korean business. 4 Titon Holdings Plc 2018 Annual ReportOutlook (continued) Titon builds and delivers popular products and has a unique geographical spread. It has good people and a perennially strong balance sheet. We also continue to look for new opportunities for growth within our target markets. 2019 will be a more testing year in the UK and in South Korea as noted above. However, provided that Brexit doesn’t negatively impact the UK economy we expect another year of growth in revenue and profits for Titon in line with market expectations. On behalf of the Board KA Ritchie Chairman 12 December 2018 Notes: Keith Ritchie Chairman 1 The Quick Ratio measures liquidity and is calculated as follows Current Assets-less-Stocks divided by Current Liabilities 2 ROCE is calculated by dividing EBIT by capital employed (capital employed being the sum of shareholders’ funds, non-controlling interests and all debt less intangible assets and cash); with Capital Turn calculated by dividing revenue by capital employed 3 International Monetary Fund data at May 2018 5 Titon Holdings Plc 2018 Annual Report Strategic Report The Strategic Report has been prepared in accordance with Section 414C of the Companies Act 2006 (the “Act”). Its purpose is to inform shareholders of Titon Holdings PLC (“Titon” or “the Company” or “the Group”) and help them to assess how the Directors have performed their legal duty under Section 172 of the Act to promote the success of the Group. Highlights Revenue growth of 7% to £29.9m and Group profit before tax up to £2.98m EPS up 17% to 19.2 pence First dividend paid by Titon Korea Total dividend for the year up 13% to 4.75 pence per share Overview The Directors look initially at geographical areas to evaluate the Group’s performance and then consider product group splits at the secondary level. The Titon Group performance is monitored across three geographical segments. Within these segments, the principal businesses activities are design, manufacture, marketing and sales, along with our associate’s activity in real estate development: ● trickle vents and hardware products for the window and door fabricator markets in the UK, Europe and the USA; David Ruffell Chief Executive ● mechanical ventilation products for the new build residential markets in the UK and Europe; and ● natural ventilation products for the new build residential market in South Korea. The first two activities above are carried out by Titon Hardware Limited and Titon Inc. (in the US), both wholly owned subsidiaries. Titon is one of the leaders in the window trickle vent market in the UK, trickle vents being used extensively in the new build and refurbishment sectors. The third activity is carried out by Titon Korea Co. Ltd (“Titon Korea”), a 51% owned subsidiary, which designs and manufactures products and Browntech Sales Co. Limited (“BTS”), a 49% owned associate company, which markets and sells these products to customers. BTS is also active in domestic residential real estate development. Titon’s strategy is to grow the businesses organically on a continuing basis and to develop new products. In South Korea the Group seeks to maintain its position as a market leader in natural ventilation in the residential market. More details of the Group’s strategy are discussed below. Chief Executive’s Review The principal activities of the Group have not changed during the year and consist of the design, manufacture and marketing of ventilation products and door and window fittings. The Consolidated Income Statement is set out on page 37. A summary of the results along with other selected Key Performance Indicators (“KPIs”) is as follows: Revenue Profit before tax Taxation Profit after tax Revenue per employee Profit after tax per employee Net cash and cash equivalents 2018 £’000 29,946 2,979 2017 £’000 28,011 2,493 (352) (269) 2,627 133 11.6 3,415 2,224 115 9.1 3,269 The Directors are pleased with the 7% improvement in Revenue and the 20% increase in Group Profit before Tax during the year. A review of the Group’s performance during the year is given in the Chairman’s Statement. The Group Profit before Tax for the year exceeded 2017 due to a significantly higher contribution from South Korea and an increased contribution from the UK. 6 Titon Holdings Plc 2018 Annual Report Goals and strategy The Titon Group’s goals are the following: Markets Grow market share of natural and mechanical ventilation products and window and door hardware in the residential housing markets of the UK, Europe, US and South Korea. Employees Provide a challenging but rewarding and supportive environment for our employees which offers them long term careers. Products Offer products which are of high quality and that the “as built” performance is as expected. Shareholders Interact with shareholders and generate rising returns through a rising share price and a progressive dividend policy on a consistent basis. Management Set and maintain a high standard of management and business behaviour, which will ensure that employees, customers and suppliers are treated fairly. Our strategy to meet each of these goals is identified separately and then transferred into incremental steps and actions which each department within Titon can achieve and against which they can be measured. Each year these strategies are reviewed at the start of the financial period by the Board of Directors and changes are made, where necessary, if the results achieved have been less than the target. The strategy to achieve each of these goals is as follows: Grow market share in the UK, Europe, US and South Korea Increase sales of our existing products. Find new customers for our products. Develop new products. Improve existing products. Working environment Pay our employees fairly for their services. Retain a long term view and not a “hire and fire” mentality. Provide employees with the necessary support and training to do their jobs. Ensure that the diversity of every employee is recognised and that everybody is treated equally. Conduct regular and transparent appraisals with all employees. Product offering Invest in research and development resources to bring innovative new products to market. Set high standards for product design. Continuously improve production performance. Take customer complaints seriously and improve products as required. Interaction with shareholders Pay dividends commensurate with the results of the business. Communicate openly and honestly with an absence of jargon. Be accessible to all shareholders at all times. Management behaviour Set high standards for management and all employees. Be accountable and take responsibility for decision taking. Communicate effectively with all stakeholders. Ensure all dealings are open and cannot be misconstrued. 7 Titon Holdings Plc 2018 Annual Report Strategic Report (continued) Business model Within distinct geographical markets, the Group operates in two business streams: (i) trickle ventilation and window and door hardware business, in which Titon has operated since its formation in 1972, and now including South Korea. This activity accounted for 77% of Group revenue in 2018 (2017: 78%); and (ii) mechanical ventilation business, which the Group entered in 2007 and which accounted for 23% of revenue in 2018 (2017: 22%). See Business Segmentation information on page 54. The Group generally organises its sales and marketing activities into these business streams with manufacturing and other services supporting them both on a shared basis. The management of these two business streams also follows this split with regular meetings of the senior managers alongside the Directors. In the UK, the Group has a direct sales force for both business streams and aims to win specifications for its products through its dealings with developers/housebuilders, architects, building services engineers and local authorities. Where specifications are not possible, Titon aims to sell directly to its wide customer base of electrical contractors, installers and window fabricators. Titon operates in a wide range of export markets and has made sales to a significant number of countries from the UK during this year. Our policy for exporting, in respect of both window and door hardware and mechanical ventilation products, is to appoint local distributors and to support them in building the Titon brand. Within the mechanical ventilation business the Group also manufactures OEM products for its customers and, near term, has targeted a significant increase in its activities in continental Europe. In South Korea, Titon Korea, makes almost all of its sales to BTS, which sells products onward to its customers in the new residential construction sector. Titon entered the South Korean market in 2008. As noted elsewhere, BTS has entered into a number of property development activities in the last three years but this activity is expected to diminish in future years. The Group also has a wholly owned subsidiary based in Indiana in the USA. Sales into this market accounted for 2% of Group revenues during the year (2017: 6%). The Group manufactures products in the UK and in South Korea. Production in South Korea is entirely for the South Korean market, whilst products manufactured in the UK are sold domestically and exported. Products manufactured in the UK factory account for 42% (2017: 46%) of overall Group turnover and products manufactured in South Korea account for 39% (2017: 34%). The remaining 19% (2017: 20%) of revenue is obtained by the sale of products bought- in from third party manufacturers. These bought-in products tend to be complementary to and are generally sold alongside our own manufactured lines. Key Performance Indicators (KPIs) The Board looks at a range of KPIs to monitor the performance of the Group throughout the financial year and within the individual business departments further KPIs are reviewed. The financial KPIs monitored by the Board regularly include: KPI Group Revenue Timing Measured against budget and prior year on monthly basis Group Profit Before Tax Measured against budget and prior year on monthly basis Individual legal entities’ and business sector performance Measured against budget and prior year on monthly basis Revenue and Profit per employee Measured annually within the Strategic Report Sales, margins and prices of core products Sales to customers Top 25 products reviewed monthly and at Divisional Management levels Top 25 customers and 12 month rolling sales reviewed monthly and at Divisional Management levels Purchases Net cash Top 25 suppliers and delivery performance reviewed monthly Reviewed quarterly by Board and monthly by senior management The Board of Directors also reviews quarterly performance figures at the quarterly board meetings and any significant variances are discussed together with any necessary remedial actions. 8 Titon Holdings Plc 2018 Annual Report2017/18 performance The financial results for the year are discussed above and throughout the Annual Report. In respect of the strategies identified above the significant KPIs are as follows: UK, Europe and USA ● sales of trickle vents and window hardware products increased in the year by 8.8% in the UK and in Europe, but fell in the US by nearly two-thirds. This was due to higher vent and hardware sales against the prior financial period in the UK, but sales to the US fell significantly due to the ending of a window replacement programme in the eastern US and a fall in construction of homes for multiple occupancy in western US, which impacted the overall sales increase. Sales of bought in hardware also increased due mainly to higher sales of products for Aluminium windows and doors in the UK and sales of own range Titon bought in products, which increased by 34%; ● sales of Ventilation System products in the UK rose marginally in the period against the prior year, but sales to continental Europe and the rest of the World were up 13% as the continued investment in products and marketing for European markets generated good returns; ● we continued to invest in new products during the year and sales of the SF Xtra trickle vent, which was introduced in 2015/16 grew strongly as did the range of acoustic products. Similarly, in the Ventilation System division sales of our newly introduced products performed well in the year, justifying the ongoing investment in R&D. South Korea ● sales of natural ventilation products through our subsidiary in South Korea rose by 21% as sales into the private sector continued to grow. Titon has a very strong position in South Korea with an estimated market share in its chosen products in excess of 75%. Other ● research and development expenditure in the year, excluding capitalised development expenditure, remained high at £446,000 (2017: £468,000), reflecting the strategy noted above to continually develop new products; ● ● ● during the year we have transitioned both our ISO 9001 Quality Management Systems and ISO 14001 Environmental Management Systems from the old versions to the current 2015 versions. This has taken a considerable amount of senior management time and demonstrates our commitment as a company to the highest standards of both production and environmental management; employee numbers remained largely the same at the end of the period at 225 against 229 at September 2017. Salaries are reviewed annually and all staff received an increase. Our weekly paid staff also benefited from the increase in the National Minimum Wage in April 2018; and the Total Return to Shareholders for the period under review was an increase of 43.1%, which is a combination of share price increase and dividend yield. 2018/19 activities The Board anticipates that the Group’s business will continue on broadly the same approach as it did in 2017/18 and our strategy remains the same. We have set budgets for all parts of our business which reflect agreed growth ambitions and these will be monitored on a monthly basis. Specific initiatives for the current fiscal year include: ● ● ● ● ● ● continuing efforts to sell more Titon branded bought-in hardware, particularly cylinders and friction hinges; increased sales of acoustic trickle vents particularly in the major conurbations where external noise can be an important issue for house occupiers or where new infrastructure, such as roads, railways or airports is being developed; development of additional Mechanical Ventilation with Heat Recovery (“MVHR”) products for the UK market, including a new product for mid-sized apartments and a product for larger properties, which is also in demand in Europe. As we have previously noted, large scale growth is only likely, however, if the Government drives up energy efficiency standards in new homes through regulation, since UK developers and housebuilders tend not to build to these higher standards on a voluntary basis due to the increased cost of doing so; increased sales in Eastern Europe of MVHR systems as these markets become aware of the availability of this technology along with their need to reduce energy consumption. We have recently signed new distribution agreements with distributors in Poland and Lithuania; development of new products for the South Korean ventilation market as the requirement for different ventilation in residential buildings increases. This will be a key initiative for the Group given how important sales in South Korea have been to the Group in recent years; control of overheads will continue in the period. We have restructured our workforce in Haverhill during November 2018 to reflect changes in our product mix; 9 Titon Holdings Plc 2018 Annual ReportStrategic Report (continued) 2017/18 activities (continued) ● in the UK, the consensus view on the UK economy is for GDP growth of around 1.5% in 2019 and 2020. UK Government capital spending remains constrained although housebuilding has been made a political priority with a commitment to build 300,000 units per annum through the middle of the next decade. At the same time, the largely independently funded Housing Associations continue to grow and spend on new build and repair, maintenance and improvement (RMI). The Construction Products Association is forecasting continued growth in residential new build in both the private and public sectors over the next three years. The same is true for private sector residential RMI. However, the much smaller public sector residential RMI segment is forecast to experience relatively flat volumes. We anticipate that demand should increase for both our hardware and mechanical ventilation product sales over and above any gains in market share; and ● in South Korea GDP growth is forecast by FocusEconomics to grow by 2.6% in 2019 and 2020. However, the construction industry will rise at a slower pace. At the same time, it is anticipated that increasing levels of air pollution may raise demand for mechanical ventilation units over natural ventilation products. This means that we anticipate a comparative slowdown in our core business in South Korea in fiscal 2019. Employee Gender Breakdown As at the end of the financial year the analysis by gender of employees, was as follows: Directors Senior Managers Other Total 2018 Male 7 9 134 150 2018 Female - - 75 75 2018 Total 7 9 209 225 2017 Male 7 10 135 152 2017 Female - - 77 77 2017 Total 7 10 212 229 Corporate and Social Responsibility Report Business ethics, anti-corruption and compliance The Group is committed to conducting its business in an ethical, socially responsible and environmentally sustainable manner. The Directors lead by example in encouraging and promoting the highest standards of integrity throughout all of their business dealings. As far as it is possible to determine, the Group complies with all human rights, anti-corruption and environmental legislation, regulation and best practice in each of the countries where it conducts business. The following formal policies are in place within the Group to promote and monitor business ethics and anti-corruption: ● Anti-corruption policy to protect the Group in respect of employees offering payments or inducements to gain favour with customers or potential customers; ● Whistleblowing policy to enable any employee who has concerns as to the Group being involved in any unlawful or improper activities can raise issues in confidence and with reassurance that they will be protected from reprisals or victimisation. Employees who become aware of any breaches of these policies would raise them with their immediate line manager or if this isn’t appropriate with a Director. Such instances would also be immediately discussed by Senior Management and would then be raised with the Board at the next scheduled Board meeting. Urgent matters will be referred to the Chief Executive for appropriate action. Concerns can also be raised directly with any of the Non-executive Directors if the allegation involved any of the Senior Management. Third parties can raise any issues or breaches of policy with any of the Directors. 10 Titon Holdings Plc 2018 Annual ReportCorporate and Social Responsibility Report (continued) Health and safety It is critical as a manufacturing business that our employees operate in a safe environment and that our health and safety policies and practices are as good as they can be. We have a written Health & Safety policy, which is displayed on noticeboards throughout the factory and a full time Health & Safety officer. The Health and Safety management system is as follows: Board of Directors Overall responsibility for setting policy and performance Health & Safety Management Committee Meets quarterly to review statistics and every reported incident. Both the Chairman and CEO attend Local Management Health & Safety Officer Responsible for oversight of Health & Safety Officer and any local incidents Responsible for all day to day issues, implementation of changes to policy and reaction to incidents Two examples of action that has been taken this year are: ● we have reviewed and updated our health and safety policy during 2018 and have appointed an external consultant from EEF, the manufacturers’ association, to advise on health and safety matters; and ● we have adopted a much greater scrutiny of all accidents in our UK factory, so that the health and safety culture is embedded in the business. This has resulted in an increase in the number of accidents reported during the year. We believe that this is in the best interests of our employees and therefore, also of the Company. The accident statistics for our UK operations are as follows: ● ● January to December 2017 15 reported accidents, 0 RIDDOR reported January to December 2018 36 reported accidents, 1 RIDDOR reported RIDDOR is the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013. These Regulations require employers, the self-employed and those in control of premises to report specified workplace incidents. Environmental matters The Board recognises its responsibility as a manufacturing business to minimise the impact of the Group’s activities on the environment. The Group seeks to reduce its environmental impact in a way that benefits a broad group of stakeholders, including customers, shareholders, employees, and in particular, the local community. As noted above the Group has now transitioned to ISO 14001:2015 from ISO 14001:2004 for Environmental Management Systems within its UK manufacturing operation in 2018 and places great emphasis on ensuring that it conducts its operations such that: ● ● ● ● ● emissions to air, releases to water and land filling of waste do not cause unacceptable environmental impacts and do not offend the community; significant plant and process changes are assessed and positively pursued to prevent adverse environmental impacts; energy is used efficiently and consumption is monitored; natural resources are used efficiently; raw material waste is minimised; ● waste is reduced, reused or recycled where practicable; and ● the amount of packaging used for our products is minimised. As part of its processes, the Group’s environmental performance is reviewed monthly by senior management and a programme of continuous improvement for the benefit of customers, employees and the environment has been adopted. We have continued the replacement of old halogen lamps on our Haverhill site during the year and this programme has now largely been completed. We remain focussed on reducing our energy usage and maintain detailed records of each area’s gas and electricity consumption with the aim of taking prompt action if any unexplained increase is observed. 11 Titon Holdings Plc 2018 Annual Report Strategic Report (continued) Corporate and Social Responsibility Report (continued) In accordance with Statutory Instrument 2008/410 the Group presents the following information in respect of its CO2 emissions during the period. Global Greenhouse Gas (GHG) emissions data for the period are: Source: Combustion of fuel and operation of facilities Electricity, heat, steam and cooling purchased for own use 2018 tCO2e 698 428 2017 tCO2e 619 527 Total tonnes of CO2 equivalent 1,126 1,146 CO2 emissions normalised per £ million of sales of manufactured products 47 51 These sources fall within our consolidated financial reporting. We do not have responsibility for any emission sources outside of our consolidated financial reporting, including those of our Associate Company. We have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), data gathered to fulfil our requirements under the CRC Energy Efficiency scheme, and emission factors from UK Government’s GHG Conversion Factors for Company Reporting 2018. Community and human rights We supported a number of national charities throughout the year and have identified a specific local charity each year as well for collections. We will be arranging a collection before Christmas of clothing and foodstuffs for the Colchester Night Shelter, which exists for the benefit of rough sleepers in Colchester. Our colleagues in Haverhill also carry out a number of charity collections during the year. We are committed to respecting human rights across our business operations and aim to comply with all local and international legislation and standards. Employee diversity and equal opportunities policy We are committed to encouraging equality and diversity among our employees. Our objective is to create a working environment in which there is no unlawful discrimination and where all employee decisions are based on merit. The policy applies to all employees, workers, agency workers, contractors and job applicants and covers all of the “protected characteristics” as defined by the Equality Act 2010. This policy has been issued to all employees within the UK Group and provides a framework for ensuring that no employee is discriminated against. We recognise that equality and diversity is paramount within our employees and provide training to our staff, where necessary, to ensure that they understand the policy and avoid discrimination. 12 Titon Holdings Plc 2018 Annual ReportReport on Risk Management Risks and uncertainties The Group has established procedures for monitoring and controlling operational and financial risks and these are detailed below. The Board is responsible for ensuring that the Group maintains an effective risk management system. It determines the Group’s approach to risk, its policies and the procedures that are implemented to mitigate exposure to risk. Process for managing risk The Board continually assesses and monitors the key risks in the business and has developed a risk management matrix to identify, report and manage its principal risks and uncertainties. This includes the recording of all principal risks and uncertainties, which are reviewed annually. Risks are fully analysed, their potential impact on the business assessed and relevant mitigations established. The risk matrix is reviewed quarterly at Board Meetings along with the appropriateness and effectiveness of the key mitigating controls. The table below highlights the principal risks and uncertainties which could have a material impact on the Group’s performance and prospects and the mitigating activities which are aimed at reducing the impact or likelihood of a major risk materialising. The Board does recognise, however, that it will not always be possible to eliminate these risks entirely. Risk Matrix Risk Associate companies The Group is exposed to the risks related to working with associate companies over which it does not have full operating control through its equity holding. Potential Impact Mitigations Failure to maintain good working relationships and to exert sufficient control and influence in respect of our South Korean Associate Company, Browntech Sales Co. Ltd could affect the Group’s ability to deliver on its objectives in this market. The Group’s senior management has a regular schedule of visits to meet with the Associate Company’s management in South Korea. A formal Distribution Agreement exists between Titon Korea Co. Ltd and Browntech Sales Co. Ltd which aligns those companies for trading purposes. Brexit The decision to leave the European Union could have a significant impact on the Group’s business in the UK and Europe. There is still great uncertainty about the nature of the relationship with the EU after we leave, which is currently expected to be on 29th March 2019. Business disruption The Group’s manufacturing and distribution operations could be subjected to disruption due to factors including incidents such as a major fire, a failure of essential IT equipment or a major cyber- attack on the Group. Imports and exports of goods and raw materials to and from the EU could be subject to tariffs or other charges, which could increase costs and make the Group’s products uncompetitive. Delays in the movement of goods across borders after the UK leaves the European Customs Union may affect the Group’s ability to supply its customers. The Group will monitor the UK and EU negotiations and political ramifications and through its membership of trade associations will lobby that tariff free trading along with the frictionless physical movement of goods is highly desirable. The Group has developed relationships with alternative component suppliers should the re-sourcing of those items currently sourced from the EU be necessary. Incidents such as a fire at the Group’s premises or the failure of IT systems could result in the temporary cessation in activity or disruption of the Group’s production facilities impeding the Group’s ability to deliver its products to its customers. A cyber-attack could leave the Group open to a ransom demand or compromise data security both for the Group and customers. The Group has developed business continuity and disaster recovery plans. The Group maintains a significant amount of insurance to cover business interruption and damage to property from such events. A cyber insurance policy has been taken out in the UK to protect against ransom demands and additional measures have been taken to ensure the security of the Group and customer data. 13 Titon Holdings Plc 2018 Annual ReportStrategic Report (continued) Report on Risk Management (continued) Risk Potential Impact Mitigations Reliance on key customers Parts of the Group’s business are dependent on key customers. Failure to manage relationships with key customers could lead to a loss of business affecting the financial results of the Group. The Group’s strategic objective is to broaden its customer base wherever possible. The Group focuses on delivering high levels of customer service and maintains strong relationships with major customers through direct engagement at all levels. The Group maintains customer service KPIs which are monitored monthly through the Group’s ISO 9001 procedures and intervention made where required. The Group closely manages its pricing, rebates and commercial terms with its customers to ensure that they remain competitive. New product development The Group operates in very competitive markets where the continual development of new products is necessary. Failure to provide customers with market leading products could lead to a loss of business affecting the financial results of the Group. The Group continually seeks to innovate and develop its product lines to ensure its products are appropriate for the markets in which it operates. The Group maintains comprehensive patent, design and trademark coverage. Recruitment and retention of key personnel The Group is dependent on the continued employment and performance of its senior management and other skilled personnel. Loss of any key personnel without adequate and timely replacement could disrupt business operations and the Group’s ability to implement and deliver its growth strategies. The Group has a formal succession plan in place which is reviewed periodically. The Group aims to provide competitive remuneration packages and bonus schemes to retain and motivate key personnel. Economic conditions The Group is dependent on the level of activity in the construction industry in the countries in which it markets its products and is therefore susceptible to any changes in economic conditions. Lower levels of construction industry activity within any of the key markets in which the Group operates could reduce sales and production volumes adversely, thus affecting the Group’s financial results. The Group closely monitors trends in the industry using a wide range of external data including the Construction Products Association’s reports and forecasts for the UK and other reports in the rest of the World. The Group monitors product demand on a weekly basis and is able to respond quickly in re-allocating or varying resources. The Group continually seeks to expand the geographical markets into which it sells its products. 14 Titon Holdings Plc 2018 Annual Report Risk Potential Impact Mitigations Government action and policy The Group’s business is significantly affected by Building Regulations in its core markets as well as by government action and policies relating to public and private investment. Many of the Group’s products are provided to customers in order to help them to comply with Building Regulations in respect of ventilation. Changes to Regulations could adversely impact on sales volumes affecting the Group’s financial results. Additionally, significant downward trends in government spending could have an adverse impact on the construction industry which could impact on sales and production volumes affecting the Group’s financial results. The Group closely monitors and attempts to influence Building Regulations through its work with industry working groups. The Group structures its operations so that it has a balanced exposure to the residential and commercial construction sectors and the refurbishment sector so as to reduce the impact of any adverse government action or policy on any one of these sectors. Government regulations and standards The Group is subject to the requirements of occupational health and safety laws, employment law and environmental regulations, within the markets in which it operates. Failure of the Group to comply with Health and Safety law, employment law and environmental regulations could result in the Group being liable for fines. It could also require modification to operations, increase manufacturing and delivery costs, and could result in the suspension or termination of operations, thereby impacting the Group’s financial results. Product liability The Group manufactures electrical products that could cause injury to people or property. The Group’s products are also often incorporated into the fabric of a building or dwelling, which could be difficult to access, repair, recall or replace in the event of product failure. A product safety issue or a failure or recall could result in a liability claim for personal injury or other damage leading to substantial money settlements, damage to the Group’s brand reputation, costs and expenses and diversion of key management’s attention from the operation of the Group, which could all affect the Group’s financial results. The Group has a strong Health and Safety ethos combined with robust policies and procedures for the management of employee and visitor safety across its sites. The Group uses the services of EEF Ltd and lawyers in formulating employment practices and policies and when dealing with employee disputes and grievances. Within the UK, the Group operates an ISO 14001 Environmental policy, and procedures are in place to monitor compliance with the policy which is subject to external environmental audits on a periodic basis. The Group operates comprehensive quality assurance systems and procedures within its UK manufacturing processes and is subject to regular external audit as part of its ISO 9001 accreditation. Comprehensive end of line testing is carried out on all in-house manufactured electrical products. Wherever required, the Group obtains certifications over its products to the relevant standards of the countries in which it markets its products. These certifications incorporate electrical safety testing. The Group endeavours to ensure that its products are in compliance with relevant fire safety regulations. The Group maintains product liability insurance to cover personal injury and property damage claims from product failures. 15 Titon Holdings Plc 2018 Annual ReportStrategic Report (continued) Report on Risk Management (continued) Financial risk management The Group’s operations expose it to a variety of financial risks which include the effects of: The Group has financial risk management procedures in place that seek to limit the adverse effects of the financial risks as follows: Risk Fraud Potential Impact Mitigations The risk that an employee or a group of employees could embezzle the Group’s funds either directly or through co- operation with external accomplices. A significant financial fraud could deplete the Group’s assets and adversely affect the Group’s financial results. The Group has a series of Financial Control Procedures in place which are designed to eliminate this risk and which are reviewed regularly. Segregation of duties is a critical component within these controls. Foreign exchange risk The risk that the fair value of a financial instrument or future cash flows will fluctuate because of changes in foreign exchange rates. The Group’s risk relates primarily to its trading activities in South Korea denominated in South Korean Won. The Group is also exposed to foreign exchange risk in respect of cash flows denominated in Euros and US Dollars. Exchange rate fluctuations may adversely affect the Group’s results. It is not possible for the Group to mitigate exchange rate differences which impact the translation of its overseas subsidiaries’ results and net assets. The Group undertakes some activities in the Eurozone where purchases of materials denominated in Euros provide an element of natural hedging for sales of finished products denominated in Euros. The Group sells products into the US where prices are denominated in US Dollars. The income from this activity provides a natural hedge for components sourced from East Asia, which are also denominated in US Dollars. Customer credit risk is subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on referencing and on third party scoring and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and deliveries are suspended when customers exceed their payment terms. Credit risk arising from cash deposits with banks are managed by the Group’s finance department. Investments of surplus funds are made only with banks that have, as a minimum, a single A credit rating. Credit risk The Group is exposed to credit risk from its trading activities (primarily from trade receivables) and from its deposits with banks. The failure of a counterparty to meet their financial obligations could lead to a financial loss for the Group. 16 Titon Holdings Plc 2018 Annual ReportRisk Liquidity risk Potential Impact Mitigations The risk that the Group will not be able to meets its financial obligations as they fall due. Insufficient funds could result in the Group not being able to fund its operations. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group maintains close relationships with a number of UK banks in order to support liquidity requirements. Interest rate risk The risk that interest rates could change impacting on the Group’s results. Increases to interest rates could result in significant additional interest rate payments being required on any borrowings. Decreases to interest rates could result in lower interest income on bank deposits. Owing to the Group’s size and degree of exposure to interest rate risks, no hedging activity is currently undertaken. This Strategic Report was approved by the Board on 19 December 2018 and signed on its behalf by: D A Ruffell Chief Executive 17 Titon Holdings Plc 2018 Annual ReportDirectors’ Report The Directors present their report and the Group and Company financial statements for the year ended 30 September 2018. The Directors of Titon Holdings Plc throughout the financial year or subsequent to the year-end are listed on page 26. A detailed commentary on the results for the year and discussion of future developments is given in the Chairman’s Statement on pages 2 to 5 and an explanation of the Group’s business strategy is included within the Strategic Report on page 7. The Group’s compliance with the UK Corporate Governance Code is set out in the report on pages 28 and 29. Substantial shareholders As at 30 September 2018, the Company had been notified of the following voting interests in its ordinary share capital (excluding ordinary shares held in treasury), other than Directors’ holdings of 3 per cent or more in the ordinary share capital of the Company: Name Rights & issues Investment Trust PLC MI Discretionary Unit Fund Managers Ltd Mrs A J Clipsham Shares 1,265,000 800,000 750,579 % 11.41 7.22 6.77 The Company has not been notified of any changes to substantial shareholdings between 30 September 2018 and 19 December 2018. Share capital The total issued ordinary share capital at 30 September 2018 consisted of 11,133,750 Titon Holdings Plc shares of 10p each, of which 50,000 shares were held in treasury. 150,000 ordinary shares were issued during the year as a result of employees exercising share options. There were no other changes to the Company’s ordinary share capital during the year. Details of the authorised and issued share capital of the Company as at 30 September 2018 are set out in note 18 of the Notes to the Financial Statements. All of the Company’s shares are ranked equally and the rights and obligations attaching to the Company’s shares are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House in England and Wales and on the Company’s website at www.titonholdings.com. There are no restrictions on the voting rights of shares and there are no restrictions on their transfer other than: ● ● certain restrictions as may from time to time be imposed by laws and regulations (for example insider trading laws); and pursuant to Article 19(11) of the Market Abuse Regulation whereby Directors of the Company require approval to deal in the Company’s shares (Market Abuse Directive available from https://www.esma.europa.eu/regulation/ trading/market-abuse). Additionally, the Company is not aware of any agreements between shareholders of the Company that may result in restrictions on the transfer of ordinary shares or voting rights. Proposed dividends The Directors recommend the payment of a final ordinary dividend of 3.0 pence (2017: 2.7 pence) per ordinary share. This, when taken with the interim dividend of 1.75 pence (2017: 1.5 pence) per ordinary share paid on 21 June 2018, gives a total dividend of 4.75 pence (2017: 4.2 pence) per ordinary share for the year ended 30 September 2018. Titon operates a dividend reinvestment programme for shareholders details of which are available from our registrars, Link Asset Services. 18 Titon Holdings Plc 2018 Annual ReportResearch and development The Directors consider that research and development continues to play an important role in the Group’s success as the need to provide increasingly energy efficient ventilation products will be a feature of our market over the coming years. Investment in research and development amounted to £446,000 during the year (2017: £468,000). Development expenditure capitalised in 2018 amounted to an additional £136,000 (2017: £177,000). See note 11 of the Financial Statements. Financial risk management The Directors assess the financial risks facing the business and spend appropriate time considering them. The Group has a system of risk management, which identifies these items and seeks ways of mitigating such risks as far as is possible. The Report on Risk Management set out on pages 13 to 17 includes information on financial risk and also see note 20 to the Financial Statements. Employees The Group recognises the importance of its employees in achieving its objectives and has contractual arrangements in place to encourage and reward loyalty and to safeguard the interests of the Group. Employees are provided with information about the Group’s activities via the Employee Consultative Committee, other staff meetings and staff notice boards. The Group aims to foster an environment in which employees and management can enjoy a free flow of information and ideas. The Group is an equal opportunities employer and its policies for recruitment, training, career development and promotion are based on the aptitude and abilities of the individual. See the Strategic Report for more details. Disabled employees The Group gives full consideration to the career development and promotion of disabled persons, and to applications for employment from disabled persons, where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. The Group considers the training requirements of each disabled person on an individual basis. Where an employee becomes disabled during the course of his or her employment, the Group will consider providing this employee with such means, including appropriate training, as will enable the employee to continue to carry out his or her job, where it reasonably can, or will attempt to provide an alternative suitable position. Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for its shareholders and benefits for its other stakeholders. The Group considers its capital to comprise ordinary share capital, share premium, capital redemption reserve and accumulated retained earnings (see ‘Consolidated Statement of Changes in Equity’ on page 40). The translation reserve is not considered as capital. In order to maintain or adjust its working capital at an acceptable level and to meet strategic investment needs, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or sell assets. The Group does not seek to maintain any particular debt to capital ratio, but will consider investment opportunities on their merits and fund them in the most effective manner. Environmental issues An explanation of how the Group deals with its environmental responsibilities is included in the Strategic Report. Directors’ responsibilities The Directors are responsible for preparing the annual 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 are required to prepare the Group financial statements and have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that period. 19 Titon Holdings Plc 2018 Annual ReportDirectors’ Report (continued) Directors’ responsibilities (continued) 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 they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and prepare a Directors’ Report, a Strategic Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group 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 Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring that the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website, which can be found at www.titonholdings. com in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. Following the move to AIM the Directors are also responsible for disclosing additional information under Rule 26 of the AIM Rules, which is also available at www.titonholdings.com. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Directors’ responsibilities The Directors confirm to the best of their knowledge: ● ● the Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the parent company, together with a description of the principal risks and uncertainties that they face. Directors’ statement as to disclosure of information to auditors ● The Directors at the time of approving the Directors’ Report are listed on page 26. Having made enquiries of fellow Directors and of the Officers of the Company, each of the Directors confirms that: ● ● to the best of each Director’s knowledge and belief, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has taken all steps a Director ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purpose of their audit and to establish that the Company’s auditors are aware of that information. Directors’ liability insurance and indemnity The Company has purchased liability insurance cover, which remained in force at the date of the report, for the benefit of the Directors of the Company which gives appropriate cover for legal action brought against them. The Company also provides an indemnity for its Directors (to the extent permitted by law) in respect of liabilities which could occur as a result of their office. This indemnity does not provide cover should a Director be proved to have acted fraudulently or dishonestly. Purchase of own shares The Company has authority from shareholders to purchase up to 10% of its own ordinary shares in the market. This authority was not used during the year nor in the period to 19 December 2018 and the Board intends to seek shareholder approval to renew the authority at the forthcoming Annual General Meeting. In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, companies are permitted to hold purchased shares rather than cancelling them and as at 30 September 2018 and 19 December 2018 the Company held 50,000 such shares in treasury. The Company may use this power again in the future depending on market conditions and the financial position of the Company. Post balance sheet events Since the end of the financial year the Company has moved its share listing from the main market of the London Stock Exchange to the AIM market. There have been no events since the balance sheet date that materially affect the position of the Group. 20 Titon Holdings Plc 2018 Annual ReportGoing concern The Group’s business activities, its financial position, together with the factors likely to affect the Group’s performance, are set out in the Strategic Report. In addition, note 20 to the financial statements includes the Group’s risk management objectives and policies; managing its financial risk and its exposures to credit risk, foreign exchange risk and liquidity risk. The Group has considerable financial resources together with a diverse range of customers and suppliers, across different geographic areas and markets. As a consequence the Directors believe that the Group is well placed to manage business risks successfully. The Directors have reviewed the budgets, projected cash flows, principal risks and other relevant information for a period of three years from the balance sheet date. On the basis of this review the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements. Annual General Meeting The Annual General Meeting of Titon Holdings Plc (“the Company”) will be held at the Company’s Head Office at 894 The Crescent, Colchester Business Park, Colchester, Essex, CO4 9YQ on 20 February 2019 commencing at 11.00 a.m. A Notice convening the Annual General Meeting of the Company for the year ended 30 September 2018 may be found on page 72 of this document. Shareholders are being asked to vote on various items of ordinary business, being Resolutions 1 to 10 inclusive, as listed below: Resolution 1 – to receive and adopt the audited accounts The Directors recommend that shareholders adopt the reports of the Directors and the Auditors and the audited accounts of the Company for the year ended 30 September 2018. The Directors’ Report was approved by the Board on 19 December 2018 and signed by order of the Board. Resolution 2 - to declare a final dividend The Directors recommend a final dividend of 3.0 pence per ordinary share. Subject to approval by shareholders, the final dividend will be paid on 26 February 2019 to shareholders on the register on 18 January 2019. Resolution 3 - to re-elect Mr Keith Archibald Ritchie as a Director The Deputy Chairman confirms that following performance evaluation Mr Ritchie continues to be effective and demonstrates commitment in his role. Resolution 4 - to re-elect Mr David Alan Ruffell as a Director The Chairman confirms that following performance evaluation Mr Ruffell continues to be effective and demonstrates commitment in his role. Resolution 5 - to re-elect Mr John Neil Anderson as a Director The Chairman confirms that following performance evaluation Mr Anderson continues to be effective and demonstrates commitment in his role. Resolution 6 - to re-elect Mr Kevin Sargeant as a Director The Chairman confirms that following performance evaluation Mr Sargeant continues to be effective and demonstrates commitment in his role. Resolution 7 - to re-elect Mr Nicholas Charles Howlett as a Director The Chairman confirms that following performance evaluation Mr Howlett continues to be effective and demonstrates commitment in his role. Resolution 8 - to re-appoint BDO LLP as auditors This resolution proposes that BDO LLP should be re-appointed as the Company’s Auditors and authorises the Directors to determine their remuneration. Resolution 9 – to approve the Directors’ Remuneration Report Resolution 9 in the Notice of Annual General Meeting, which will be proposed as an Ordinary Resolution, is to receive and approve the Directors’ Remuneration Report as set out on pages 23 to 27. Resolution 10 – authority to allot shares The Companies Act 2006 prevents directors of a public company from allotting unissued shares, other than pursuant to an employee share scheme, without the authority of shareholders in general meeting. In certain circumstances this could be unduly restrictive. The Directors’ existing authority to allot shares, which was granted at the Annual General 21 Titon Holdings Plc 2018 Annual ReportDirectors’ Report (continued) Annual General Meeting (continued) Meeting held on 21 February 2018, will expire at the forthcoming Annual General Meeting. Resolution 10 in the notice of Annual General Meeting will be proposed, as an Ordinary Resolution, to authorise the Directors to allot ordinary shares in the capital of the Company up to a maximum nominal amount of £260,000, representing approximately 24% of the nominal value of the ordinary shares in issue on 19 December 2018 (excluding treasury shares). The Company currently holds 50,000 shares in treasury. The authority conferred by the resolution will expire on 20 May 2020 or, if sooner, at the 2020 Annual General Meeting. The Directors have no present plans to allot unissued shares other than on the exercise of share options under the Company’s employee share option schemes. However, the Directors believe it to be in the best interests of the Company that they should continue to have this authority so that such allotments can take place to finance appropriate business opportunities that may arise. Resolution 11 - to disapply pre-emption rights Unless they are given an appropriate authority by shareholders, if the Directors wish to allot any of the unissued shares for cash or grant rights over shares or sell treasury shares for cash (other than pursuant to an employee share scheme) they must first offer them to existing shareholders in proportion to their existing holdings. These are known as pre- emption rights. The existing disapplication of these statutory pre-emption rights, which was granted at the General Meeting held on 9 November 2018 will expire at the forthcoming Annual General Meeting. Accordingly, Resolution 11 in the Notice of Annual General Meeting will be proposed, as a Special Resolution, to give the Directors power to allot shares or sell treasury shares without the application of these statutory pre-emption rights: first, in relation to offers of equity securities by way of rights issue, open offer or similar arrangements; and second, in relation to the allotment of equity securities for cash up to a maximum aggregate nominal amount of £150,000 (representing approximately 14.6% of the nominal value of the ordinary shares in issue on 19 December 2018). The power conferred by this Resolution will expire on 20 May 2020 or, if sooner, at the 2020 Annual General Meeting. In addition, there is one item of special business, being Resolution 12, as listed below. Resolution 12 - Company’s authority to purchase its own shares Resolution 12 in the Notice of Annual General Meeting, which will be proposed as a Special Resolution, will authorise the Company to make market purchases of up to 1,090,000 ordinary shares. This represents approximately 10% of the Company’s ordinary shares in issue on 19 December 2018. The maximum price per share that may be paid shall be the higher of: (i) 5% above the average of the middle market quotations for an ordinary share for the five business days immediately before the day on which the purchase is made (exclusive of expenses); and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out (exclusive of expenses). The minimum price shall not be less than 10p per share. The authority conferred by this resolution will expire on 20 May 2020 or, if sooner, at the 2020 Annual General Meeting. Your Directors are committed to managing the Company’s capital effectively and although they have no plans to make such purchases, buying back the Company’s ordinary shares is one of the options they keep under review. Purchases would only be made after considering the effect on earnings per share and the benefits for shareholders generally. The Company may hold in treasury any of its own shares that it purchases in accordance with the Companies Act 2006 and the authority conferred by this resolution. This would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with greater flexibility in the management of its capital base. As noted above the Company currently holds 50,000 shares in treasury. As at 19 December 2018 there were options outstanding over 415,000 ordinary shares which, if exercised at that date, would have represented 3.7% of the Company’s issued ordinary share capital (including treasury shares). If the authority given by Resolution 12 were to be fully used, these would then represent 4.1% of the Company’s issued ordinary share capital. Recommendation The Directors believe that the resolutions which are to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole and recommend that all shareholders vote in favour of them, as each of the Directors intends to do, in respect of his or her beneficial holding. The Directors’ Report was approved by the Board on 19 December 2018 and signed on its behalf by: D A Ruffell Secretary 22 Titon Holdings Plc 2018 Annual Report Directors’ Remuneration Report The Remuneration Committee submits this report in accordance with the requirements of SI 2008/410. The law requires the Group’s Auditors to audit certain disclosures provided. Where disclosures have been audited, they are indicated as such. The Auditors’ opinion is disclosed in their report on pages 33 to 36. Remuneration Committee The Committee presently consists of Mr J N Anderson, a Non-executive Director and the Deputy Chairman, and Mr K Sargeant, a Non-executive Director. The Committee has been established by the Board to set Remuneration Policy and to deal with all matters relating to Directors’ Remuneration and reporting thereon. It has clear Terms of Reference established by the Board. Statement from the Chairman I am pleased to present the Directors’ Remuneration Report for the year ended 30 September 2018. The vote on the Directors’ Remuneration Report is, as previously, an advisory vote. An Ordinary Resolution will be put to shareholders at the forthcoming Annual General Meeting to be held on 20 February 2019, to receive and adopt the Directors’ Remuneration Report. I can report that at the 2018 AGM there were 3,592,841 votes in favour, 7,145 votes against and 170 votes withheld for the Resolution to receive and adopt the Directors’ Remuneration Report. There has been no change to the Directors’ Remuneration Policy during the period and there have been no significant changes in individual Director’s levels of remuneration during the year, except as a result of the performance related elements, which are directly linked to the amount by which the Group’s profit before taxation exceeds budget. Details of the Directors’ Remuneration Policy are shown on the Group’s website in the Corporate Governance section. The Remuneration Committee is not proposing any change to the Directors’ Remuneration Policy this year which was last approved at the 2018 AGM. The Directors’ interests in the ordinary share capital of the Company at the year-end are reported below on page 26. Performance graph The following graph shows the Company’s 10 year performance, measured by total shareholder return, compared with the equivalent performance of the FTSE Fledgling Index. Total Shareholder Return Index Titon Holdings Plc FTSE Fledgling Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 t n e c r e P 1100 900 700 200 300 100 -100 This graph shows the percentage change in value of £1 invested in the Company on 30 September 2008 (assuming dividends reinvested) compared with the percentage change in value of £1 (assuming dividends reinvested) in the FTSE Fledgling Index. The Directors consider the FTSE Fledgling Index to be an appropriate choice as the Company was included in it during the year to 30 September 2018. 23 Titon Holdings Plc 2018 Annual Report Directors’ Remuneration Report (continued) Chief Executive’s Remuneration The elements of, and the movement in, the remuneration of the Chief Executive over the past ten years is as follows: Salary Short term performance related remuneration Benefits in kind Pension benefits Total Percentage change in year Percentage of short term performance related remuneration entitlement received in year Year ended 30 September £’000 £’000 £’000 £’000 £’000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 88 88 92 92 92 94 101 102 111 116 - - - - - - 28 21 31 32 13 13 14 16 17 12 12 13 15 16 9 9 20 20 15 15 16 17 16 16 110 110 126 128 124 121 157 153 173 180 % 0.9 0.0 14.5 1.6 (3.1) (2.4) 29.8 (2.5) 13.1 4.0 % - - - - - - 100 81 100 100 Recommended practice is to exclude pension benefits from the above table. However, because the Chief Executive sacrifices part of his salary for a payment into his pension fund, to exclude this element could be misleading. The short term performance related remuneration element was only introduced in 2015. Since then the maximum amount that could be earned in each year was 25% of the Chief Executive’s salary. The remuneration for the Chief Executive over this ten year period is as follows: Chief Executive’s Remuneration £190,000 £180,000 £170,000 £160,000 £150,000 £140,000 £130,000 £120,000 £110,000 £100,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The Remuneration of the Chief Executive has increased by 4.0% in the year (2017: an increase of 13.1%), compared to an average increase for all Group employees of 2.3% (2017: an increase of 2.1%). The level of base pay increase to other staff was taken into account by the Remuneration Committee when setting Directors’ base salaries. Directors’ remuneration compared to certain other distributions are as follows: 2018 £’000 723 5,930 489 2017 £’000 807 5,798 410 Percentage change % (10.4) 2.3 19.3 Directors’ remuneration Other employee remuneration Dividend payments to shareholders 24 Titon Holdings Plc 2018 Annual Report Directors’ remuneration (audited) The remuneration paid to the Directors during the year, together with a comparison of the previous year, is as follows: Year ended 30 September Salary and fees (a) Benefits in kind Short term performance related remuneration Pension benefits Total Executive Directors: T N Anderson T D Gearey - appointed 2 November 2016 K A Ritchie D A Ruffell Non-executive Directors: J N Anderson N C Howlett – appointed as Non-executive Director on 1 October 2017 K Sargeant (c) Totals £’000 £’000 (b) £’000 £’000 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 89 87 39 55 127 147 116 111 37 36 23 59 37 36 468 531 6 4 7 6 16 16 16 15 - - - 13 - - 45 54 22 22 20 19 30 36 32 31 - - 5 26 - - 6 6 45 17 - - 16 16 - - 34 48 - - 109 134 101 87 £’000 123 119 111 97 173 199 180 173 37 36 62 146 37 36 723 807 (a) A ‘salary sacrifice’ system is in operation, where the Company makes a pension contribution on behalf of each Director, where applicable, and their salary is reduced by a corresponding amount. (b) In accordance with the proposals adopted by shareholders, performance related remuneration is due for this period to Executive Directors. The maximum performance was achieved in the period and a bonus of approximately 25% of salary is payable. (c) Inclusive of £37,000 relating to consultancy fees for 2018 (2017: £36,000). The remuneration package of each Executive Director includes non-cash benefits comprising the provision of a company car. The aggregate gains made by Directors on the exercise of share options during 2018 were £3,694 (2017: £29,241). 25 Titon Holdings Plc 2018 Annual Report Directors’ Remuneration Report (continued) Directors and their interests in shares (audited) The Directors of the Company during the year and at the year end and their beneficial interests in the ordinary share capital were as follows: 30 September 2018 Ordinary shares of 10p each 30 September 2017 Ordinary shares of 10p each (or date of appointment if later) K A Ritchie Executive Director and Chairman D A Ruffell Chief Executive J N Anderson Non-executive Director and Deputy Chairman T N Anderson Sales & Marketing Director T D Gearey I.T. Director N C Howlett Non-executive Director K Sargeant Non-executive Director 978,212 118,500 1,737,802 693,750 20,500 38,500 - 977,280 101,000 1,737,802 693,750 20,500 48,750 - There were no other changes in Directors’ beneficial shareholdings between 30 September 2018 and 19 December 2018. Share options (audited) Details of the interests of Directors, who served during the year, in options over ordinary shares are as follows:- Exercise price per share At 1 October 2017 Granted during the year Exercised during the year Lapsed during the year At 30 September 2018 Number Number Number Number Number T N Anderson (b) 58.0p T D Gearey (c) 156.5p N C Howlett (b) 58.0p K A Ritchie (b) 58.0p D A Ruffell (a) (b) 48.0p 58.0p 25,000 25,000 - - - - 18,000 18,000 25,000 25,000 50,000 50,000 45,000 50,000 95,000 - - - - - - - - - - - - - - - (35,000) - (35,000) - - - - - - - - - - - 25,000 25,000 18,000 18,000 25,000 25,000 50,000 50,000 10,000 50,000 60,000 On 30 January 2018 Mr T D Gearey was granted options over 18,000 ordinary shares. The face value and exercise price of the share options and the market price of Company shares on the date of grant was 156.5 pence. Mr J N Anderson and Mr K Sargeant had no interests in options over shares during the year. There have been no changes to the number of share options held by Directors between 30 September 2018 and 19 December 2018. 26 Titon Holdings Plc 2018 Annual Report Share options (audited) (continued) Share options are exercisable between the following dates: (a) 9 June 2014 and 9 June 2021 (b) 15 January 2017 and 15 January 2024 (c) 30 January 2021 and 30 January 2028 The Directors may only exercise share options if the growth in the earnings per share of the Company over any period of three consecutive financial years of the Company following the date of grant, exceeds the growth in the retail price index over the same period by at least 9 per cent. At 30 September 2018 the market price of the Company’s shares was 195.0p. The range during the year was 132.5 to 221.0p. Approval The Directors’ Remuneration Report was approved by the Remuneration Committee on 19 December 2018 and signed on its behalf by: J N Anderson Remuneration Committee Chairman 27 Titon Holdings Plc 2018 Annual ReportCorporate Governance Report Chairman’s Introductory Statement I am pleased to present the Corporate Governance Report for the last financial year. As I have noted in the past, we take our corporate governance responsibilities very seriously. I can report to shareholders that we have applied the main principles of the Code throughout the financial period. Since the year-end we have moved our share listing from the Main Market of the London Stock Exchange to the AIM market with effect from 10 December 2018. Whilst the Listing Rules of the London Stock Exchange ceased to apply to the Company from 10 December 2018 as the Company’s shares ceased trading on that market from that date, we have indicated that we currently intend to continue to apply the relevant version of the UK Corporate Governance Code now we are on AIM. We are reporting our compliance with the Code in this annual report in light of the very recent delisting from the main market of the London Stock Exchange, and the Company’s shares having been traded on that market for the year under review. There have not been any major changes to the UK Corporate Governance Code to report to shareholders during the financial period, I am pleased to say. The Financial Reporting Council has published an updated version of its UK Corporate Governance Code (the 2018 Code), which will replace the 2016 Code. The 2018 Code makes some significant changes to the 2016 Code concerning, inter alia, relations with a company’s workforce and other stakeholders, the culture of the company, succession and diversity and remuneration policies. The 2018 Code is applicable to financial periods starting on or after 1 January 2019 so it will not have any application to Titon until the 2019/20 accounting period. Finally, I confirm that the Titon Audit Committee continues to have competence relevant to the sector in which the Company operates. KA Ritchie Chairman Compliance with UK Corporate Governance Code The Board is accountable to the Company’s shareholders for good corporate governance and the statements set out in this report describe how the principles identified in the Code are applied by the Company. Titon’s business approach is based on openness and high levels of accountability and there is a commitment to high standards of corporate governance throughout the Group. With an international presence, the Group acts in accordance with the national laws of the various countries in which it operates and encourages the highest standards of business practice and procedure. As part of this commitment to maintaining high standards of corporate governance, the Board applies, where they are deemed appropriate, the principles of corporate governance set out in the Code as issued by the Financial Reporting Council (“FRC”) in June 2016. The 2016 Code can be found on the FRC’s website (www.frc.org.uk). Further explanation of how both the main provisions and the supporting provisions have been applied is set out below. Please see the Audit Committee Report for a description of the main features of the internal control process and the risk management system in relation to the financial reporting process adopted by the Group. The disclosure of information on significant shareholdings in the Company is shown in the Directors’ Report. Under the 2016 Code the Directors are required to assess the viability of the Group. The Directors have reviewed the budgets, projected cash flows, principal risks and other relevant information for a period of 3 years from the balance sheet date. On the basis of this review the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and to meet its liabilities as they fall due. The Directors consider that a period of 3 years is appropriate as the assumptions made in the review about market conditions are expected to remain valid over this period. The Directors have also carried out a robust assessment of the principal risks facing the Group as documented in the Report on Risk Management on pages 13 to 17, which has informed the assessment of viability including in relation to matters such as Brexit. The Directors consider that the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s performance, business model and strategy. The Group consolidated accounts are prepared by the Group Financial Controller and are reviewed by the Chief Executive. The review includes a detailed inspection of the accounts of all the constituent companies that comprise the Group along with the relevant consolidation adjustments and journals. At the year-end the Group had four Executive Directors and three Non-executive Directors. Mr K Sargeant is deemed to be independent for the purposes of the Code. He has no other relationships or prior service for the Company or its shareholders. Mr N Howlett is also deemed to be independent for the purposes of the Code despite his previous service and role as an executive director of the Company due to his independence of character and judgment. Mr JN Anderson is not deemed to be independent as he is a significant shareholder and was a previous chairman of the Company. 28 Titon Holdings Plc 2018 Annual Report The Directors confirm that the Group was compliant with all relevant provisions of Sections A to E of the Code throughout the accounting period and up to the date of the Directors’ Report except in the following areas: ● ● ● the Company’s Audit Committee during the 2017/18 financial period comprises the Chairman and the Chief Executive and therefore the Company did not comply with paragraph C.3.1. The Directors considered that this structure was appropriate for a company of this size and complexity. The Directors consider that failure to comply with the Code in this respect poses no significant additional risk for shareholders and has no plans to comply with the provision in the short term. As noted above the Audit Committee has competence relevant to the sector in which the Company operates. Since the year-end Mr Kevin Sargeant has joined the Audit Committee; the Company’s Remuneration Committee did not consist exclusively of independent Non-executive Directors throughout the financial period and therefore did not comply with paragraph D.2.1. The Directors consider that failure to comply with the Code in this respect posed no significant additional risk for shareholders; and the Company’s Nomination Committee did not comprise a majority of independent Non-executive Directors throughout the financial period and therefore did not comply with paragraph B.2.1. The Directors do not consider that failure to comply with the Code in this respect posed any significant additional risk for shareholders. Composition and operation of the Board of Directors As at 30 September 2018 the Board consisted of the Executive Chairman, the Chief Executive, two other Executive Directors and three Non-executive Directors. The Board has a schedule of matters specifically reserved to it for decision including major capital expenditure decisions, business acquisitions and disposals and the setting of treasury policy. This also includes matters such as material financial commitments, commencing or settling major litigation and appointments to main and subsidiary company boards. Scheduled Board meetings take place on a quarterly basis with further ad hoc meetings arranged as necessary. To enable the Board to function effectively and Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of comprehensive management reporting information and discussion documents regarding specific matters. The individual attendance by Executive Directors and Non-executive Directors at the Board and principal Board Committee Meetings held during the financial year is shown in the table below. Total meetings held K A Ritchie D A Ruffell T N Anderson T D Gearey N C Howlett K Sargeant J N Anderson Main Board Remuneration Committee Audit Committee Nominations Committee 6 6 6 5 6 6 4 5 2 - - - - - 2 2 2 2 2 - - - - - 0 - - - - - 0 0 There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company’s expense. This is in addition to the access which every Director has to the Company Secretary. The Secretary is charged by the Board with ensuring that Board procedures are followed. When new members are appointed to the Board, they are provided with advice from the Company Secretary in respect of their role and duties as a public company director. Furthermore, all Directors have ongoing access to the Company Secretary for advice during the course of their appointment. Appointments to the Board of both Executive and Non-executive Directors are considered by the Nominations Committee for endorsement by the Board as a whole. Any Director appointed during the year is required, under the provisions of the Code, to retire and seek election by the shareholders at the next Annual General Meeting. The Articles of Association also require that one third of the Directors retire by rotation each year and seek re-election at the Annual General Meeting. The Directors required to retire are those in office longest since their previous re-election and in practice this means that each Director retires at least every three years, in accordance with the requirements of the Code. The Non-executive Directors will seek re-election at each Annual General Meeting. 29 Titon Holdings Plc 2018 Annual Report Corporate Governance Report (continued) The Directors who retire by rotation are Mr Keith Ritchie, Mr David Ruffell, Mr John Anderson, Mr Kevin Sargeant and Mr Nicholas Howlett. All five Directors, being eligible, offer themselves for re-election: ● Keith Ritchie joined Titon in April 2012 and became Executive Chairman as of 1st July 2012. Prior to that he was a Non-executive Director of Titon between February 2005 and June 2009. Keith is a member of the Institute of Chartered Accountants in England and Wales and has had a long career in the City of London working for a number of financial institutions including Bank of America Merrill Lynch and Deutsche Bank; ● David Ruffell joined Titon in 1988 at the time of its flotation on the Unlisted Securities Market. He was appointed Finance Director of Titon Hardware Limited in 1993 and joined the Titon Holdings Board in 1997 as Group Finance Director. He was appointed Group Chief Executive in 2002; ● ● John Anderson founded the Company in 1972 and was its Chairman until 2012 when he became a Non-executive Director. He holds the Chair of the Remuneration Committee and the Nominations Committee. He has a service contract which expires on 30 June 2019; Kevin Sargeant joined the Board on 1 September 2016. He worked at Vent-Axia, a subsidiary of Smith Industries PLC, from 1990 until 2002 when Volution Holdings (comprising Vent-Axia) was created. Mr Sargeant led the buyout of Volution Holdings in the same year and was CEO of the newly named Volution Group until its sale to Towerbrook Private Equity and the management in 2012. Since then, he has held a number of senior strategic development roles with major companies in the ventilation sector and was Non-executive Chairman of Nuaire Ltd from November 2013 until its sale to Polypipe PLC in August 2015. Mr Sargeant qualified as a member of the Chartered Institute of Management Accountants in 1980. He has a service contract which expires on 30 June 2019, and ● Nicholas Howlett joined Titon in 1991 and has held a number of positions within the Group since then. He was appointed to the Board in 2002 and became a Non-executive Director with effect from 1st October 2017. He has a service contract which expires on 30 June 2019. A statement of Directors’ interests and copies of their service contracts are available for inspection during usual business hours at the registered office of the Company, on any weekday (excluding public holidays), and will be available at the place of the Annual General Meeting for at least fifteen minutes prior to and during the meeting. All Executive Directors are subject to annual appraisals of their performance and membership of relevant board committees, as appropriate, during the financial year. The Remuneration Committee The Remuneration Committee Report is set out on pages 23 to 27. The Remuneration Committee’s terms of reference, established by the Board, are to: ● ● ● ● determine and to keep under review the Group’s policy on remuneration; determine the basic salaries and non-cash emoluments payable to all Executive Directors, including Executive Directors of subsidiary Group companies, giving due consideration to individual responsibility and performance and to salaries paid to Executive Directors of similar companies in comparable business sectors; select the performance targets for the Executive Directors’ bonus arrangements; select the performance conditions relating to the Group’s Share Option Schemes. Such performance conditions to be aimed to align Directors’ interests to shareholder value; ● make recommendations to the Board of Directors on other matters relating to remuneration in the Group; and ● prepare an annual report on remuneration to the Company’s shareholders for approval by the Board for submission to a vote of shareholders at the Company’s Annual General Meeting and to advise the Board if it believes that, in any year, there are particular matters relating to remuneration which should be put to the Company’s shareholders. Communications with shareholders The Board recognises the importance of communications with shareholders. The Strategic Report on pages 6 to 17 gives a detailed review of the business, and there is regular dialogue with institutional shareholders at the time of the Group’s preliminary announcement of the year end results and at the half year. The Group’s results and other announcements are published on the London Stock Exchange RNS service and on the Company’s website. The Board uses the Annual General Meeting to communicate with private and institutional investors and welcomes their participation. Nominations Committee The Nominations Committee comprises the Deputy Chairman and Mr Sargeant. It is responsible for proposing candidates as Directors of Titon Holdings Plc for endorsement by the Board. As noted above the Board intends to appoint another Non-executive director to the Board in the next six months. The selection of suitable candidates will be based on the suitability of the person for the position regardless of age, ethnicity or gender. Candidates may be either internal or external and executive search consultants may be used in the process. The Nominations Committee has not met in the financial period under review. The Corporate Governance Report was approved by the Board on 19 December 2018 and signed on its behalf by: KA Ritchie Chairman 30 Titon Holdings Plc 2018 Annual ReportAudit Committee Report The Audit Committee reports to the Board on matters concerning the Group’s internal financial controls, financial reporting and risk management systems, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken. Composition of the Audit Committee The Audit Committee is appointed by the Board for a period of three years and comprises Mr K A Ritchie ACA and Mr D A Ruffell ACMA both of whom have financial reporting experience. Mr K Sargeant ACMA has joined the Audit Committee since the year-end. Role of the Audit Committee The Audit Committee operates within defined terms of reference and its main functions are: ● ● ● ● ● ● ● to monitor the internal financial control and risk management systems on which the Group is reliant; to consider whether there is a need for the Group to have its own internal audit function; to monitor the integrity of the Group’s financial statements and formal announcements relating to the Group’s financial performance, reviewing significant financial reporting judgements contained in them; to review arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or any other matter; to meet the independent Auditor of the Group to review their proposed audit programme of work and the subsequent Audit Report and to assess the effectiveness of the audit process and the levels of fees paid in respect of both audit and non-audit work; to make recommendations to the Board in relation to the appointment, re-appointment or removal of the Auditor, and to negotiate their remuneration and terms of engagement on audit and non-audit work; and to monitor and review annually the external Auditor’s independence, objectivity, effectiveness, resources and qualification. Review of financial statements and risks identified Financial statements issued by the Company need to be fair, balanced and understandable. The Audit Committee reviews the Annual Report as a whole and makes recommendations to the Board. The Audit Committee has advised the Board that, in its opinion, the Annual Report and Financial Statements are fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. The Company’s half-yearly report is reviewed by the Audit Committee prior to publication. The Audit Committee assesses annually whether it is appropriate to prepare the Group’s financial statements on a going concern basis, and makes its recommendation to the Board. The Board’s conclusions are set out in the Directors’ Report. In planning its own work, and reviewing the audit plan of the Auditors, the Audit Committee takes account of the most significant issues and risks, both operational and financial, likely to impact on the Group’s financial statements. The Committee considers that the timing of revenue recognition is a significant area of risk to accurate financial reporting and ensures that necessary credit note provisions and warranty provisions are made. In relation to activities in South Korea, revenues are only recognised once the third party customer has accepted the successful inclusion of our products into buildings rather than the delivery of product from our factory. The carrying value of the Group’s assets is an area where the Committee places great emphasis. In particular, calculating the carrying value for the Group’s inventory is a vital factor as the Group has a wide range of product lines that may fluctuate regularly in terms of their sales volumes. Consequently, every product line is assessed at the year- end to ensure that accurate provisions for obsolescence are made. A significant risk considered by the Committee is the Group’s investment in its South Korean business and in particular the accuracy of accounting information. The Committee considers that regular trips to South Korea by senior management combined with the detailed monthly reporting that is in place are sufficient to manage and monitor this risk. Internal audit The Board believes that due to the size of the business there is currently no requirement for an internal audit function. This matter is reviewed annually. Internal control The respective responsibilities of the Directors in connection with the financial statements are set out on pages 19 and 20, and those of the Auditors are detailed in the Independent Auditors’ Report on pages 33 to 36. The Audit Committee is responsible for ensuring that suitable internal controls systems to prevent and detect fraud and error are designed and is also responsible for reviewing the effectiveness of such controls. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group in 31 Titon Holdings Plc 2018 Annual ReportAudit Committee Report (continued) line with the FRC’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, published in September 2014 and the FRC’s Guidance on Audit Committees published in April 2016. This process has been in place for the year under review and up to the date of approval of this report, and accords with the guidance. In particular, the Committee has reviewed and updated the process for identifying and evaluating the significant risks affecting the Group and policies by which these risks are managed. The risks of any failure of such controls are identified in a Risk Matrix (set out in the Risk Management Report on pages 13 to 17) which is regularly reviewed by the Board and which identifies the likelihood and severity of the impact of such risks and the controls in place to mitigate the probability of such risks occurring. Internal control systems are designed to meet the Group’s particular needs and the risks to which it is exposed. They do not eliminate the risk of failure to achieve business objectives. The following are the key components which the Group has in place to provide effective internal control: ● ● ● ● an appropriate control environment through the definition of the organisation structure and authority levels; the identification of the major business risks facing the Group and the development of appropriate procedures and controls to manage these risks; a comprehensive budgeting and reporting system with monthly results compared with budgets and with previous years; and the principal aspects of the Group’s internal control processes used in preparing the Group’s consolidated accounts include second reviews of consolidation workings and Board review of the composition of the Group’s financial information. The Directors acknowledge that they are responsible for establishing and maintaining the Group’s system of internal control and risk management and reviewing their effectiveness, which they have done during the year. Internal control systems are designed to meet the particular needs of the Group and the risks to which it is exposed and by their nature can provide reasonable but not absolute assurance against material misstatement or loss. Appropriate risk monitoring systems have been in place throughout the year and up to the date of approval of the Annual Report and have been regularly reviewed by the Board. The Report on Risk Management sets out the principal risks identified by the Directors, the potential impact and the mitigation measures which apply. No significant weaknesses have been identified in this report by the Directors during the year. The Company has a shareholding in an associate company. Controls within this entity may not be reviewed as part of the Company’s formal processes due to the local delegation of managerial responsibilities, but instead are reviewed as part of the normal management process. External audit process The Audit Committee meets at least twice a year with the Auditor, who provides a planning report in advance of the annual audit and a report on the annual audit. The Committee has an opportunity to question and challenge the Auditor in respect of each of these reports. No significant deficiencies were noted by the Auditor in respect of the period ended 30th September 2017 so no new specific areas were subject to greater scrutiny in this year’s audit. After each audit, the Audit Committee reviews the audit process and considers its effectiveness. Auditor assessment and independence The Group’s external auditor is BDO LLP, which has been the Group’s auditor since 2006. The Audit Committee also reviewed BDO’s independence policies and procedures including quality assurance procedures and it was confirmed that those policies and procedures remained fit for purpose. During the period ended 30th September 2018 and extending into the current financial period, BDO provided corporate finance services to the Group in relation to the move to AIM. The team that carried out this work was not involved in any management decision making, did not give financial advice and has not been involved in any of the audit arrangements. The fee charged for this work amounted to £25,000. The Audit Committee does not consider that this work affected BDO’s independence as auditor to the Group. Accordingly, the Audit Committee recommends that BDO should be reappointed as the Group’s auditor for the next financial year and a resolution to that effect will be proposed at the 2019 AGM. The fees for audit services provided by BDO for 2018 were £69,000 (2017: £66,000). The Audit Committee discussed the non-audit services provided by BDO during the year. The cost of non-audit services provided by the Auditor for the financial year ended 30 September 2018 was £26,000 (2017: £1,000). K A Ritchie Audit Committee Chairman 19 December 2018 32 Titon Holdings Plc 2018 Annual Report Independent Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TITON HOLDINGS PLC Opinion We have audited the financial statements of Titon Holdings Plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 30 September 2018 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion the financial statements: ● ● ● ● give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 September 2018 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to principal risks, going concern and viability statement We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to: ● ● ● the disclosures in the Annual Report set out on pages 13 to 17 and 28 that describe the principal risks and explain how they are being managed or mitigated; the Directors’ confirmation set out on page 28 in the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; the Directors’ statement set out on page 21 in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material uncertainties to the Group and the parent company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; ● whether the Directors’ statement relating to going concern is materially inconsistent with our knowledge obtained in the audit; or ● the Directors’ explanation set out on page 28 in the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 33 Titon Holdings Plc 2018 Annual ReportIndependent Auditor’s Report (continued) Revenue recognition In our assessment of audit risk we determined that the timing of revenue recognition during the period immediately prior to and subsequent to the year-end, and the existence of revenue in particular approaching the year end, gave rise to significant risk of material misstatement. We reached this conclusion having considered the possible bias in recording of revenues which may result from a linkage to management compensation arrangements. We refer to the revenue recognition accounting policy within note 1. As a starting point, we examined the Group’s terms of business with its customers to ensure that the accounting policy applied properly takes account of the point of transfer of risk, reward and beneficial ownership of the goods supplied. We tested the existence of sales recorded and the point of transfer of the risks and rewards of inventory through identification of the timing of delivery, invoicing and revenue recognition by sampling a number of transactions in the days prior to and subsequent to the year end as well as throughout the year in the Korean subsidiary. We also performed sample testing to determine whether revenues recorded in the UK subsidiary in the latter part of the year were supported by appropriate delivery documentation. Inventory: valuation We identified the valuation of the Group’s inventory balance as carrying a heightened risk of material misstatement due to the use of significant management judgements in respect of provisions for slow-moving and obsolete inventory. We refer to the revenue recognition accounting policy within note 1 and management’s description of the critical accounting estimates in this area included within note 2. As part of our audit of inventory provisioning, we performed detailed testing on the prior year slow-moving and obsolete inventory report and tested the inventory movements recorded during the year ended 30 September 2018 by ensuring receipts and deliveries of inventory had been properly recorded to obtain assurance over the suitability of the provisioning method management has selected, using the benefit of hindsight. We selected samples from both the year ended 30 September 2018 and the post year end period to enable us to evaluate the accuracy of the 30 September 2018 slow-moving and obsolete inventory report. This enabled us to evaluate the appropriateness of the provision as a whole. We also reviewed sales invoices subsequent to the year end to ensure that inventory was appropriately valued at the lower of cost and net realisable value. Furthermore, we inspected the condition of inventory at our physical inventory observations to ascertain whether additional provisions should be made. Our application of materiality We set certain thresholds for materiality to enable us to identify those balances and amounts in the financial statements which may have a greater impact on decision-making by the users of the accounts. A materiality threshold also enables us to assess the significance of identified misstatements both individually and in aggregate. During the planning of our audit, we set our materiality threshold at £210,000 (2017: £200,000), being approximately 7% (2017: 9%) of the Group’s profit before tax. We applied both a measure of performance materiality and component materiality to our Group audit, to ensure that our audit appropriately guarded against the risk that errors, when aggregated both within a component and across different components, may be material to the financial statements. The component performance materiality thresholds applied in the component audits ranged from £70,000 at the Korean components to £142,500 at Titon Hardware Limited. We reported all misstatements we had identified which were greater than £4,200 to the Audit Committee as well as qualitative matters, such as disclosure misstatements. An overview of the scope of our audit The Group conducts its operations principally within two main geographical regions, being Europe, through its subsidiary, Titon Hardware Limited, and South East Asia, through its subsidiary Titon Korea Co. Ltd. Titon Korea Co. Ltd sells only to the Group’s associate, Browntech Co. Ltd, which distributes the Group’s product to third parties, predominantly in South Korea. Full scope audits were performed on each of these entities in addition to the full scope audit BDO UK conducted on the parent company. In relation to the overseas components, we were involved in the scoping, risk assessment and design of the audit plan and, with full access to the component auditor’s working papers, we undertook a review of the results of the audit and conclusions formed both remotely from the UK and during a visit to South Korea to meet with the component auditor and component management. 34 Titon Holdings Plc 2018 Annual ReportOur approach to the Group audit was set on the basis of our review of key financial metrics, which are shown below. Proﬁt before tax 0% 29% 71% Revenue 2% 39% 59% Gross assets 1% 30% 69% Audit – BDO UK Audit – other BDO member ﬁrms BDO UK limited scope review Other information The other information comprises the information included in the Annual Report other than the financial statements and our auditor’s report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions: ● Fair, balanced and understandable set out on page 28 – the statement given by the Directors that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or ● Audit Committee reporting set out on pages 31 and 32 – the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or ● Directors’ statement of compliance with the UK Corporate Governance Code set out on page 28 – the parts of the Directors’ statement relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ Remuneration Report described as having been audited has been properly prepared as if the provisions of the Companies Act 2006 relating to preparation of a Directors’ Remuneration Report had applied. In our opinion, based on the work undertaken in the course of the audit, 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 and those reports have been prepared in accordance with applicable legal requirements. 35 Titon Holdings Plc 2018 Annual ReportIndependent Auditor’s Report (continued) Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which 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 and the part of the Directors’ Remuneration Report to be audited 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. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on pages 19 and 20, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report 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. Anthony Perkins (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London 20 December 2018 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 36 Titon Holdings Plc 2018 Annual ReportConsolidated Income Statement for the year ended 30 September 2018 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Research and development expenses Other income Operating profit Finance income Share of post-tax profits from associate Profit before tax Income tax expense Profit after income tax Attributable to: Equity holders of the parent Non-controlling interest Profit for the year Earnings per share attributed to equity holders of the parent: Basic Diluted Note 3 5 13 6 7 9 9 2018 £’000 2017 £’000 29,946 28,011 (21,920) (20,746) 8,026 (704) (4,707) (446) 19 2,188 13 778 2,979 (352) 2,627 2,113 514 2,627 7,265 (717) (4,249) (467) 18 1,850 10 633 2,493 (269) 2,224 1,804 420 2,224 19.17p 18.88p 16.55p 16.24p Consolidated Statement of Comprehensive Income for the year ended 30 September 2018 Profit for the year Other comprehensive income - items which may be reclassified to profit or loss in subsequent periods: Exchange difference on retranslation of net assets of overseas operations Total comprehensive income for the year Attributable to: Equity holders of the parent Non-controlling interest The notes on pages 43 to 70 form part of these financial statements. 2018 £’000 2,627 423 3,050 2,399 651 3,050 2017 £’000 2,224 (443) 1,781 1,509 272 1,781 37 Titon Holdings Plc 2018 Annual ReportConsolidated Statement of Financial Position at 30 September 2018 Assets Property, plant and equipment Intangible assets Investments in associates Deferred tax assets Total non-current assets Inventories Trade and other receivables Income tax receivable Cash and cash equivalents Total current assets Total Assets Liabilities Deferred tax liability Total non-current liabilities Trade and other payables Income tax payable Total current liabilities Total Liabilities Equity Share capital Share premium reserve Capital redemption reserve Treasury shares Foreign exchange reserve Retained earnings Total Equity attributable to equity holders of the parent Non-controlling Interest Total Equity Total Liabilities and Equity Note 10 11 13 16 14 15 19 16 17 18 2018 £’000 3,655 737 2,876 52 7,320 5,667 7,799 12 3,415 16,893 24,213 37 37 5,554 154 5,708 5,745 1,113 1,049 56 (27) 502 13,554 16,247 2017 £’000 3,548 638 1,966 116 6,268 4,670 6,644 79 3,269 14,662 20,930 39 39 4,627 63 4,690 4,729 1,098 985 56 (27) 216 11,887 14,215 2,221 1,986 18,468 16,201 24,213 20,930 The notes on pages 43 to 70 form part of these financial statements. These financial statements were approved and authorised for issue by the Board on 19 December 2018 and signed on its behalf by: KA Ritchie Chairman 38 Titon Holdings Plc 2018 Annual ReportCompany Statement of Financial Position at 30 September 2018 Company No. 01604952 Assets Property and motor vehicles Investments in subsidiaries Investments in associates Total non-current assets Trade and other receivables Cash and cash equivalents Total current assets Total Assets Liabilities Deferred tax Total non-current assets Trade and other payables Total current liabilities Total Liabilities Equity Share capital Share premium account Capital redemption reserve Treasury shares Retained earnings Total Equity Total Liabilities and Equity Note 10 12 13 15 19 16 17 18 2018 £’000 2,064 554 225 2,843 2,806 2,126 4,932 7,775 188 188 207 207 395 1,113 1,049 56 (27) 5,189 7,380 7,775 2017 £’000 2,114 554 225 2,893 2,902 1,957 4,859 7,752 211 211 148 148 359 1,098 985 56 (27) 5,281 7,393 7,752 As permitted by section 408(3) of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the year. Titon Holdings Plc reported a profit after tax for the financial year ended 30 September 2018 of £354,000 (2017: profit £130,000).The notes on pages 43 to 70 form part of these financial statements. These financial statements were approved and authorised for issue by the Board on 19 December 2018 and signed on its behalf by: KA Ritchie Chairman 39 Titon Holdings Plc 2018 Annual ReportConsolidated Statement of Changes in Equity at 30 September 2018 Share capital Share premium reserve Capital redemption reserve Foreign exchange reserve Treasury shares Retained earnings Total Non- controlling interest Total Equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 October 2016 1,091 950 56 511 (27) 10,479 13,060 1,714 14,774 Translation differences on overseas operations Profit for the year Total Comprehensive Income for the year Dividends paid Share-based payment expense - - - - - - - - - - Ordinary shares issued 7 35 - - - - - - (295) - (295) - - - - - - - - - - (295) (148) (443) 1,804 1,804 420 2,224 1,804 1,509 272 1,781 (410) (410) 14 - 14 42 - - - (410) 14 42 At 30 September 2017 1,098 985 56 216 (27) 11,887 14,215 1,986 16,201 Translation differences on overseas operations Profit for the year Total Comprehensive income for the year Dividends paid Dividends paid to NCI in subsidiary Share-based payment expense - - - - - - - - - - - - Ordinary shares issued 15 64 - - - - - - 286 - - 286 - - - - - - - - - - - - 286 137 423 2,113 2,113 514 2,627 2,113 2,399 651 3,050 (489) (489) - (489) - 43 - - (416) (416) 43 79 - - 43 79 At 30 September 2018 1,113 1,049 56 502 (27) 13,554 16,247 2,221 18,468 The notes on pages 43 to 70 form part of these financial statements. The following describes the nature and purpose of each reserve within equity: Reserve Description and purpose Share premium Capital redemption Treasury shares Foreign exchange reserve Retained earnings Premium on shares issued in excess of nominal value Amounts transferred from share capital on redemption of issued shares Weighted average cost of own shares held in Treasury Cumulative gains/losses arising on retranslating the net assets of overseas operations into Sterling All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere 40 Titon Holdings Plc 2018 Annual Report Company Statement of Changes in Equity at 30 September 2018 Share capital Share premium reserve Capital redemption reserve Treasury shares Retained earnings Total Equity At 1 October 2016 1,091 950 56 (27) 5,547 £’000 £’000 £’000 £’000 £’000 Profit for the year Total Comprehensive Income for the year Dividends paid Share-based payment expense Ordinary shares issued - - - - 7 At 30 September 2017 1,098 Profit for the year Total Comprehensive income for the year Dividends paid Share-based payment expense - - - - - - - - 35 985 - - - - Ordinary shares issued 15 64 £’000 7,617 130 130 130 130 (410) (410) 14 - 14 42 - - - - - - - - - - 56 (27) 5,281 7,393 - - - - - - - - - - 354 354 354 354 (489) (489) 43 - 43 79 At 30 September 2018 1,113 1,049 56 (27) 5,189 7,380 The notes on pages 43 to 70 form part of these financial statements. The following describes the nature and purpose of each reserve within equity: Reserve Description and purpose Share premium Capital redemption Treasury shares Translation reserve Retained earnings Premium on shares issued in excess of nominal value Amounts transferred from share capital on redemption of issued shares Weighted average cost of own shares held in Treasury Cumulative gains/losses arising on retranslating the net assets of overseas operations into Sterling All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere 41 Titon Holdings Plc 2018 Annual Report Group and Company Statement of Cash Flows for the year ended 30 September 2018 Group Company 2018 £’000 2017 £’000 2018 £’000 2017 £’000 Cash generated from operating activities Profit / (loss) before tax Depreciation of property, plant & equipment Amortisation of intangible assets Profit on sale of plant & equipment Share based payment expense – equity settled Finance income Share of associate’s post-tax profit Increase in inventories (Increase) / decrease in receivables Increase in payables and other current liabilities Cash generated from operations Income taxes paid Net cash generated from operating activities Cash flows from investing activities Purchase of plant & equipment Purchase of intangible assets Proceeds from sale of plant & equipment Finance income Dividends received from subsidiary companies 2,979 2,493 448 209 (16) 43 (13) (778) 2,872 (836) (890) 792 1,938 (132) 1,806 (578) (315) 46 13 - 438 175 - 14 (10) (633) 2,477 (133) (161) 57 2,240 (390) 1,850 (520) (186) 45 10 - Net cash (used)/ generated in investing activities (834) (651) Cash flows from financing activities Exercise of share options Dividends paid to equity shareholders of the parent Dividends paid to Non-controlling shareholders of a subsidiary Cash withdrawn from / (transferred to) treasury deposit accounts Net cash used in financing activities Net increase in cash (excluding movement on treasury deposits)* Cash at beginning of the year (excluding treasury deposits) Cash at end of the year (excluding treasury deposits) 79 (489) (416) 300 (526) 446 2,069 2,515 42 (410) - (100) (468) 731 1,338 2,069 (78) 75 - (7) 43 (9) - 24 - 96 59 179 - 179 (25) - 7 9 409 400 79 (489) - 300 8 74 - (6) 14 (10) - 80 - 788 3 871 - 871 (27) - 6 10 76 65 42 (410) - (100) (110) (468) 469 757 1,226 468 289 757 The Group cash and cash equivalents figure on the Consolidated Statement of Financial Position includes both the cash at the year end and the cash on treasury deposit of £900,000 (2017: £1,200,000) and totals £3,415,000 at 30 September 2018 (2017: £3,269,000). See Note 19. *The net increase in Group cash including the movements on treasury deposits for the year is £146,000 (2017: £831,000). In respect of this change in presentation of the Consolidated Statement of Cash Flows, the comparative figures have been amended. The notes on pages 43 to 70 form part of these financial statements. 42 Titon Holdings Plc 2018 Annual Report Notes to the Consolidated Financial Statements at 30 September 2018 General information The consolidated financial statements of the Group for the year ended 30 September 2018 incorporates Titon Holdings Plc (“the Company”) and its subsidiaries (together referred to as “the Group”). Titon Holdings Plc shares are publicly traded on the AIM market of the London Stock Exchange. The nature of the Group’s operations and its principal activities are set out in the Strategic Report on page 6. The consolidated financial statements were authorised for release on 19 December 2018. 1 - Summary of significant accounting policies (a) Basis of preparation The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs and IFRIC interpretations) and issued by the International Accounting Standards Board (IASB) and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS. During the period, the following new standards, amendments and interpretations to existing standards were published. None had an impact on the reported result of the Group. i New IFRS standards applied by the Group Standards, interpretations and amendments to existing standards published and effective in the current financial year relevant to the Group: ● ● Recognition of deferred tax assets for unrealised losses (Amendments to IAS 12). The amendments to IAS 12 are intended to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instrument financial assets measured at fair value. Disclosure Initiative: Amendments to IAS 7. The amendments to IAS 7 are intended to improve information provided to users of financial statements about changes in financial liabilities, and financial assets if they meet the same definition, arising from an entity’s financing activities. Entities will be required to disclose the cash flow and non-cash changes arising from these financing activities. ii New IFRS standards not applied by the Group Standards, interpretations and amendments to existing standards that have been published as mandatory for later accounting periods, but are not yet effective and have not been adopted early by the Group: The Group has progressed its evaluation of the impact of IFRS 15 and currently expects the impact on the UK business to be limited. It has also worked with its Korean operations and has determined the effect on the timing of revenue recognition in both Titon Korea and the Group’s associate, BTS, and expects that the impact of IFRS 15 on Titon Korea and BTS will be limited with regard to the timing of recognition of revenues as a result of new commercial terms being put in place. There is a possible impact on transition but this has not been quantified at present. Whilst the Company and Group do not have any financial assets other than those falling within the “hold-to-collect” business model, it is still evaluating IFRS 9’s requirements relating to the expected credit losses in particular but does not expect that there will be a material impact on the Group’s financial statements. In respect of IFRS 16, property and vehicle leases are currently being treated as operating leases and the Group believes that there will be a material impact on the Group’s financial statements when they are accounted for differently under IFRS 16. Other than as described for the new IFRS’s noted above, the Group does not believe that the adoption of these new standards or interpretations will have a material impact on the consolidated results or financial position of the Group. 43 Titon Holdings Plc 2018 Annual Report Notes to the Consolidated Financial Statements at 30 September 2018 1 - Summary of significant accounting policies (continued) ii New IFRS standards not applied by the Group (continued) ● ● ● ● ● IFRS 9 Financial Instruments. This IFRS replaces IAS 39 Financial Instruments: Recognition and Measurement in its entirety and uses a single approach to determine whether a financial asset is measured at amortised cost or fair value. IFRS 15 Revenue from Contracts with Customers. IFRS 15 is intended to clarify the principles of revenue recognition and establish a single framework for revenue recognition. IFRS 15 supersedes: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue-Barter Transactions Involving Advertising Services. The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 16 Leases. This IFRS sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 eliminates and replaces the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. The amendments are now endorsed for use in the EU and effective for periods beginning on or after 1 January 2019. Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2). The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments – guidance now requires the same approach used for equity settled share based payments to be followed for cash settled share based payments. Share-based payment transactions with a net settlement feature for withholding tax obligations – An exception has now been added to IFRS 2 so that a share-based payment where the entity settles the share-based payment arrangement net is classified as equity-settled in its entirety provided the share-based payment would have been classified as equity-settled had it not included the net settlement feature. Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4). The objective of the amendments is to address the temporary accounting consequences of the different effective dates of IFRS 9 Financial Instruments and the forthcoming insurance contracts Standard (expected to be IFRS 17). Effective date (periods beginning) 1 January 2018 1 January 2018 1 January 2019 1 January 2018 1 January 2018 ● Annual Improvements to IFRSs (2014-2016 Cycle) 1 January 2018 IFRS 1 First–time Adoption of International Financial Reporting Standards - IFRS 1 has been amended to remove short-term exemptions dealing with IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IFRS 10 Consolidated Financial Statements. The reliefs provided are no longer applicable and had been available to entities for reporting periods that have now passed. IFRS 12 Disclosure of Interests in Other Entities - Amendments have been made to clarify the scope of IFRS 12 in respect of interests in entities within the scope of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Specifically it clarifies that entities are not exempt from all of the disclosure requirements in IFRS 12 when entities have been classified as held for sale or as discontinued operations. The standard as amended therefore makes it clear that it is only the disclosure requirements set out in paragraphs B10 – 16 that do not need to be provided for entities within the scope of IFRS 5. IAS 28 Investments in Associates and Joint Ventures - Amended to clarify that a venture capital organisation, or a mutual fund, unit trust and similar entities (including investment-linked insurance funds) may choose, on an investment by investment basis, to account for its investments in joint ventures and associates at fair value or using the equity method. The amendment also makes it clear that method chosen for each investment is to be made on initial recognition. ● IFRIC 22 Foreign Currency Transactions and Advance Consideration. IFRIC 22 addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the de-recognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency (e.g. a prepayment or deferred income). 1 January 2018 44 Titon Holdings Plc 2018 Annual Report Effective date (periods beginning) 1 January 2019 1 January 2019 It specifies that the date of a transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which that non-monetary asset or liability was initially recognised on the payment or receipt of advance consideration. In other words, the related income, expense or asset should not be re-measured for changes in exchange rates occurring between the date of initial recognition of the advance consideration and the date of recognition of the transaction to which that consideration relates. ● Amendments to IAS 40: Transfers of Investment Property. IAS 40 requires a property to be transferred to, or from, investment property only when there is a change in use. The amendment clarifies that a change in management’s intentions for the use of a property does not in isolation provide evidence of a change in use. This is because management’s intentions, alone, do not provide evidence of a change in use. An entity must, therefore, have taken observable actions to support such a change. IAS 40.57 gives the following examples of appropriate sources of evidence (this is not intended to be an exhaustive list): commencement of owner-occupation, or of development with a view to owner-occupation, for a transfer from investment property to owner-occupied property; commencement of development with a view to sale, for a transfer from investment property to inventories; end of owner-occupation, for a transfer from owner-occupied property to investment property; and inception of an operating lease to another party, for a transfer from inventories to investment property. ● IFRIC 23 Uncertainty over Income Tax Treatments. It may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept a company’s tax treatment. IAS 12 Income Taxes specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. IFRIC 23 provides requirements that add to the requirements in IAS 12 by addressing the following issues when there is uncertainty over income tax treatments: whether an entity considers uncertain tax treatments separately or together with one or more other uncertain tax treatments; the assumptions an entity makes about the examination of tax treatments by taxation authorities. IFRIC 23 requires an entity to assume that the taxation authorities will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations; how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. IFRIC 32 require an entity to consider the probability that the tax authorities will accept or reject an uncertain tax treatment, with the accounting treatment being driven by the conclusion of that assessment; and how an entity considers changes in facts and circumstances. IFRIC 23 requires an entity to reassess judgements or estimates required if the facts and circumstances on which the judgement or estimate was based change or as a result of new information that affects the judgement or estimate. An entity may apply IFRIC 23 on a fully retrospective basis, or retrospectively with the cumulative effect of initially applying the Interpretation recognised at the date of initial application rather than through the restatement of comparatives. ● Amendments to IFRS 9: Prepayment Features with Negative Compensation. The International Accounting Standard Board (IASB) has issued these amendments to IFRS 9 Financial Instruments to aid implementation. The amendment allows companies to measure particular prepayable financial assets with so-called negative compensation at amortised cost or at fair value through other comprehensive income if a specified condition is met—instead of at fair value through profit or loss. 1 January 2019 45 Titon Holdings Plc 2018 Annual Report Notes to the Consolidated Financial Statements at 30 September 2018 1 - Summary of significant accounting policies (continued) ii New IFRS standards not applied by the Group (continued) ● Amendments to IAS 28: Long-term interests in Associates and Joint Ventures. The IASB has issued amendments to IAS 28 Investments in Associates and Joint Ventures to aid implementation. The amendments clarify that companies account for long-term interests in an associate or joint venture - to which the equity method is not applied - using IFRS 9. The Board has also published an example that illustrates how companies apply the requirements in IFRS 9 and IAS 28 to long-term interests in an associate or joint venture. Effective date (periods beginning) 1 January 2019 ● Annual Improvements to IFRSs (2015-2017 Cycle) The following narrow scope amendments have been made: 1 January 2019 IFRS 3 Business combinations. The amendments clarify that a company must remeasure its previously held interest in a joint operation when it obtains control of the business. IFRS 11 Joint Arrangements. The amendments clarify that a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business. IAS 12 Income Taxes. Clarification that a company accounts for all income tax consequences of dividend payments in the same way (i.e. in the profit and loss, regardless of how the tax arose). IAS 23 Borrowing costs. Clarification that a company treats any borrowings originally made to develop an asset when the asset is ready for its intended use or sale, as part of general borrowings. ● Amendments to IAS 19: Plan Amendment, Curtailment or Settlement. The IASB has amended IAS 19 Employee Benefits to specify how companies determine pension expenses when changes to a defined benefit plan occur. When a plan amendment, curtailment or settlement takes place, IAS 19 requires a company to re-measure its net defined benefit liability or asset. (b) Basis of consolidation 1 January 2019 Subsidiaries The Group’s consolidated financial statements incorporate the financial statements of the Company (Titon Holdings Plc) and the entities controlled by the Company (its subsidiaries) made up to 30 September 2018. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the financial statements. Non-controlling interests A non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests at the end of reporting period represent the non-controlling shareholders’ portion of the fair values of the identifiable assets and liabilities of the subsidiary at the acquisition date and the non-controlling interests’ portion of movements in equity since the date of the combination. Non-controlling interest is presented within equity, separately from the parent’s shareholders’ equity. Losses within a subsidiary are attributed to the non-controlling interest even if that results in deficit balance. Associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated balance sheet at cost. The Group’s share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses in excess of the Group’s investment in the associate are not recognised unless there is an obligation to make good those losses. Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investors’ share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. The carrying amount of the investment in associates is subject to impairment in the same way as goodwill arising on a business combination (see accounting policy (h)). 46 Titon Holdings Plc 2018 Annual Report Business combinations The consolidated financial statements incorporate the results of business using the purchase method. In the consolidated balance sheet, the Group’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The Group’s share of the results of acquired operations are included in the consolidated income statement from the date on which control is obtained. (c) Foreign currency Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement. On consolidation, the results of overseas operations are translated into Sterling, which is the functional and presentational currency of the Company and Group, at rates approximating those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in other comprehensive income. Upon disposal of all overseas operations, exchange differences arising from the translation of the financial statements of foreign operations are recycled and taken to the consolidated income statement as part of the profit or loss on disposal. The Company has elected, in accordance with IFRS 1, that in respect of all foreign operations, any differences that have arisen before 1 October 2004 have been set to zero. Any gain or loss on the subsequent disposal of those foreign operations would exclude translation differences that arose before the date of transition to IFRS and include only subsequent translation differences. More than 89% (2017: 90%) of sales from the Group’s UK business are invoiced in Sterling. (d) Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation. The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as incurred. Freehold land is not depreciated. Depreciation is provided on all other items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Freehold buildings Improvements to leasehold property Plant and equipment Motor vehicles - 2% per annum straight line - 20% per annum straight line (or the lease term, if shorter) - 10% to 33.3% per annum straight line - 25% per annum straight line The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable (see accounting policy (h)). (e) Intangible assets Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses (see accounting policy (h)). Amortisation is charged to Administrative Expenses within the Consolidated Income Statement. i Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition and subject to annual impairment testing. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill associated with the acquisition of associates is included within the investment in associates. Goodwill is not subject to amortisation, but is tested for impairment annually. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. 47 Titon Holdings Plc 2018 Annual Report Notes to the Consolidated Financial Statements at 30 September 2018 1 - Summary of significant accounting policies (continued) ii Internally generated intangible assets (development costs) Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. Expenditure on internally developed products is capitalised if all of the following can be demonstrated: ● ● ● ● ● ● it is technically feasible to complete the intangible asset so that it will be available for use or sale; there is an intention to complete the intangible asset and use or sell it; an ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Development costs are amortised using the straight line method over their remaining estimated useful lives from the date that the products are available for sale to customers, which is normally between 3 and 5 years. The remaining useful lives of such development assets are assessed by the Directors annually. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects is recognised in the consolidated income statement as incurred. iii Computer software Costs incurred on the acquisition of computer software are capitalised if they meet the recognition criteria of IAS 38 as described above. Computer software costs recognised as assets are written off over their estimated useful lives, which is normally between 3 and 10 years. iv Other intangible assets Other intangible assets arising on business combinations, including patents, are recorded at fair value at the date of acquisition. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives, which is normally 5 years. The remaining useful lives of such assets are assessed by the Directors annually. v Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (f) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated as follows: Raw materials - cost of purchase on first in, first out basis. Work in progress and finished goods - cost of raw materials and labour, together with attributable overheads based on the normal level of activity. Net realisable value is based on estimated selling price less further costs to completion and disposal. A charge is made to the income statement for slow moving inventories. The charge is reviewed at each balance sheet date. (g) Cash and cash equivalents Cash and cash equivalents comprise cash balances, bank overdrafts and treasury deposits for cash flow purposes. The Group has no long term borrowings and any available cash surpluses are placed on deposit. (h) Impairment The carrying amount of the Group’s assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Impairment losses are recognised in the income statement. Reversals of impairment Other than in respect of goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 48 Titon Holdings Plc 2018 Annual Report(i) Employee benefits Share-based payment transactions The Company provides share option schemes for Directors and for other members of staff. In accordance with IFRS 2 – Share-based Payments, the fair value of the employee services received in exchange for the grant of options is recognised as an expense to the income statement over the vesting period of the option and the corresponding credit recognised to the Retained Earnings within equity. The Black-Scholes option pricing model has been used for calculating the fair value of the Group’s share options. The Directors believe that this model is the most suitable for calculating the fair value of the equity based share options. The fair value of the options is determined excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date the Group revises its estimates of the number of option awards that are expected to vest. The impact of the revision of original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity. No adjustment is made for failure to achieve market vesting conditions providing all other vesting conditions are met. Pension costs The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. Contributions to the pension scheme are charged to the income statement in the year in which they become payable. Accrued holiday pay Provision is made at each balance sheet date for holidays accrued but not taken at the salary of the relevant employee at that date. (j) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. They are discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability. (k) Revenue Revenue is derived principally from the sale of goods and is measured at the fair value of consideration received or receivable, after deducting discounts, settlement discounts, rebates and value added tax. A sale is usually recognised when the significant risks and rewards of ownership have passed to the customer, which is upon the transport of the goods from the company’s premises or in South Korea, upon customer acceptance of goods. (l) Finance income Finance income comprises interest receivable on funds invested. (m) Corporation and deferred taxes Tax on the profit or loss for the periods presented comprises current and deferred tax. Current tax Current tax is the expected corporation tax payable on the taxable income for the year, using rates and laws enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is provided using the balance sheet liability method, using rates and laws enacted or substantively enacted at the balance sheet date, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided on goodwill that is not deductible for tax purposes or on the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 49 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 1 - Summary of significant accounting policies (continued) Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: ● ● the same taxable group company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. (n) Leased assets Operating leases represent leasing agreements that do not give rights approximating to ownership. Annual rentals are charged to the income statement on a straight-line basis over the lease term. Lease incentives are recognised as an integral part of the total lease expense. (o) Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when paid. In the case of final dividends, this is when approved by the shareholders at the AGM. (p) Financial assets The Group classifies its financial assets depending on the purpose for which the asset was acquired. The Group holds only two classes of financial assets, namely loans and receivables which comprise trade and other receivables and cash and cash equivalents in the balance sheet. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value and subsequently carried at amortised cost. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within distribution expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed, and if the revised present value of cash flows is not significantly different from the carrying amount, no impairment is recorded. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of twelve months or less, such as short term fixed deposits with banks, and bank overdrafts. Bank overdrafts are shown on the face of the balance sheet. (q) Financial liabilities The Group holds only one class of financial liabilities, namely trade payables. Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost. (r) Treasury shares Consideration paid or received for the purchase or sale of treasury shares is recognised directly in Equity - see page 40. The cost of treasury shares held is presented as a separate item (“Treasury shares”). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is reflected in share premium. 2 - Critical accounting estimates and judgements The Group makes estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 50 Titon Holdings Plc 2018 Annual ReportValuation of inventory The Group reviews its inventory on a regular basis and, where appropriate, makes provision for slow moving and obsolete stock based on estimates of future sales activity. The estimate of the future sales activity will be based on both historical experience and expected outcomes based on knowledge of the markets in which the Group operates (see note 14 of the Consolidated Financial Statements). Depreciation of property, plant and equipment Depreciation is provided so as to write down the assets to their residual values over their estimated useful lives as set out in note 1 (d). The selection of these estimated lives requires the exercise of management judgement. Useful lives of intangible assets Intangible assets are amortised over their useful lives. Useful lives are based on the management’s estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods (see notes 1 (e) and 11 of the Consolidated Financial Statements). Significant areas in which judgement is exercised comprise: Share-based payments The charge for share-based payment is calculated in accordance with certain assumptions. The option valuation model used requires highly subjective assumptions to be made including the future volatility of the Company’s share price, expected dividend yields, risk-free rate of return and expected staff turnover. The Directors draw upon a variety of external sources to aid in the determination of the appropriate data to use in such calculations. Credit notes and warranty provisions The amounts provided for credit notes against customer receivables and product warranty provisions also require management judgement given their unknown nature at year-end cut off. Impairment of assets Investments, property, plant and equipment and intangible assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount of an asset or a cash-generating unit is determined based on value in-use calculations prepared on the basis of management’s assumptions and estimates (see notes 1 (h), 10 and 11 of the Consolidated Financial Statements). 3 - Revenue and segmental information In identifying its operating segments, management generally follows the Group’s reporting lines, which represent the main geographic markets in which the Group operates. The segment reporting below is shown in a manner consistent with the internal reporting provided to the Board, which is the Chief Operating Decision Maker (CODM). These operating segments are monitored and strategic decisions are made on the basis of segment operating results. The Group operates in four main business segments which are: Segment United Kingdom Activities undertaken include: Sales of passive and powered ventilation products to housebuilders, electrical contractors and window and door manufacturers. In addition to this, it is a leading supplier of window and door hardware. South Korea Sales of passive ventilation products to construction companies. North America Sales of passive ventilation products to window and door manufacturers. All other countries Sales of passive and powered ventilation products to distributors, window manufacturers and construction companies. Inter-segment revenue is transacted on an arm’s length basis and charged at prevailing market prices for a specific product and market or cost plus where no direct comparative market price is available. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Research and development entity-wide financial expenses are allocated to the business activities for which R&D is specifically performed. Sales Administration and Other Expenses are currently allocated to operating segments in the Group’s reporting to the CODM. Other Expenses include mainly central and parent company overheads relating to Group management, the finance function and regulatory requirements. The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements. The total assets for the segments represent the consolidated total assets attributable to these reporting segments. Parent company results and consolidation adjustments reconciling the segmental results and total assets to the consolidated financial statements, are included within the United Kingdom segment figures stated over the page. 51 Titon Holdings Plc 2018 Annual Report Notes to the Consolidated Financial Statements at 30 September 2018 3 - Revenue and segmental information (continued) Operating segment The Directors’ primary review of performance is by geographical regions. For the year ended 30 September 2018 Segment revenue Inter-segment revenue Total Revenue Segment profit Tax expense Profit for the year Depreciation and amortisation Total assets Total assets include: Investments in associates Additions to non-current assets (other than financial instruments and deferred tax assets) United Kingdom South Korea North America All other countries Consolidated £’000 15,221 (429) 14,792 1,005 607 14,087 2,651 889 £’000 11,561 - 11,561 2,084 49 9,888 - 4 £’000 652 - 652 (109) 1 238 - - £’000 2,941 - £’000 30,375 (429) 2,941 29,946 (1) - - - - 2,979 (352) 2,627 657 24,213 2,651 893 The South Korea Segment profit includes the Group’s share of the profits from Browntech Sales Co. Ltd., (BTS), the Group’s associate undertaking in South Korea, of £778,000. Sales to BTS of £11.56m represent 38% of Group Revenue (2017: £9.53m – 34%). There are no other concentrations of revenue above 10% during the year (see Note 24 - Related party transactions). IFRS 8 requires entity wide disclosures to be made about the regions in which it earns its revenues and holds its non- current assets which are shown below. For the year ended 30 September 2018 United Kingdom Europe USA and Canada South Korea All other regions Revenues By entities’ country of domicile By country from which derived Non-current assets £’000 17,733 14,792 £’000 £’000 - 2,804 652 652 £’000 11,561 11,561 £’000 - 137 Total £’000 29,946 29,946 By entities’ country of domicile 4,439 - 23 2,858 - 7,320 52 Titon Holdings Plc 2018 Annual Report3 - Revenue and segmental information (continued) Operating segment For the year ended 30 September 2017 Segment revenue Inter-segment revenue Total Revenue Segment profit Tax expense Profit for the year Depreciation and amortisation Total assets Total assets include: Investments in associates Additions to non-current assets (other than financial instruments and deferred tax assets) United Kingdom South Korea North America All other countries Consolidated £’000 14,823 (858) 13,965 706 563 12,916 1,741 672 £’000 9,530 - 9,530 1,638 49 7,704 - 34 £’000 1,781 - 1,781 166 1 310 - - £’000 2,735 - 2,735 (17) - - - - £’000 28,869 (858) 28,011 2,493 (269) 2,224 613 20,930 1,741 706 The South Korea Segment profit includes the Group’s share of the profits from Browntech Sales Co. Ltd., (BTS), the Group’s associate undertaking in South Korea, of £633,000. Sales to BTS of £9.53m represent 34% of Group Revenue (2016: £7.11m – 30%). There are no other concentrations of revenue above 10% during the year (see Note 24 - Related party transactions). IFRS 8 requires entity wide disclosures to be made about the regions in which it earns its revenues and holds its non- current assets which are shown below. For the year ended 30 September 2017 United Kingdom Europe USA and Canada South Korea All other regions Revenues By entities’ country of domicile By country from which derived Non-current assets £’000 16,700 13,965 £’000 - 2,565 £’000 1,781 1,781 £’000 9,530 9,530 £’000 - 170 Total £’000 28,011 28,011 By entities’ country of domicile 4,295 - 1 1,972 - 6,268 53 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 3 - Revenue and segmental information (continued) Information about the Group’s products Within geographical segments the Directors also monitor the revenue performance of the Group within its two identified business streams. The Group’s operations are separated between trickle ventilation and window and door hardware products and mechanical ventilation products. The following table provides an analysis of the Group’s external revenue, irrespective of the geographical region of sale. Trickle ventilation and window and door hardware products Mechanical ventilation products Revenue 2018 £’000 23,194 6,752 29,946 2017 £’000 21,734 6,277 28,011 4 - Directors and employees Staff costs, including Directors, were as follows: Wages and salaries Employer’s social security costs and similar taxes Defined contribution pension cost Share based payment expense – equity settled The average monthly number of employees during the year was as follows: Manufacturing Sales, marketing and administration Group Company 2018 £’000 6,224 712 429 43 2017 £’000 6,250 672 354 14 7,408 7,290 2018 £’000 352 57 6 4 419 2017 £’000 370 53 6 5 434 Group Company 2018 2017 2018 2017 Number Number Number Number 149 77 226 173 71 244 - 5 5 - 5 5 Details of Directors’ emoluments, pension contributions and interests in share options are given in the Directors’ Remuneration Report set out on pages 23 to 27. 5 - Finance income Group Bank interest receivable on short term deposits 2018 £’000 13 2017 £’000 10 54 Titon Holdings Plc 2018 Annual Report6 - Profit before tax This is arrived at after charging/(crediting): Depreciation of property, plant and equipment Amortisation of intangible assets Research and development expenditure written off Operating lease rentals - land and buildings Operating lease rentals - vehicles and plant & equipment Foreign exchange loss / (gains) Share-based payment expense Profit on disposal of fixed assets Auditors’ remuneration: - for the audit of these accounts - for the audit of those accounts of the Company’s subsidiaries - for the audit of the accounts of the Group’s associate - non-audit services - comprising corporate finance services; see page 32 - non-audit services - comprising other assurance services 7 - Tax expense Current income tax: Corporation tax expense Adjustment in respect of prior years Deferred tax: Origination and reversal of temporary differences Note 16 Income tax expense The charge for the year can be reconciled to the profit per the income statement as follows: Profit before tax Effect of: Expected tax charge based on the standard rate of Corporation tax in the UK of 19.0% (2017: 19.5%) Additional deduction for R&D expenditure Effect of Associate’s results reported net of tax Expenses not deductible for tax purposes Difference in overseas tax rates Withholding taxes paid on dividend from overseas subsidiary Adjustments in respect of prior periods Income tax expense 2018 £’000 2017 £’000 448 209 446 196 122 12 43 (16) 13 56 13 25 1 2018 £’000 (307) 17 (290) (62) (352) 438 175 468 135 134 (141) 14 - 12 54 9 - 1 2017 £’000 (249) (43) (292) 23 (269) 2,979 2,493 (566) 148 151 (31) (47) (24) 17 (352) (486) 171 127 (11) (27) - (43) (269) The tax rate in the United Kingdom, being the primary economic environment in which the Group conducts its business, reduced from 20% to 19% on 1 April 2017. The UK government announced legislation setting the Corporation Tax main rate at 19% for the years starting 1 April 2017, 2018 and 2019 and at 18% for the year starting 1 April 2020. In 2016, the UK government announced a further reduction to the Corporation Tax main rate for the year starting 1 April 2020, setting the rate at 17%. 55 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 8 - Dividends Final 2017 dividend of 2.70 pence (2016: 2.25 pence) per ordinary share proposed and paid during the year relating to the previous year’s results Interim dividend of 1.75 pence (2017: 1.50 pence) per ordinary share paid during the year 2018 £’000 295 194 489 2017 £’000 245 165 410 The Directors are proposing a final dividend of 3.0 pence (2017: 2.70 pence) per share. This will result in a final dividend totalling £334,013 (2017: £296,561), subject to approval by the shareholders at the Annual General Meeting. This dividend has not been accrued at the balance sheet date. 9 - Earnings per ordinary share The calculation of the basic and diluted earnings per share is based on the following data: Numerator Earnings for the purposes of basic earnings per share being earnings after tax attributable to members of Titon Holdings Plc Denominator 2018 £’000 2,113 2017 £’000 1,804 Number Number Weighted average number of ordinary shares for the purposes of basic earnings per share 11,024,243 10,903,394 Effect of dilutive potential ordinary shares: share options 165,212 207,855 Weighted average number of ordinary shares for the purposes of diluted earnings per share 11,189,455 11,111,249 Earnings per share (pence) Basic Diluted The total number of options in issue is also disclosed in note 23. 19.17p 18.88p 16.55p 16.24p 56 Titon Holdings Plc 2018 Annual Report10 - Property, plant and equipment Group Cost At 1 October 2016 Additions Disposals At 1 October 2017 Additions Disposals At 30 September 2018 Depreciation At 1 October 2016 Charge for the year Disposals At 1 October 2017 Charge for the year Disposals At 30 September 2018 Net book value at 30 September 2018 At 30 September 2017 At 1 October 2016 Freehold land and buildings Improvements to leasehold property Plant and equipment Motor vehicles Total £’000 3,455 - - 3,455 - - 3,455 1,298 64 - 1,362 64 - 1,426 2,029 2,093 2,157 £’000 1 - - 1 63 - 64 - - - - - - - 64 1 1 £’000 7,322 417 (72) 7,667 443 (678) 7,432 6,149 295 (27) 6,417 308 (676) 6,049 1,383 1,250 1,173 £’000 335 103 (66) 372 72 (101) 343 155 79 (66) 168 76 (80) 164 179 204 180 £’000 11,113 520 (138) 11,495 578 (779) 11,294 7,602 438 (93) 7,947 448 (756) 7,639 3,655 3,548 3,511 The Directors are not aware of any events or changes in circumstances during the year which would have a significant impact on the carrying value of the Group’s property, plant and equipment at the balance sheet date. At 30 September 2018, the Group had entered into contractual commitments for the acquisition of plant and equipment amounting to £178,000 (2017: £41,000). 57 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 10 - Property, plant and equipment (continued) Company Cost At 1 October 2016 Additions Disposals At 1 October 2017 Additions Disposals At 30 September 2018 Depreciation At 1 October 2016 Additions Disposals At 1 October 2017 Charge for Year Disposals At 30 September 2018 Net book value at 30 September 2018 At 30 September 2017 At 1 October 2016 Freehold land and buildings Motor vehicles Total £’000 £’000 £’000 3,455 - - 3,455 - - 3,455 1,298 64 - 1,362 64 - 1,426 2,029 2,093 2,157 59 27 (31) 55 25 (28) 52 55 10 (31) 34 11 (28) 17 35 21 4 3,514 27 (31) 3,510 25 (28) 3,507 1,353 74 (31) 1,396 75 (28) 1,443 2,064 2,114 2,161 58 Titon Holdings Plc 2018 Annual Report11 - Intangible assets Group Cost At 1 October 2016 Additions Disposals At 1 October 2017 Additions Disposals At 30 September 2018 Amortisation At 1 October 2016 Charge for the year Disposals At 1 October 2017 Charge for the year Disposals At 30 September 2018 Net book value at 30 September 2018 At 30 September 2017 At 1 October 2016 Computer software Development costs (internally generated) Goodwill Patents Total £’000 698 8 - 706 178 (61) 823 352 83 - 435 69 (54) 450 373 271 346 £’000 £’000 636 177 - 813 136 (171) 778 434 92 - 526 139 (171) 494 284 287 202 78 - - 78 - - 78 - - - - - - - 78 78 78 £’000 247 1 - 248 1 - 249 246 - - 246 1 - 247 2 2 1 £’000 1,659 186 - 1,845 315 (232) 1,928 1,032 175 - 1,207 209 (225) 1,191 737 638 627 All assets have an average useful economic life of 3.3 years (2017: 3.5 years) except for Goodwill which has an indefinite useful economic life. Included within Computer Software is the Group’s Enterprise Resource Planning software system which has a carrying value of £298,000 at 30 September 2018 (2017: £243,000) and a remaining amortisation period of 4 years (2017: 5 years). The Directors are not aware of any events or changes in circumstances during the year which would have a significant impact on the carrying value of the Group’s intangible assets at the balance sheet date. Company The Company has no intangible assets (2017: £nil) 59 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 12 - Investments in subsidiaries Investments comprise direct shareholdings of the ordinary share capital in the following subsidiaries, all of which are included in the Consolidated Financial Statements. A list of the investments in subsidiaries, including the name, country of incorporation and proportion of ownership is as follows: Name of subsidiary Principal activity Country of incorporation Address Proportion of voting rights held at 30 September 2017 and 2018 Titon Hardware Ltd Design, manufacture and marketing of window fittings and ventilators England Titon Automation Ltd Dormant company England Titon Components Ltd Dormant company England Titon Developments Ltd Dormant company England Titon Investments Ltd Dormant company England Titon Inc. Distribution of Group products USA Titon Korea Co. Ltd Manufacture of window ventilators Republic of Korea Titon HK Holdings Ltd Dormant company Hong Kong, China 894 The Crescent, Colchester Business Park, Colchester, CO4 9YQ As above As above As above As above PO Box 241, Granger, Indiana 46530 100% 100% 100% 100% 100% 100% 257-4 Ra-dong, Munwon-gil, Jori-eup, Paju-si, Gyeonggi-do 51% 402 Jardine House, 1 Connaught Place Central 100% For the subsidiaries listed above, the country of operation is the same as the country of incorporation. Company Investment At 1 October At 30 September 13 - Investments in associates 2018 £’000 554 554 2017 £’000 554 554 The following entity meets the definition of an associate, the Group considers it has power to exercise significant influence, and has been equity accounted in these consolidated financial statements: Name of associate Principal activity Country of incorporation Address Proportion of voting rights held at 30 September 2017 and 2018 Browntech Sales Co. Ltd Sales of window ventilators Republic of Korea 257-4 Ra-dong, Munwon-gil, Jori-eup, Paju-si, Gyeonggi-do 49% The remaining 51% shareholding of Browntech Sales Co. Ltd (“BTS”) is held by South Korean investors who, through their voting shares, have operational control of the company. Company Investment At 30 September 2018 £’000 225 2017 £’000 225 60 Titon Holdings Plc 2018 Annual Report13 - Investments in associates (continued) The aggregated amounts relating to BTS are as follows: As at 30 September Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Net Assets Group 49% share of Net Assets Group investment in Goodwill Group share of investment For the year ended 30 September Revenue Profit after tax 2018 £’000 14,634 67 14,701 9,234 - 9,234 2017 £’000 10,674 104 10,778 7,167 - 7,167 5,467 3,611 2,679 197 2,876 2018 £’000 18,129 1,624 1,769 197 1,966 2017 £’000 14,979 1,329 BTS did not record any other comprehensive income for the years ended 30 September 2018 or 30 September 2017 in its own accounts, although the Consolidated Statement of Comprehensive Income includes £132,000 of other comprehensive expense for 2018 (2017: income £131,000). BTS has been included based on audited financial statements drawn up for the year to 30 September 2018. Transactions between it and the Group are set out in note 24. The Group’s investment in BTS at 30 September 2018 includes £197,000 (2017: £197,000) of goodwill. 14 - Inventories Group Raw materials and consumables Work in progress Finished goods and goods for resale 2018 £’000 1,476 493 3,698 5,667 2017 £’000 1,355 539 2,776 4,670 No inventories (2017: £nil) are carried at fair value less costs to sell. The carrying value of inventory represents cost less appropriate provisions. During the year there was a net debit of £169,000 (2017: net debit of £124,000) to the Consolidated Income in relation to the inventory provisions. The movements in the inventory provisions are included within cost of sales in the Consolidated Income Statement. The value of inventory that has been recognised in cost of sales over the year is £21,169,000 (2017: £19,996,000). Company The Company had no inventories at 30 September 2018 (2017: £nil). 61 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 15 - Trade and other receivables Trade receivables Related parties receivables (See Note 24) Other receivables Prepayments and accrued income Total trade and other receivables Group Company 2018 £’000 2,990 4,059 382 368 7,799 2017 £’000 3,249 2,798 276 321 6,644 2018 £’000 - 2,794 12 - 2017 £’000 - 2,891 11 - 2,806 2,902 Other than the amounts due from related parties there were no significant concentrations of credit risk at either 30 September 2018 or 30 September 2017. The average credit period taken on sale of goods by the Group’s trade debtors is 77 days (2017: 68 days). The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account. When a trade receivable is considered uncollectible, based on its age and likely recoverability, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against the provision account. Changes in the carrying amount of the provision account are recognised in the income statement. Movements on the provision for impairment of trade receivables are as follows: At the beginning of the year Provision for receivables impairment Receivables written off during the year as uncollectible Unused amounts reversed At the end of the year 2018 £’000 81 31 (18) (41) 53 2017 £’000 114 27 (26) (34) 81 As at 30 September 2018 trade receivables of £1,426,000 (2017: £1,390,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these receivables is as follows Up to 3 months 3 up to 6 months 2018 £’000 1,421 5 1,426 2017 £’000 1,382 8 1,390 As at 30 September 2018 trade receivables of £53,000 (2017: £81,000) were past due and impaired. These relate to a number of customers. The ageing analysis of these receivables is as follows: 2018 £’000 28 1 24 53 2017 £’000 66 15 - 81 Up to 3 months 3 up to 6 months 6 up to 12 months 62 Titon Holdings Plc 2018 Annual Report16 - Deferred tax Group Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17.0% (2017: 19.5%). The movement on the deferred tax account is as shown below: Total deferred tax at 1 October 2017 Effect of rate change on opening balances Credited / (expensed) to Income Statement Total deferred tax at 30 September 2018 Asset 2018 UK Liability 2018 Non-UK UK Accelerated capital allowances UK other temporary and deductible differences Non-UK other temporary and deductible differences UK available losses Non-UK available losses Total deferred tax £’000 (283) 106 (39) 293 - 77 £’000 £’000 36 (15) (1) (37) - (17) - (2) (21) (46) 24 (45) £’000 (247) 89 (61) 210 24 15 £’000 (247) 89 - 210 - 52 £’000 - - (61) - 24 (37) Total deferred tax at 1 October 2016 Effect of rate change on opening balances Credited / (expensed) to Income Statement Total deferred tax at 30 September 2017 Asset 2017 UK Liability 2017 Non-UK £’000 £’000 £’000 £’000 £’000 £’000 (230) 51 (25) 337 133 6 (2) - (8) (4) (59) 57 (14) (36) (52) (283) 106 (39) 293 77 (283) 106 - 293 116 - - (39) - (39) UK Accelerated capital allowances UK other temporary and deductible differences Non-UK other temporary and deductible differences UK available losses Total deferred tax There are no unrecognised deferred tax assets at 30 September 2017 or 30 September 2018. 63 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 16 - Deferred tax (continued) Company Deferred tax is calculated in full on timing differences under the liability method using a tax rate of 17.0% (2017: 19.50%). The movement on the deferred tax account is as shown below: UK Accelerated capital allowances UK other temporary and deductible differences UK available losses Total deferred tax UK Accelerated capital allowances UK other temporary and deductible differences UK available losses Total deferred tax 17 - Trade and other payables - current Trade payables Other payables Other tax and social security taxes Accruals Total deferred tax at 1 October 2017 Effect of rate change on opening balances Credited / (expensed) to Income Statement £’000 (276) 55 10 (211) £’000 £’000 35 (7) (1) 27 1 (5) - (4) Total deferred tax at 30 September 2018 £’000 (240) 43 9 Liability 2018 UK £’000 (240) 43 9 (188) (188) Total deferred tax at 1 October 2016 Effect of rate change on opening balances Credited / (expensed) to Income Statement Total deferred tax at 30 September 2017 Liability 2017 UK £’000 £’000 £’000 £’000 £’000 (300) 30 13 (257) 7 - - 7 17 25 (3) 39 (276) (276) 55 10 55 10 (211) (211) Group Company 2018 £’000 3,438 487 516 1,113 5,554 2017 £’000 2,686 439 504 998 4,627 2018 £’000 - - - 207 207 2017 £’000 - - - 148 148 Group trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. Year-end Group trade creditors represent 55 days (2017: 45 days) average purchases. The contractual maturities of these liabilities are from 30 days up to approximately 100 days. The Directors consider that the carrying amount of trade payables is approximate to their fair value. 64 Titon Holdings Plc 2018 Annual Report18 - Share capital Authorised 13,600,000 ordinary shares of 10p each 2018 £’000 1,360 2017 £’000 1,360 The Company’s issued and fully paid ordinary shares of 10p during the year is: 2018 Number 2018 £’000 2017 Number At the beginning of the year 10,983,750 1,098 10,908,750 Share options exercised during the year 150,000 15 75,000 At the end of the year 11,133,750 1,113 10,983,750 Treasury shares held by the Group At the beginning of the year Treasury shares purchased At the beginning and end of the year 2018 Number 50,000 - 50,000 2018 £’000 27 - 27 2017 Number 50,000 - 50,000 2017 £’000 1,091 7 1,098 2017 £’000 27 - 27 Treasury shares held by the Group were acquired in July 2014. The Group has no current plans to dispose of these. Share options Options have been granted over the following number of ordinary shares which were outstanding: Date granted Exercise price 09.06.11 15.01.14 30.01.18 48.0p 58.0p 156.5p At 30 September 2018 At 30 September 2017 Number of shares 10,000 200,000 205,000 415,000 360,000 Exercisable between 09.06.14 15.01.17 30.01.21 and and and 09.06.21 15.01.24 30.01.28 No share options were exercised between 30 September 2018 and 19 December 2018. 65 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 19 - Cash and cash equivalents Financial assets The Group has floating rate financial assets which comprise treasury deposits, cash to finance its operations together with the retained profits generated by operating companies (refer to the ‘Financial Assets’ note 1(p) on page 50 for further details). The Group has no long term borrowings and any available cash surpluses are placed on deposit. The Group uses cash on deposit to manage short term liquidity risks which may arise. The Group’s floating rate financial assets (see below) at 30 September were: Group Company Currency Sterling US Dollar Euro South Korean Won 2018 £’000 2,622 422 331 40 2017 £’000 2,497 359 136 277 2018 £’000 2,126 - - - 2017 £’000 1,957 - - - 3,415 3,269 2,126 1,957 The Sterling financial assets comprises cash held on current account as well as fixed term deposits with banks. The Group’s cash and floating rate financial assets at 30 September comprise: Bank current accounts Fixed term treasury deposits Group Company 2018 £’000 2,125 900 3,415 2017 £’000 2,069 1,200 3,269 2018 £’000 1,226 900 2,126 2017 £’000 757 1,200 1,957 The floating term deposits with banks had a weighted average interest rate of 0.43% (2017: 0.55%). Financial liabilities The Group had no floating rate financial liabilities at 30 September 2018 (2017: £nil). Any liability is offset against bank deposits for the purposes of interest payment calculation. The Board considers the fair value of the Group’s financial assets and liabilities to be the same as their book value. 20 - Financial instruments – risk management The Group is exposed through its operations to credit risk, foreign exchange risk and liquidity risk. In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note, read in conjunction with the ‘Capital Management’ section of the Directors’ Report on page 19, and the Report on Risk Management on pages 13 to 17 describe the Group’s objectives, policies and processes for managing those risks. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks from previous periods unless otherwise stated in this note. General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Audit Committee reviews and reports to the Board on the effectiveness of policies and processes put in place. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out on pages 31 and 32. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risks arise are trade receivables, cash at bank, bank overdrafts, trade and other payables and loans to related parties (see Notes 15, 17 and 19). 66 Titon Holdings Plc 2018 Annual Report 20 - Financial instruments – risk management (continued) Credit risk Credit risk is the risk of financial loss to the Group if a customer, associate company or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts along with local business practices. The Group’s finance function has established a credit policy under which each new customer is analysed individually for credit-worthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and trade references. Purchase limits are established for each customer, which represents the maximum open amount without requiring senior management’s approval. These limits are reviewed on an on-going basis. Customers that fail to meet the Group’s benchmark credit-worthiness may transact with the Group on a prepayment basis. Credit risk also arises from cash and cash equivalents and deposits with banks. The Group has cash and cash equivalents with banks with a minimum “A” rating. Quantitative disclosures of the credit risk exposure in relation to Trade and other receivables, which are neither past due nor impaired, are disclosed in note 15 Liquidity risk Liquidity risk arises from the Group’s management of working capital in that the Group may encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due (see Note 17). To achieve this aim, it seeks to maintain cash balances to meet expected requirements for a period of 90 days or longer. The Board receives cash flow projections as well as information regarding cash balances. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The liquidity risk of each Group entity is managed locally. Each operation has a facility with the Group, the amount of the facility being based on budgets. The budgets are set locally and agreed by the Board in advance, enabling the Group’s cash requirements to be anticipated. Where facilities of Group entities need to be increased, approval must be sought from the Board Foreign exchange risk Foreign exchange risk arises because the Group has operations located in various parts of the world whose functional currency is not the same as the functional currency in which the Group companies are operating. Although its global market penetration reduces the Group’s operational risk in that it has diversified into several markets, the Group’s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into Sterling. Only in exceptional circumstances would the Group consider hedging its net investments in overseas operations as generally it does not consider that the reduction in foreign currency exposure warrants the cash flow risk created from such hedging techniques. Foreign exchange risk also arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency (primarily Sterling, US Dollar or South Korean Won) with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them) cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group. The Group has two overseas subsidiaries in the USA and South Korea. Their revenues and expenses, other than those incurred with the UK business, are primarily denominated in their functional currency. The Board does not believe that there are any significant risks arising from the movements in exchange rates with these companies due to the insignificance to the Group of Titon Inc.’s net assets and the long term nature of the Group’s investment in Titon Korea. The UK businesses make purchases from approximately twenty overseas suppliers who invoice in the local currency of that supplier. This, in addition to the Euro and US Dollar cash balances held in the UK and the 10% of sales from the UK businesses not invoiced in Sterling, gives rise to foreign currency exposure which is detailed in the table below. 67 Titon Holdings Plc 2018 Annual ReportNotes to the Consolidated Financial Statements at 30 September 2018 20 - Financial instruments – risk management (continued) As of 30 September the Group’s UK net exposure to foreign exchange risk was as follows: Net foreign currency financial assets / (liabilities) Euro US Dollar Total net exposure 2018 £’000 28 335 363 2017 £’000 (8) 286 278 The effect of a 10% weakening of the Euro and the US Dollar against Sterling at the reporting date of 30 September 2018 on these denominated trade and other receivables, trade and other payables and cash balances carried at that date would, had all other variables held constant, have resulted in a decrease in pre-tax profit for the year and decrease of net assets of £33,000 (2017: decrease of £25,000). A 10% strengthening in the exchange rate would, on the same basis, have increased pre-tax profit and increased net assets by £36,000 (2017: increase of £28,000). 21 - Leases Operating leases The Group leases its headquarters offices in Colchester Business Park, Colchester, Essex on a tenant repairing lease basis. The Group has the option to terminate the lease in August 2021 or to continue in occupation until August 2026. The Group has tenancy of three factory unit leases in South Korea which expire in February 2020. The Group also leases cars as lessee under non-cancellable operating leases with various terms, escalation clauses and renewal rights. At the year end the Group had total commitments under non-cancellable operating leases, principally in respect of properties, as set out below: Operating lease rentals payable within: Not later than one year Later than one year and not later than five years 22 - Pensions 2018 £’000 16 529 545 2017 £’000 61 448 509 The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to these funds during the year (see note 4). The unpaid contributions outstanding at the year end, included in accruals (note 17) are £30,000 (2017: £23,000). 23 - Share-based payments Equity settled share option schemes The Group provides share option schemes for Directors and for other members of staff. There are presently two equity settled share option schemes; one HMRC approved and the other unapproved in which employees may be invited to participate. Both of these schemes were introduced in March 2010. The exercise of options granted under these schemes is dependent upon the growth in the earnings per share of the Group, over any three consecutive financial years following the date of grant, exceeding the growth in the retail price index over the same period by at least 9 per cent. The vesting period of all share option schemes is three years. If the options remain unexercised after a period of ten years from the date of grant, or on an employee leaving the Group, the options expire. 68 Titon Holdings Plc 2018 Annual Report 23 - Share-based payments (continued) In the year to 30 September 2018, 205,000 share options were granted on 30 January 2018 (2017: nil). Details of the share options granted and exercised during the year and the assumptions used in the Black-Scholes model for each share-based payment are as follows: Date of share option grant 09/06/11 03/01/13 15/01/14 05/01/15 30/01/18 Exercise price (pence) 48.0 24.5 58.0 67.0 156.5 Number of share options 259,950 203,000 320,000 25,000 205,000 Number of shares options granted initially Number of shares options outstanding at 01/10/16 105,000 25,000 320,000 25,000 Share options exercised (15,000) - Share options lapsed - (20,000) (60,000) (20,000) - - - - - - 475,000 (75,000) (40,000) 360,000 Number of shares options outstanding at 30/09/17 Share options granted 90,000 5,000 240,000 25,000 - - - - 205,000 205,000 Share options exercised (80,000) (5,000) (40,000) (25,000) - (150,000) Number of shares options outstanding at 30/09/18 The inputs to the Black-Scholes pricing model are: Expected volatility % Expected option life (years) Risk free rate % Expected dividend yield % Weighted fair value of options at initial grant 10,000 - 200,000 - 205,000 415,000 111 6 2.50 5 114 6 1.08 5 116 6 2.18 5 102 6 1.28 5 88 6 1.13 3 £75,000 £37,000 £114,000 £9,000 £188,000 During the year 360,000 share options, included in the table above, met the conditions of exercise (2017: 450,000). At the end of the financial year 210,000 share options met the conditions of exercise and have a weighted average exercise price of 57.5p (2017: 335,000 at 54.8p). The 415,000 share options outstanding at 30 September 2018 had a weighted average price of 106.4p (2017: 55.6p) and a weighted average remaining contractual life of 7.2 years (2017: 5.7 years). The share price at 30 September 2018 was 195p. The average price during the year was 176p. The Group uses a Black-Scholes pricing model to determine the annual fair value charge for its share-based payments. Expected volatility is based on historical volatility over the last six years’ data of the Company. The calculated fair values of the share option awards are adjusted to reflect actual and expected vesting levels. In accordance with IFRS 2, the fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period on the Group’s estimate of shares that will eventually vest. A charge of £43,000 was recognised in respect of share options in the year (2017: £14,000) of which £4,000 was the charge made in respect of key management personnel (2017: £5,000). 69 Titon Holdings Plc 2018 Annual Report Notes to the Consolidated Financial Statements at 30 September 2018 24 - Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the year the Company recharged management service fees and rent to other wholly-owned Group members totalling £384,000 (2017: £351,000). See Note 15 for the related party balances at 30 September 2018. Titon Korea Co. Ltd., the 51% owned subsidiary, paid a dividend during the year to its shareholders amounting to £849,000 (2017: £nil). Of this amount, £433,000, before withholding tax, was paid to the Company with the other £416,000 being paid to the non-controlling interests. Transactions for the year between the subsidiary companies and the associate company, which is a related party, were as follows: Browntech Sales Co. Ltd Sales of goods Amount owed by related party 2018 £’000 11,561 2017 £’000 9,530 2018 £’000 4,059 2017 £’000 2,798 Trading debts between subsidiaries and BTS are created only when the ultimate customer has accepted the successful inclusion of our products into buildings. There have been no transactions between the Company and BTS during the year. Key management who hold the authority and responsibility for planning, directing and controlling activities of the Group are comprised solely of the Directors. Aside from compensation arrangements, there were no transactions, agreements or other arrangements, direct or indirect, during the year in which the Directors had any interest. Their remuneration is disclosed in the Remuneration Report on page 25 of this document. Remuneration paid to key management personnel during the year was as follows: Short term benefits Post-employment benefits Share based payments 2018 £’000 650 101 4 755 2017 £’000 761 88 5 854 The Non-executive Directors received fees for their services to the Titon Holdings Plc Board as disclosed in the Directors’ Remuneration Report. 70 Titon Holdings Plc 2018 Annual ReportFive Year Summary Summarised consolidated results Results Revenue Gross profit Operating profit Finance income Share of profit from associate Profit before tax Income tax expense Profit after tax Dividends 2018 £’000 2017 £’000 2016 £’000 2015 £’000 2014 £’000 29,946 28,011 23,721 22,258 19,256 8,026 2,188 13 778 2,979 (352) 2,627 489 7,265 1,850 10 633 7,048 1,772 8 356 5,978 1,562 9 298 5,330 1,140 5 188 2,493 2,136 1,869 1,333 (269) (184) (160) (56) 2,224 1,952 1,709 1,277 410 324 289 211 Basic earnings per share 19.17p 16.55p 15.21p 12.60p 8.52p Assets Employed Property, plant & equipment Net cash and cash equivalents Net current assets Financed by 3,655 3,415 11,185 3,548 3,269 9,972 3,511 2,438 9,039 3,218 2,870 7,392 3,169 2,149 6,323 Shareholders’ funds: all equity 16,247 14,215 13,060 11,050 9,996 The five year summary does not form part of the audited financial statements. 71 Titon Holdings Plc 2018 Annual ReportNotice of Annual General Meeting THIS INFORMATION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all of your shares in Titon Holdings Plc, please forward this document and the accompanying documents to the person through whom the sale or transfer was effected, for transmission to the purchaser or transferee. Notice is hereby given that the Annual General Meeting of Titon Holdings Plc (“the Company”) will be held at the Company’s Head Office at 894 The Crescent, Colchester Business Park, Colchester, CO4 9YQ on 20 February 2019 at 11.00 a.m. for the following purposes: To consider and, if thought fit, to pass the following resolutions, of which Resolutions 1 to 10 will be proposed as Ordinary Resolutions and of which Resolutions 11 and 12 will be proposed as Special Resolutions. Explanatory notes in respect of the resolutions are set out on pages 21 to 22 of the Directors’ Report which accompanies this Notice. Please note you will not receive a form of proxy for the 2019 AGM in the post. Instead, you can vote online at www. signalshares.com. To register you will need your Investor Code, which can be found on your share certificate. You may also request a hard copy proxy form directly from our Registrars, Link Asset Services, on 0871 664 0300. For full details on proxy voting please see the notes below, which accompany this Notice of Annual General Meeting. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. To receive and adopt the reports of the Directors and the Auditors and the audited accounts of the Company for the year ended 30 September 2018. To declare a final dividend of 3.0p per ordinary share payable to shareholders on the Company’s register of members at close of business on 18 January 2019 payable on 26 February 2019. To re-elect Mr Keith Archibald Ritchie who retires from the Board in accordance with Article 104, as a Director of the Company. To re-elect Mr David Alan Ruffell who retires from the Board in accordance with Article 104, as a Director of the Company. To re-elect Mr John Neil Anderson who retires from the Board in accordance with Article 104, as a Director of the Company. To re-elect Mr Kevin Sargeant, who retires from the Board in accordance with Article 104, as a Director of the Company. To re-elect Mr Nicholas Charles Howlett, who retires from the Board in accordance with Article 104, as a Director of the Company. To re-appoint BDO LLP as Auditors of the Company and to authorise the Directors to determine their remuneration. That the Directors’ Remuneration Report set out on pages 23 to 27 of the Annual Report and Financial Statements for the year ended 30 September 2018, be approved. That in place of all existing authorities, the Directors be generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company (“Relevant Securities”), up to a maximum aggregate nominal amount of £260,000 (representing approximately 24% of the nominal value of the ordinary shares in issue on 19 December 2018) for a period expiring (unless previously revoked, varied or renewed) on 19 May 2020 or, if sooner, at the end of the 2020 Annual General Meeting of the Company, but in each case the Company may, before such expiry, make an offer or agreement which would or might require Relevant Securities to be allotted after this authority expires and the Directors may allot Relevant Securities in pursuance of such offer or agreement as if this authority had not expired. 11. That subject to the passing of Resolution 10 above and in place of all existing powers, the Directors be generally empowered pursuant to section 570 and 573 of the Companies Act 2006 to allot equity securities (within the meaning of section 560 of the Companies Act 2006) for cash, pursuant to the authority conferred by Resolution 10 as if section 561(1) of the Companies Act 2006 did not apply to such allotment, provided that this power shall expire on 19 May 2020 or, if sooner, the end of the 2020 Annual General Meeting of the Company. This power shall be limited to the allotment of equity securities: 72 Titon Holdings Plc 2018 Annual Report 11.1 in connection with an offer of equity securities (including, without limitation, under a rights issue, open offer or similar arrangement) in favour of holders of ordinary shares in the capital of the Company in proportion (as nearly as may be practicable) to their existing holdings of ordinary shares but subject to such exclusions or other arrangements as the Directors deem necessary or expedient in relation to fractional entitlements or any legal, regulatory or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and 11.2 otherwise than pursuant to paragraph 11.1 up to an aggregate nominal amount of £150,000 (representing approximately 14.6% of the nominal value of the ordinary shares in issue on 19 December 2018); but the Company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after this power expires and the Directors may allot equity securities in pursuance of such offer or agreement as if this power had not expired. This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 560(3) of the Companies Act 2006 as if in the first paragraph of this resolution the words “pursuant to the authority conferred by Resolution 10” were omitted. 12. That the Company be generally authorised pursuant to section 701 of the Companies Act 2006 to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of its ordinary shares of 10p each on such terms and in such manner as the Directors shall determine, provided that: 12.1 12.2 the maximum number of ordinary shares hereby authorised to be purchased is 1,090,000 (representing approximately 10% of the nominal value of the ordinary shares in issue on 19 December 2018); the maximum price which may be paid for each ordinary share shall be the higher of (i) 5% above the average of the middle market quotations for an ordinary share (as derived from The Stock Exchange Daily Official List) for the five business days immediately before the day on which the purchase is made (in each case exclusive of expenses); and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out (exclusive of expenses); 12.3 the minimum price which may be paid for each ordinary share shall be 10p; and 12.4 this authority (unless previously revoked, varied or renewed) shall expire on 19 May 2020 or, if sooner, the end of the 2020 Annual General Meeting of the Company except in relation to the purchase of ordinary shares the contract for which was concluded before such date and which will or may be executed wholly or partly after such date. By order of the Board D A Ruffell Secretary 24 January 2019 Registered Office: 894 The Crescent Colchester Business Park Colchester Essex CO4 9YQ 73 Titon Holdings Plc 2018 Annual Report Notice of Annual General Meeting (continued) Notes: Rights to appoint a proxy 1. Shareholders can vote online by logging on to www.signalshares.com and following the instructions given. Alternatively shareholders can request a hard copy proxy form by contacting our Registrars, Link Asset Services, on 0871 664 0300 from the UK (Calls cost 12p per minute plus network extras) or +44 371 664 0300 from outside the UK (calls chargeable at the applicable international rate) and returning it to the address shown on the form. The appointment of a proxy will not prevent a member from subsequently attending and voting at the meeting in person. 2. Members of the Company are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote at a meeting of the Company. A proxy does not need to be a member of the Company. A member may appoint more than one proxy in relation to a meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. To appoint more than one proxy you may photocopy the proxy form. Procedure for appointing a proxy 3. To be valid, the proxy instruction must be received by one of the below methods no later than 11.00 a.m. on Monday 18 February 2019. It should be accompanied by the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority: ● ● ● via www.signalshares.com by logging in and selecting the ‘Proxy Voting’ link. If you have not previously registered, you will first be asked to register as a new user, for which you will require your investor code (which can be found on your share certificate and dividend confirmation), family name and postcode (if resident in the UK); if your shares are held electronically via CREST, the proxy appointment may be lodged using the CREST Proxy Voting Service in accordance with note 7 below; and in hard copy form by post, by courier or by hand to the Company’s registrars, Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Nominated persons 4. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a “Nominated Person”) may, under an agreement between him or her and the member by whom he or she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he or she may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights. 5. The statement of the rights of members in relation to the appointment of proxies in notes 1, 2 and 3 above does not apply to Nominated Persons. The rights described in those notes can only be exercised by members of the Company. CREST 6. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 7. 8. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the Company’s agent, Link Asset Services (CREST Participant ID: RA10), no later than 48 hours before the time appointed for the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s) to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 74 Titon Holdings Plc 2018 Annual ReportNotes: (continued) 9. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001 (as amended). Entitlement to Attend 10. Entitlement to attend and vote at the meeting (and the number of votes which may be cast at the meeting), will be determined by reference to the Company’s register of members at close of business on Monday 18 February 2019, or, if the meeting is adjourned, 48 hours before the time fixed for the adjourned meeting (ignoring for these purposes non-working days). In each case, changes to the register after such time will be disregarded. Corporate representatives 11. Any corporation which is a member can appoint one or more corporate representatives, who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. Total voting rights 12. Holders of ordinary shares are entitled to attend and vote at general meetings of the Company. The total number of issued ordinary shares in the Company on 23 January 2019, which is the latest practicable date before the publication of this document, is 11,133,750. The Company holds 50,000 ordinary shares in treasury. On a vote by show of hands, every member who is present has one vote and every proxy present who has been duly appointed by a member entitled to vote has one vote. On a poll vote, every member who is present in person or by proxy has one vote for every ordinary share of which they are the holder. Publication on website 13. Under section 527 of the Companies Act 2006, members meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Companies Act 2006. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website. 14. A copy of this notice, and other information required by section 311A of the Companies Act 2006, can be found on the website at www.titonholdings.com. 15. Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. Documents available for inspection 16. Copies of the service contract of each Executive Director and the letter of appointment of each Non-executive Director will be available for inspection at the registered office of the Company during normal business hours on any weekday (excluding Saturdays and public holidays) and at Titon’s Head Office at 894 The Crescent, Colchester Business Park, Colchester, CO4 9YQ, for at least 15 minutes prior to and during the Annual General Meeting. Communications 17. Members who have general enquiries about the meeting should use the following means of communication. No other means of communication will be accepted. You may: ● call the Link shareholders’ helpline on 0871 664 0300 (calls cost 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 9:00am - 5.30pm Monday to Friday excluding public holidays in England and Wales); or ● write to Link Asset Services, Shareholder Services, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. 18. You may not use any electronic address provided in this notice of Annual General Meeting for communicating with the Company for any purposes other than those expressly stated. 75 Titon Holdings Plc 2018 Annual ReportDirectors and Advisors DIRECTORS Executive K A Ritchie (Group Chairman) D A Ruffell (Chief Executive) T N Anderson T D Gearey Non-executive J N Anderson (Deputy Chairman) K Sargeant N C Howlett SECRETARY AND REGISTERED OFFICE D A Ruffell 894 The Crescent Colchester Business Park Colchester Essex CO4 9YQ COMPANY REGISTRATION NUMBER 1604952 (Registered in England & Wales) WEBSITE www.titonholdings.com AUDITORS BDO LLP 55 Baker Street London W1U 7EU NOMINATED ADVISOR Shore Capital and Corporate Ltd Bond Street House 14 Clifford Street London W1S 4JU BROKER Shore Capital Stockbrokers Ltd Bond Street House 14 Clifford Street London W1S 4JU REGISTRARS AND TRANSFER OFFICE Link Market Services Ltd Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0LA 76 Titon Holdings Plc 2018 Annual Report TITON HOLDINGS PLC 894 The Crescent, Colchester Business Park, Colchester, Essex, CO4 9YQ Tel: +44 (0)1206 713800 Email: enquiries@titon.co.uk Web: www.titonholdings.com

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