Wanda Sports Group Company Limited
Annual Report 2017

Plain-text annual report

Annual Report & Financial Statements 2017 W e s t m i n s t e r G r o u p p l c A n n u a l R e p o r t & F i n a n c i a l S t a t e m e n t s 2 0 1 7 Worldwide World Class Protection Managed Services | Security Technology Westminster Group plc Westminster House Blacklocks Hill Banbury Oxfordshire OX17 2BS United Kingdom www.wsg-corporate.com 80371 Westminster artwork WG Annual Report 2017-cov-spineMAY29 2018.indd 1 30/05/2018 11:12 Highlights Operational • Transformational fifteen-year aviation security opportunity in the Middle East with annual initial revenues of €24m very well advanced in 2017. This is a large and complex opportunity with very significant effort and progress in setting up the appropriate supply chain and infrastructure • Managed Services now the key focus of the Group and the pipeline of major long-term project opportunities continues to grow. Discussions in progress with governments and airport authorities in various parts of the world • New contract awards for equipment and services to airports around the world including a six-month airport security training programme • Strong recovery in West Africa passenger numbers continues, several new airlines commenced services with Turkish Airlines commencing in February 2018 • Sovereign Ferries operations transferred to Sea Coach Express end September 2017 • Board strengthened with the appointment of the Rt. Hon Sir Tony Baldry as Chairman and Martin Boden as Chief Financial Officer from 29 June 2017. Sir Malcolm Ross remains on the Board as Deputy Chairman Financial • Revenues up by 22% to £5.4m (2016: £4.4m) with £3.6m from Managed Services division (2016: £2.8m) marking the end of the Ebola period in West Africa and resumption of passenger volumes. Technology division revenues of £1.8m compared with £1.6m in 2016 • Gross margin decreased to 59% (2016: 71 %) as a result of lower Technology margins (fewer large higher margin orders) and the impact of cost of sales being higher than revenues at Sovereign Ferries • Adjusted EBITDA loss £1.2m (2016; Profit £25k) largely due to the discontinued ferry operation. For continuing operations, EBITDA loss of £0.5m (2016: Profit £0.1m) • Equity of £2.4m issued in the year compared with £1.3m in 2016. No new debt finance raised in 2017 compared with £1.7m raised in 2016 • The last remaining £1.2m of Darwin unsecured loan notes were converted into equity in 2017 • Loss per share of 5.60p (2016: 2.46p). For continuing operations, loss per share of 2.24p (2016: 1.42p) • Cash balance of £0.4m at 31 December 2017 and £0.7m at 1 May 2018 (31 December 2016: £0.2m) Post Period End • Middle East airport project confirmed as Iran, with initial annual revenues of €24m, signed but on hold awaiting clarification of the impact of the US withdrawal from the JCPOA and the implications for the Company’s supply chain • Second separate contract for equipment supply into Iran, worth €2.6m, also signed but on hold awaiting clarification of the impact of the US withdrawal from the JCPOA and the implications for the Company’s supply chain • Technology division contract worth $4.5m secured in March 2018, expected to be mostly delivered in 2018 • New Managing Director appointed for Technology division in February 2018 • £750k of new equity raised in January 2018 • £87k of Beaufort warrants exercised in January 2018, Beaufort no longer joint broker • Convertible Secured Loan notes extended from 18 June 2018 to 30 June 2019, the Company has an option to extend for a further six months to 31 December 2019 • Group in a much stronger financial position than at the start of the year Contents 02 Company Overview 06 Chairman’s Statement 30 Independent Auditor’s Report 33 Consolidated Statement of Comprehensive Income 07 Chief Executive Officer’s Strategic Report 34 Consolidated and Company Statements of Financial Position 12 Chief Financial Officer’s Report 35 Consolidated Statement of Changes in Equity 17 Board of Directors 19 Directors’ Report 36 Company Statement of Changes in Equity 37 Consolidated Cash Flow Statement 23 Remuneration Committee Report 38 Company Cash Flow Statement 26 Corporate Governance Report 39 Notes to the Financial Statements 29 Statement of Directors’ Responsibilities 65 Company Information 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 1 30/05/2018 10:41 Westminster Group PLC | Annual Report & Financial Statements 2017 1 The Westminster Group is a specialist security and services group operating worldwide through an extensive international network of agents and contacts in over 50 countries.  The Group’s operating companies are structured into two vertically integrated operating divisions, Managed Services and Technology and the Group’s principal activity is the design, supply and ongoing support of advanced technology security solutions and the provision of long term managed services, consultancy and training services; primarily to: Governments & Governmental Agencies, Non Governmental Organisations & Blue Chip Commercial Organisations Worldwide with a focus on Africa, Asia, the Middle East & the Americas “Our vision is to build a global business with strong brand recognition delivering niche security solutions and long term managed services to high growth and emerging markets around the world with a particular focus on long term recurring revenues business.” Peter Fowler Chief Executive Officer Company Information Directors Executive Non-Executives Sir Tony Baldry (Chairman) Lt Col Sir Malcolm Ross (Deputy Chairman) James Sutcliffe Peter Fowler Stuart Fowler Martin Boden Secretary Roger Worrall Registered office Westminster House Blacklocks Hill Banbury Oxfordshire OX17 2BS Principal bankers Registrars HSBC Bank Plc 17 Market Place Banbury Oxfordshire OX16 5ED Link Asset Services 6th Floor 65 Gresham Street London EC2V 7NQ Nominated adviser & Stockbroker SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP Financial public relations Solicitors Wallbrook PR 4 Lombard Street London EC3V 9HD Auditor Moore Stephens LLP 150 Aldersgate Street London EC1A 4AB Westminster Group Plc Ashfords LLP 1 New Fetter Lane London EC4A 1AN Bird & Bird LLP 12 New Fetter Lane London EC4A 1JP P +44 (0) 1295 756300 F +44 (0) 1295 756302 E info@wg-plc.com Westminster Aviation Security Services Limited P +44 (0) 1295 756300 F +44 (0) 1295 756302 E info@wass-plc.com Westminster International Limited P +44 (0) 1295 756300 F +44 (0) 1295 756302 E info@wi-ltd.com Westminster Sicherheit GmbH P: +49 8051 93 904 50 F: +49 8051 93 904 57 E: info@w-sicherheit.com Longmoor Security Limited P +44 (0) 1295 756380 F +44 (0) 1295 756381 E info@longmoor-security.com 80371 Westminster artwork WG Annual Report 2017-cov-spineMAY29 2018.indd 2 30/05/2018 11:12 Westminster Group PLC | Annual Report & Financial Statements 2017 65 Managed Services Division Managed services contracts and the provision of manned services Our Managed Services Division is focussed on providing long term recurring revenue, managed services contracts and the provision of manned services, consultancy, training and other similar supporting services. The division comprises primarily of Westminster Aviation Security Services Limited, Westminster Facilities Management Limited, and Longmoor Security Limited. We believe that this division represents a very significant growth opportunity for Westminster. We provide long term services typically to governmental bodies in our target markets under Build Operate Transfer and/or concession arrangements. Under these contracts we use our expertise in the provision of personnel and technology solutions to take over, invest and operate the service and/or infrastructure at key sites such as an airport or a port, and bring the operation up to internationally acceptable standards. In addition our expertise in the sector enables us to advise on the correct processes, procedures and documentation required by international bodies and our comprehensive in-house training services means all local employees involved in these operations remain properly trained and certificated. We enter into these contracts on a long term basis (typically 15-20 years) and are remunerated by a per passenger fee which is paid directly by the user of the facility to Westminster. For example this would mean that for an airport a security fee would be added to the passenger ticket via the IATA (International Air Transport Association) mechanism and this fee is then settled with Westminster directly providing strong cash predictability. Once a contract is signed and is in place then the data rich nature of the aviation industry (with visibility as to schedules, load factors etc.) and the long term nature of the contract provides strong forward revenue visibility. Westminster may pay a concession fee (based on cash collections from fees) to the port or airport authority, and this, in conjunction with our absorption of their capital and operating cost obligations, provides a strong customer advantage turning a cash outflow into a cash inflow. The Managed Services Division is generating considerable interest from The Managed Services Division is generating considerable interest from governments around the world 2 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 2 30/05/2018 10:41 Our expertise in the sector enables us to advise on the correct processes, procedures and documentation required by international bodies and our comprehensive in-house training services means all local employees  involved in these operations remain properly trained and certificated. Passengers Served Managed Services Division Revenue governments around the world particularly regarding airport security solutions and it has a growing prospect pipeline (potential projects which are in active discussions and which are at various stages of development). The division is currently in discussions with a growing number of airports, several of which  have advanced to signed Memorandum of Understanding (MoU) stage. A measure of potential passenger volumes under the signed MoU’s is shown in the table opposite. The relevance of these numbers is that the division will receive long term revenues directly proportional to the number of embarking passengers. Whilst not all the opportunities under discussion will result in final contracts, further expansion of the prospect pipeline is expected providing the potential for substantial growth from this division over the next few years. The division is also actively pursuing other managed services opportunities such as port security and other infrastructure security solutions and is developing expanded service offerings at airports. 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 3 30/05/2018 10:41 Westminster Group PLC | Annual Report & Financial Statements 2017 3 Technology Division Providing advanced technology led security solutions A key strength of Westminster’s Technology division is its extensive knowledge of the security market place The Technology Division is focussed on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking and interception technologies to governments and private organisations across the world. It has an in-depth knowledge of the security technologies available which allows it to design innovative solutions using niche technologies. The division comprises primarily  Westminster International Limited and has a strong track record of providing security solutions and technology products to a broad range of blue chip clients worldwide. We are not a manufacturer and are product agnostic, able to promote and deliver the best solution for any given application. A key strength of Westminster’s Technology division is its extensive knowledge of the security market place and manufacturers of effective but often niche security equipment together with its ability to identify and design  solutions for clients’ diverse requirements. With Westminster’s extensive international network and market reach, niche security manufacturers regularly contact Westminster as a means of promoting their technologies to the market. Sales are driven by growth in international security markets and the division has a large enquiry bank arising from its international agent network and comprehensive website (Westminster International has one of the largest security equipment and services websites in the world). The division has a large pipeline of potential projects that are in active discussions at various stages of development. Some of these projects can Orders Received Technology Division Revenue 4 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 4 30/05/2018 10:41 Example Worldwide Projects The division is successfully securing  smaller contracts for equipment and services take a long time, in some cases years, to negotiate and as always timing and outcome remain uncertain. The division is successfully securing smaller contracts for equipment and services creating a regular monthly run rate of business from clients worldwide. Added to these are the potential larger contracts that create significant peaks in revenue. There is a key vertical integration synergy with this division’s expertise in consultancy and equipment being used to underpin the major growth opportunities at our managed services division. The technology division’s worldwide reputation and market reach provides a platform from which the managed services division can deliver opportunities and in addition it reduces capital expenditure by eliminating third party margins that  would otherwise add to the capital cost. 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 5 30/05/2018 10:41 Westminster Group PLC | Annual Report & Financial Statements 2017 5 Chairman’s Statement I am pleased to present the Final Results for Westminster Group plc for the year ended 31 December 2017. The Group has made progress during the year with revenues up by 22% to £5.4m (2016: £4.4m), although at EBITDA level the loss of £1.2m compares to a profit in 2016 of £25k. Whilst over half of the EBITDA loss in 2017 related to the discontinued Ferry operations in Sierra Leone, we also continued with the necessary investment in our business, people and operations to deliver the significant potential growth we are working towards. As a result of this investment we started 2018 in a stronger position than we have been in for some time. Both our Managed Services and Technology divisions are performing well and the Group closed its ferry operations from late September 2017 to focus on its core business. Our prospects have increased and operationally we have made significant progress. More detail on the strategic developments, projects and opportunities we are undertaking is covered in the CEO’s Strategic Report. During the year the Group raised £2.35m gross from the issue of new equity to support working capital requirements and business development costs, and the last remaining Darwin convertible unsecured loan notes (£1.2m) were converted into equity. In May 2018, the remaining secured convertible loan notes were extended to 30 June 2019, with an option for the Company to extend for a further six months to 31 December 2019. We continue to work closely with and receive excellent support from the Foreign Office and UK Diplomatic Missions around the world and I am very grateful for the support these and other governmental departments provide to our teams and our operations worldwide. Corporate Conduct We operate worldwide with a focus on emerging markets and in a sector where discretion, professionalism and confidentiality are essential. It is vitally important that we maintain the highest standards of corporate conduct. The Corporate Governance Report sets out the detailed steps that we undertake to ensure that our standards, and those of our agents, can stand any scrutiny by Government or other official bodies. We are conscious of the new AIM Notice 50 which requires companies to review their corporate governance disclosures annually and to adopt a recognised corporate governance code from 28 September 2018. We take our corporate governance responsibilities very seriously and will be adopting and working to the Quoted Companies Alliance (QCA) Corporate Governance Code with appropriate disclosures to be set out on the Company’s corporate website. Social Responsibility As a Group, we take our corporate social responsibilities very seriously, particularly as we operate in emerging markets and in some cases in areas of poverty and deprivation. I am proud of the support and assistance we as a company provide in many of the regions in which we operate, and I would like to pay tribute to our employees and other individuals and organisations for their generous support and contributions to our registered charity, the Westminster Group Foundation. We work with local partners and other established charities to provide goods or services for the relief of poverty or advancement of education or healthcare making a difference to the lives of the local communities in which we operate. For more information or to make a donation please visit www.wg-foundation.org Employees and Board I am delighted to have become Chairman of the Westminster Group from the end of June 2017, and to have become Executive Chairman with effect from the end of January 2018. Sir Malcolm Ross remains on the Board as a Non-Executive Director and Deputy Chairman. Martin Boden replaced Ian Selby as Chief Financial Officer at the end of June 2017 and I believe Martin’s experience of international transactions and financial management of high growth businesses brings additional strength to our Board. As a service-based business, our employees are key to delivering success. I believe we have an exceptional workforce and I would like to take this opportunity to express my appreciation to all our employees, both in the UK and overseas, who have worked extremely hard during the year. I would finally like to extend my appreciation to our investors for their continued support and to our strategic investors who are bringing their expertise to help deliver value for all. Rt. Hon Sir Tony Baldry DL, Chairman 24 May 2018 Rt. Hon Sir Tony Baldry DL Chairman “We continue to work closely with and receive excellent support from the Foreign Office and UK Diplomatic Missions around the world” 6 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 6 30/05/2018 10:41 Chief Executive Officer’s Strategic Report Peter Fowler Chief Executive Officer Our vision remains to build a global business with strong brand recognition delivering niche security solutions and long term managed services to high growth and emerging markets around the world, with a particular focus on long term recurring revenue business. Our target customer base is primarily governments and governmental agencies, critical infrastructure (such as airports, ports & harbours, borders and power plants), and large scale commercial organisations worldwide. As depicted in “Our business Evolution” on page 11, our business has evolved from a traditional UK focused security business to what can be described today as a truly international business. Furthermore, our evolution continues as we expand our operations into new areas and new territories creating additional opportunities around the world in the provision of long term managed security services and security products. We deliver our wide range of solutions and services through a number of operating companies that are currently structured into two operating divisions; Managed Services and Technology; both primarily focused on international business as follows: Managed Services division: Focusing on long term (typically 10 – 25 years) recurring revenue managed services contracts such as the management and operation of security solutions in airports, ports and other such facilities, together with the provision of manpower, consultancy and training services. Technology division: Focussing on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking, screening and interception technologies to governments and organisations worldwide. In addition to providing our business with a broad range of opportunities, these two divisions offer cost effective dynamics and vertical integration with the Technology division providing vital infrastructure and complex technology solutions and expertise to the Managed Services division. This reduces both supplier exposure and cost and provides us with increasing purchasing power. Our Managed Services division provides a long-term business platform to deliver other cost effective incremental services from the Group. We continue to deliver a wide range of solutions to governments and blue-chip organisations around the world as can be seen from the example worldwide aviation projects shown on page 5. Our reputation grows with each new contract delivered - this in turn underpins our strong brand and provides a platform from which we can expand our Managed Services business. This remains a key focus for the Group with its growth prospects in Emerging Markets and the resulting significant recurring revenue stream potential. Business Review As highlighted in the Chairman’s Statement the Group has made progress during 2017. Revenues rose strongly in both our Managed Services and Technology divisions and the loss making Sovereign Ferries operation was discontinued in September 2017. Enquiry levels remain healthy and levels of interest in the Group’s services remain high across both operating divisions. However, whilst our Technology division 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 7 30/05/2018 10:42 Westminster Group PLC | Annual Report & Financial Statements 2017 7 Chief Executive Officer’s Strategic Report Continued provides the technological resources and platform to expand our operations around the world it is our Managed Services division, with its potential for delivering large scale, long term, recurring revenue and transformational growth, which is increasingly our core focus, particularly within the aviation security sector. Managed Services Division Our Managed Services division and the significant growth opportunities it is progressing is the key focus of the Group. During 2017 the Managed Services division made progress on several fronts. Our aviation security business in West Africa has performed well as the recovery from the West African Ebola outbreak continues. We have seen steady growth with flight schedules increasing in 2017 and passenger growth across all airlines apart from Air France where their flights are code-shared with KLM. For the full year we had c.111,000 embarking passengers, an increase of 14% on the c.97,000 embarking in 2016. The growth in the number of carriers is encouraging and we expect to see a continuation of passenger growth in 2018 as several new airlines commenced services towards the end of 2017 and in Q1 2018 Turkish Airlines also commenced services with a new route to Istanbul. Westminster’s international reputation and expertise in the field of aviation security continues to grow and in 2017 we secured contracts to assist airport authorities around the world with their equipment and training needs. We plan to expand our training team in 2018 to meet the demand for their services. We have signed a number of Memorandums of Understanding (MoU) with governments and airport authorities in our target markets, several of which were added in 2017. Due, in part, to the confidential nature of such projects and commercial sensitivity, we are no longer announcing any individual MoU when signed and we will update the market on material developments as appropriate and in accordance with our regulatory responsibilities. During 2017 we continued to spend considerable time, effort, and expense in progressing our large scale long term potential opportunities. In this respect, a defining aspect of our activities during the year has been the progress made with our major Middle East airport project opportunity in Iran. Iran has a population of close to 80 million people and over 60 airports and as such could be one of the world’s fastest growing aviation opportunities. Following the relaxation of sanctions on the Joint Comprehensive Plan of Action (JCPOA) agreement, we commenced discussions with the Iranian Airport Authorities and signed a Memorandum of Understanding in March 2016 to assist with equipment, processes and support systems to help bring Iranian airport security up to international standards. Following preliminary consultations, we received a formal Letter of Intent in May 2016 relating, initially, to one of the country’s main airports. Over the past two years we have been involved in wide ranging and complex and ongoing negotiations with commercial and political bodies with meetings in various jurisdictions. To be in a position to undertake this transformational project we have had to put in place a complex supply chain and invest in our corporate infrastructure, including the establishment of operations in Germany. We also dealt with a constantly changing scope of works as the client prioritised its requirements. In addition, given the sensitivities around operating in Iran, we have had to overcome Our aviation security business in West Africa has performed well as the post Ebola recovery continues 8 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 8 30/05/2018 10:42 In 2017 we supplied numerous clients in around 60 countries across the world, especially in the UK, Middle East, both East and West Africa, Eastern Europe, Asia and Latin America numerous challenges including banking, financing and strict compliance with international restrictions involving detailed due diligence and considerable professional advice from across Europe and the United States (US). Throughout the process we have received valuable support from the UK government at the highest levels. On 22 December 2017, we announced we had finalised legal and commercial negotiations apart from a few minor commercial and contractual issues. On 28 March 2018 we announced that the outstanding commercial and contractual issues has been agreed and that we were awaiting the client’s internal approval process to complete. On 7 May 2018, we signed a long term (15 year) contract with annual revenues in excess of €24 million Euros which will become effective on the exchange of formal board letters between us and the client. The purpose of the exchange of letters is to allow both parties time to ensure everything is in place before commencing operations. In addition, we also signed a secondary smaller equipment supply contract for €2.65 million Euros. Unfortunately, on 8 May President Trump made an announcement that the US were unilaterally and immediately withdrawing from the JCPOA agreement and re-imposing sanctions. This has created uncertainty both in Iran and the international business community. None of Westminster’s proposed equipment or services relates to any proposed sanctions. The other signatories to the JCPOA agreement, being China, Russia, Germany, France and the UK, have all stated their continued support for the agreement, as have the European Union (EU), the United Nations, the International Atomic Energy Agency and most other leading countries around the world. Germany, France and the United Kingdom have jointly vowed to uphold the JCPOA agreement and the EU is considering putting measures in place to protect European companies. However, given the initial uncertainty and following initial discussions with our customer and commercial partners, the Board made the decision to place both projects on hold whilst it seeks clarification on the impact of the US withdrawal from the JCPOA and the implications for the Company’s supply chain including the potential replacement of some equipment suppliers. Securing this major contract was a momentous achievement and we remain hopeful that non-sanctioned activities by non-US companies will be allowed to continue in Iran, and that the EU will put measures in place to protect EU companies against US extraterritorial actions allowing these projects, and others planned, to proceed. Whilst the Iranian airport project has been a high priority and any delay in implementing the contract now signed is a frustration it is only one of a number of significant project opportunities we are pursuing around the world and we are well placed to sign at least one other long term Managed Services contract during 2018, although with projects of this scale and complexity there can never be certainty of outcome or timing. Technology Division During the year the Technology division secured contracts for a wide range of products and services to clients from around the world. By way of example of the diversity of our contracts we secured orders for Explosive Ordnance Disposal equipment for the Italian Army, Underwater Security systems for a Middle East Navy, Port security equipment to Bangladesh, screening equipment to Japan and Vietnam and we continued to provide security equipment and services to government facilities across the UK. In 2017, we supplied numerous clients in around 60 countries across the world, especially in the UK, Middle East, both East and West Africa, Eastern Europe, Asia and Latin America. With our ever-growing population of sold systems that require regular maintenance, in 2017 we increased our recurring revenue base of maintenance and service contracts, both in the UK and overseas, by over 30% to £236k per annum (2016: £180k). These contracts help underpin the cost base of the Division and is an area of the business we expect to grow further. In addition, the Division has provided various equipment and technology support services to the Managed Services division. In order to improve the management and potential of the Technology division in February 2018, we appointed Stuart Gilbert as Managing Director. Stuart has a strong background in international security solutions, previously holding senior positions in multinational security organisations and will lead the growth of this division. 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 9 30/05/2018 10:42 Westminster Group PLC | Annual Report & Financial Statements 2017 9 Chief Executive Officer’s Strategic Report Continued Our business is facing unprecedented growth prospects, particularly with our airport security operations Sovereign Ferries Our ferry services in Sierra Leone, under the branding Sovereign Ferries, commenced formal services in January 2017. In June 2017, we announced that we had secured around 3% of the addressable ferry market, with the market as a whole estimated to be worth around £4 million per annum in revenues and that over the next 12 months we would be seeking to grow our market share to beyond a 14% share (the level at which we anticipated the operation would be providing a positive contribution). However, passenger growth and financial performance did not meet the Board’s expectations, due in part to growing competition. Revenues in H1 2017 amounted to £51k (H1 2016: nil) and the EBITDA loss amounted to £0.4m (H1 2016: nil). With future passenger growth forecasts being downgraded, losses would be greater in quantum and duration than had been previously forecast. The Board took the decision in September 2017 to exit the ferry service in a manner that would not adversely affect airport passenger transfer to and from the mainland - this was one of the initial drivers for the ferry service. We consequently entered into a formal agreement to transfer the operation to Sea Coach Express, the largest ferry operator in Sierra Leone, commencing on 25 September 2017. Under this Agreement, Sea Coach took over the Sovereign Ferries’ operations and responsibility for management and operation of the ferry service. We transferred the Sierra Princess to Sea Coach as part of the transaction and cancelled the lease on our second vessel the Sierra Duchess without penalty. By combining the ferry operations, the enlarged service is able to offer the travelling public a greatly enhanced service with increased choice, routes, vessels and landing stages. We will continue to operate and manage the ferry terminals in accordance with our 21- year agreement and will receive a share of revenues on ticket sales made through our own operations, together with a payment for all passengers travelling to and from our terminals although we do not expect these revenues to be material. We still own the Sierra Queen and given our exit from the ferry operations we are reviewing our options for disposal including a sale. As the vessel requires maintenance work and is not in service a sale may take time. The Board has made a full provision in the 2017 financial statements to write down the remaining Sovereign Ferries assets (not transferred to Sea Coach Express) to nil. The costs associated with the exit from the ferry operations have been treated as exceptional exit costs in the 2017 results. Strategic Review In 2016, I announced we were undertaking a wide ranging strategic review of our operations to ensure we are well positioned to maximise opportunities going forward and successfully take the business to a new level. This review is ongoing, and we continue to review our operations, structure, management and advisors. In 2017, we made a number of changes to our management structure and board of directors. This process continues with both senior management and new board appointments in 2018 broadening our range of experience and expertise. Our business is set to benefit from unprecedented growth opportunities, particularly with our airport security operations, and it is essential we have the right strategies, people, processes and systems in place to successfully deliver such growth. Accordingly, the changes we have made to date and intend to make over the coming months will, I believe, serve the Company well and greatly assist our planned growth. Performance Indicators The Key Performance Indicators by which we measure performance of our business are set out in the Chief Financial Officer’s Report on page 16. Financial Review The Financial Review for the year ended 31 December 2017 is set out in the Chief Financial Officer’s Report on pages 12 to 16. Principal Risks and Uncertainties The Principal Risks and Uncertainties are referenced along with key mitigation strategies on pages 20 to 21. Business Outlook Our business is now in a better position than it has been for some time in terms of management, structure, revenues and prospects. It has been extremely frustrating to have finally signed the major Iranian airport contract we have been pursuing for the past two years, only to have to delay implementing it following the US unilateral withdrawal from the JCPOA and threat of renewed sanctions. Whilst none of our equipment and services come under existing or threatened sanctions we must 10 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 10 30/05/2018 10:42 Our Business Evolution be certain of our position and that of our suppliers, before proceeding. Never-the-less securing this major contract was an important achievement and demonstrates our managed services model is attractive and deliverable to airports of varying sizes and in challenging markets world-wide. We remain hopeful that the EU, which exported €10.8 billion of goods and services to Iran in 2017, will put measures in place to protect EU companies doing business in Iran against US extraterritorial actions, allowing projects such as ours in Iran to proceed. As previously announced, the Iranian airport project in question, which is just one of over 60 airports in the country, would if it proceeds add over €24 million Euros annually to our revenue. We continue to pursue the other project opportunities underway around the world and our Managed Services division is making progress on a number of fronts. We are also securing an increasing number of smaller contracts to assist airport authorities around the world with their equipment and training needs, and this enhances our prospects for our large scale, long term airport opportunities. We are working towards signing at least one other long term Managed Services contract during 2018 although with projects of this scale and complexity there can never be certainty of outcome or timing. Our Technology division continues to deliver a wide range of products and solutions around the world. Our recent $4.5m order received in the Middle East that we have been pursuing for over three years demonstrates the time such large- scale projects can take to finalise. Being the first multi-million-pound order for this division for a while it also demonstrates the lumpy revenue nature of this division. There are however many such opportunities we are pursuing and to capitalise on these opportunities, we have strengthened the management of this division with the recent appointment of Stuart Gilbert as Managing Director. Over the next few months and years we have an opportunity to achieve unprecedented growth from the prospects we are pursuing. The Iranian airport opportunity and other managed services contracts could be transformational for the Group. The Board and I remain committed to delivering on this potential. Peter Fowler, Chief Executive Officer 24 May 2018 We continue to pursue the other project opportunities underway around the world and our Managed Services Division is making progress on a number of fronts 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 11 30/05/2018 10:42 Westminster Group PLC | Annual Report & Financial Statements 2017 11 Chief Financial Officer’s Report Martin Boden Chief Financial Officer Discontinued Operations On 25 September 2017, the Group entered into a sale agreement to transfer the operation of Sovereign Ferries in Sierra Leone to Sea Coach Express. As part of this agreement, title of the Sierra Princess has been transferred to Sea Coach Express and the local company Sovereign Ferries (SL) Limited was transferred with an effective date as at 1 January 2018 following completion of the local 2017 audit. The company is being transferred with no assets and no liabilities – the Sierra Princess was leased and not on the balance sheet and the Sierra Queen and other Sovereign Ferries assets have been written down to nil. The results of the discontinued operations are shown separately in the Consolidated Statement of Comprehensive Income and this report refers to both the results for all Group operations and the results for continuing operations. Revenue Revenues of £5.4m were 22% higher than the £4.4m reported in 2016. The Managed Services division revenues increased by 28% to £3.6m (2016: £2.8m) and the Technology division revenues rose by 9% to £1.8m (2016: £1.6m). The. Managed Services revenues continued to recover following the end of the Ebola crisis in West Africa and the consequent growth in passenger volumes and security fees. The discontinued Sovereign Ferries revenues were immaterial in both 2017 and 2016. Gross Margin Gross margin fell to 59% (2016: 71%) as a result of lower margins on Technology division sales and cost of sales exceeding revenues on the discontinued operations. There were fewer high margin technology sales in 2017 than achieved in 2016. Operating Cost Base Total Group administrative expenses were £8.7m (2016: £4.5m). Within these expenses an IFRS share option expense of £0.1m (2016: £0.1m) was recorded, a depreciation and amortisation charge of £0.3m (2016: £0.2m), impairment charges of £2.9m (2016: £nil), costs associated with exiting the ferry operation of £0.3m and specific pre-contract costs related to progression of the Iranian Middle East Airport opportunity of £0.5m (2016: £0.2m). Operational EBITDA The Group loss from operations was £5.5m (2016: £1.4m). When adjusted for the exceptional and non-cash items set out below and depreciation and amortisation, the Group recorded an adjusted EBITDA loss of £1.2m compared to a small profit of £25k in the prior year. 12 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 12 30/05/2018 10:42 On 25 September 2017 the group entered into a sale agreement to transfer the operation of Sovereign Ferries in Sierra Leone to Sea Coach Express Reconciliation to adjusted EBTIDA £’000 Loss from Operations Depreciation, Amortisation and Impairment charges Reported EBITDA Share Option expense Impact of Ebola Iranian Middle East Airport Opportunity Costs Ferry exit costs Other exceptional items Adjusted EBTIDA (loss) / profit 2017 2016 (5,487) (1,389) 3,202 234 (2,285) (1,155) 63 - 603 335 50 (1,234) 103 272 220 585 - 25 The adjusted EBITDA loss for continuing operations in 2017 was £0.5m with a further £0.7m of losses from discontinued operations. Finance Costs Total finance costs of £0.6m (2016: £0.6m) were consistent with the prior year as interest bearing debt levels remained constant. Senior Secured Convertible Notes (10% coupon) generated an underlying cash charge of £0.2m (2016: £0.2m). The remaining £0.4m (2016: £0.4m) of finance charges were non-cash based and related to IFRS valuations of the convertible loan notes. Result for the Year The Group loss before taxation was £6.1m (2016: £2.0m) and the loss per share was 5.6p (2016: 2.5p). For continuing operations, the loss before taxation was £2.4m (2016: £1.1m) and the loss per share was 2.2p (2016: 1.4p). Statement of Financial Position Total Group assets amounted to £3.2m at 31 December 2017 compared with £6.4m at 31 December 2016. Net Group current assets amounted to less than £0.1millon at 31 December 2017 compared to £0.2m at 31 December 2016. The Group debtor balance as at 31 December 2017 was £0.7m (2016: £0.9m). Average days sales outstanding at the year-end were 36 (2016: 32). Cash and cash equivalents of £0.4m at 31 December 2017 compared with £0.2m at 31 December 2016. Trade payables were £1.1m (2016: £1.1m) and average creditor days were 24 (2016: 35). Total equity at 31 December 2017 stood at a deficit of £0.3m (2016: surplus of £2.3m). Convertible Loan Notes (CLN) and Convertible Unsecured Loan Notes (CULN) The convertible unsecured loan notes issued to Darwin Capital Limited (“Darwin”) were repaid in full in February and April 2017. Darwin held warrants attached to their loan notes and details are provided under Equity Issues below. Summary of movements in loan notes at principal value £’000 At 1 January 2017 Conversions in the year CULN CLN Total 1,200 2,245 3,445 (1,200) - (1,200) At 31 December 2017 and 24th May 2018 - 2,245 2,245 At 31 December 2017, the secured CLN carried a coupon of 10% payable quarterly in arrears, had a conversion price of 35p and matured on 18 June 2018. In May 2018, with maturity getting close, we have extended the term of the secured CLN to 30 June 2019 at a coupon of 12%. The Company has an option to extend the term to 31 December 2019 at a higher coupon of 15% for that last six months. The conversion price has been reduced to 25p per share. 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 13 30/05/2018 10:42 Westminster Group PLC | Annual Report & Financial Statements 2017 13 Chief Financial Officer’s Report Continued Equity Issues On 28 February 2017, the Company issued 5,161,290 ordinary shares of 10p at 11.625p per share, with a further 10 million ordinary shares issued at nominal value on 18 April 2017, and 7.5 million ordinary shares issued at nominal value on 26 September 2017. Summary of Warrants at 31 December 2017 A further 10,669,227 ordinary 10p shares were issued during the year at an average price of 11.24p per share on conversion of the remaining £1.2m CULN. Number Holder and Description Strike Price (p) Life (years) Vesting Criteria 589,330 Darwin, February 2016 20.15 1,100,000 Darwin, November 2016 5,000,000 Hargreave Hale, June 2016 28 12 3 3 3 At grant:- detachable At grant:- detachable At grant:- detachable The November 2016 Warrants were sold by Darwin to a new holder in April 2018. The Group reported a favourable working capital movement of £0.6m (2016: £0.6m adverse movement) Cash Flow Statement During the year the Group had an operating cash outflow of £1.5m (2016: £1.7m) which arose primarily from trading losses. Just under half of cash outflow (£0.7m) related to continuing operations with £0.8m relating to discontinued operations. In 2016, £1.0m of cash outflow related to continuing operations with £0.7m relating to discontinued operations. The Group reported a favourable working capital movement of £0.6m (2016: £0.6m adverse movement). During the year the Group raised £2.4m gross from the issue of new equity. In 2016, £1.3m was raised from new equity with a further £1.7m of proceeds from the issue of convertible loan notes. During the year the Group was provided with overdraft support by its bankers HSBC and at present has a small but unused overdraft facility. 14 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 14 30/05/2018 10:42 Reconciliation from adjusted EBITDA to normalised operating cash flow £’000 Adjusted EBITDA Loss on asset disposal Net changes in working capital Equity settlement payment 2017 2016 (1,234) 9 641 25 25 13 (638) - Net Cash used in underlying operating activities (559) (600) Net Cash used in underlying operating activities is presented excluding exceptional items, share options expense, and depreciation and amortisation. Events after the Reporting Period • On 3 January 2018, Beaufort Securities exercised warrants over 875,000 new Ordinary Shares of 10 each at an exercise price of 10p per Ordinary Share. Accordingly, 875,000 new Ordinary Shares were issued in settlement of this exercise. Beaufort Securities Limited are no longer joint broker to the Company • On 31 January 2018, the Company raised £0.75m (gross) through a placing of 3,409,091 new Ordinary Shares of 10p each at 22 pence per Ordinary Share. The placing was undertaken by S P Angel Corporate Finance LLP who received 170,455 Warrants to subscribe for Ordinary Shares at an exercise price of 22 pence per share • On 28 March 2018, the Technology division secured a $4.5m contract for the provision of advanced vehicle screening solutions to an existing client in the Middle East • On 10 May 2018, the Company announced that its major Middle East project opportunity is in Iran. The contract has been signed but the project is on hold as the Company investigates the impact of the US withdrawal from the JCPOA and the implications for the Company’s supply chain Westminster Group PLC | Annual Report & Financial Statements 2017 15 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 15 30/05/2018 10:42 Chief Financial Officer’s Report Continued • On 24 May 2018, the Company extended the term of its Secured Convertible Loan Notes from 18 June 2018 to 30 June 2019, with an option to extend for a further six months to 31 December 2019. The coupon has been raised from 10% to 12% until June 2019 and increases to 15% for the six months to 31 December 2019 should the Company exercise its option. The conversion price has been reduced from 35p per share to 25p Key Performance Indicators The Group constantly monitors various key performance indicators for factors affecting the overall performance. At Group level, the revenues and gross margin are monitored to give a constant view of the Group’s operational performance. As employment costs are the single largest cost base for the Group the number of employees and employee costs are also monitored to ensure best use of resources. Days Sales Outstanding is used to measure as to the cash conversion of revenue and identifies debtor aging issues. The Managed Services division derives its revenues and cash flows based on the number of passengers using a facility such as an airport. The number of passengers served is monitored and with the growth in aviation training we have introduced KPI’s for the number of contracts won. The Technology division measures its sales activity by reference to the number of enquiries received per month and the number of orders received. The number of countries and number of return customers are monitored to give a view on the performance of the division. Key Performance Indicators Group Revenue £’m Gross Margin Days Sales Outstanding Number of Employees 2017 2016 5.4 59% 36 283 4.4 71% 32 240 Average Employee Cost Per Head £8,365 £9,450 Projects Won Passengers Served (‘000) Number of Training Projects Won % of Training Projects Won Technology Division Average Enquiries Per Month Average Number of Orders Per Month Number of Countries Supplied Number of Return Customers Martin Boden, Chief Financial Officer 24 May 2018 2017 2016 111 16 97 2 61.5% 100% 2017 2016 128 29 41 164 117 21 39 150 16 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 16 30/05/2018 10:42 Board of Directors at Eton and Sandhurst. He served in the Scots Guards, holding the posts of Adjutant at the Royal Military Academy Sandhurst, and reached the rank of Lieutenant Colonel in 1982. Sir Malcolm joined the Royal Household in 1987 as Assistant Comptroller of the Lord Chamberlain’s Office and Management Auditor. From 1989 to 1990 he was Secretary of the Central Chancery of the Orders of Knighthood. He was Comptroller of the Lord Chamberlain’s Office 1991-2005 and became Master of the Household to the Prince of Wales in 2006. Since 1988 he has been an Extra Equerry to The Queen. James Sutcliffe Non-Executive Director James Sutcliffe has gained a broad range of experience managing private and listed businesses over the last 25 years as Chairman, CEO or Director in small companies as well as an Executive Director of large, LSE listed public companies. This included the £475M acquisition of PD Ports plc in 2003 and the development of a new 500,000 TEU container terminal in 2005-7 from a beach at Gdansk in Poland. He Chaired UKTI “Ports & Marine” from 2006-2012 representing the whole of the UK ports and maritime sector internationally, working with senior UK Ministers and VVIP’s promoting the UK to Emerging Market countries and Governments around the world. His track record of enhancing ports and logistics businesses, creating new value and his entrepreneurial leadership, in what is often a traditional business model, has been complemented by a solid background in corporate governance and strategic thinking. Ports and airports are frontiers to any country and so his experience in border security and international markets is highly relevant to Westminster Group’s activities. Rt. Hon. Sir Tony Baldry Executive Chairman Sir Tony has had a long and prestigious Parliamentary career. He was Personal Aide to Margaret Thatcher in the 1974 General Election and subsequently remained in her private office when she became Leader of the Opposition. Sir Tony served as MP for North Oxfordshire from 1983 to 2015. He held various ministerial posts during the 1990s, serving as Minister of State in the Ministry of Agriculture, Fisheries and Food and as Parliamentary Under Secretary of State in the Foreign and Commonwealth Office, with a range of responsibilities including South Asia, Africa, North America and the West Indies. Sir Tony, a practicing barrister, was awarded the Robert Schumann Silver Medal for contribution to European politics in 1975. He takes a keen interest in foreign affairs and was a Governor of the Commonwealth Institute and a member of the Overseas Development Institute. Tony was Chairman of the House of Commons Select Committee on International Development in the 2010 Parliament. Lieutenant Colonel Sir Malcolm Ross GCVO, OBE Non-Executive Deputy Chairman Lieutenant Colonel Sir Malcolm Ross GCVO, OBE, was a member of the Royal Household of the Sovereign of the United Kingdom from 1987 and, from 2006 to 2008, Master of the Household of the Prince of Wales. Sir Malcolm was educated 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 17 30/05/2018 10:42 Westminster Group PLC | Annual Report & Financial Statements 2017 17 Board of Directors Continued Martin has considerable experience with high growth businesses and sales into international markets. He has worked with both AIM and FTSE 250 listed companies as well as Private Equity owned organisations, having most recently been CFO at Genus plc and JDR, a privately-owned energy services business. Martin has worked closely with both UKTI and UK Export Finance on overseas projects. Stuart Fowler BEng (Hons) Operations Director Stuart has many years’ experience of the security industry and has been particularly involved in many of the more complex integrated security systems. Stuart studied computing and business studies at university obtaining a Bachelor of Engineering Honours degree in 1996. After university Stuart successfully implemented several software development projects for listed companies before joining Westminster in 1998. Since that time Stuart has been instrumental in the design and implementation of many larger complex systems installed by Westminster and is now responsible for the Group’s operations and technical implementation worldwide. Peter Fowler Chief Executive Officer Peter has over 40 years’ experience operating within the security industry, with particular reference to the electronic protection sector. Peter started his career in the security industry in 1970, quickly progressing into senior management roles and has a long history of running successful companies having built and sold two security businesses, successfully carried out acquisitions and disposals and has held several senior positions in listed companies. Peter joined Westminster as Managing Director in 1996, carried out an MBO of the business in 1998 and led the IPO on AIM in 2007. He is widely travelled and has developed an extensive network of contacts around the world, having met numerous senior governmental and military personnel in many of the countries in which Westminster operate. Martin Boden Chief Financial Officer 18 80371 WG_RA_2017_pp1to18-FINAL may30 2018.indd 18 30/05/2018 10:42 Directors Report The Directors present their annual report and the audited financial statements for the year ended 31 December 2017. Principal activities The Westminster Group plc is a specialist security and services group operating worldwide through an extensive international network of agents and contacts in over 50 countries. Westminster’s principal activity is the design, supply and ongoing support of advanced technology security solutions, encompassing a wide range of surveillance, detection, tracking and interception technologies and the provision of long-term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities, together with consultancy and training services. The majority of its customer base, by value, comprises governments and government agencies, non-governmental organisations (NGO’s) and blue chip commercial organisations. Review of business, future developments and key performance indicators A full review of the business and future development, incorporating key performance indicators, is set out in the Chief Executive Officer’s Strategic Report and the Chief Financial Officer’s statements on pages 7 to 16. The Directors who held office during the year were as follows Executive Directors Peter Fowler Stuart Fowler Ian Selby (resigned 29 June 2017) Martin Boden (appointed 29 June 2017) Non-Executive Directors Lt. Col. Sir Malcolm Ross Sir Tony Baldry Mr James Sutcliffe Sir Tony Baldry became Executive Chairman on 31 January 2018. Risk management objectives and strategy The Group’s corporate governance objective is to build a risk management framework across the Group. Local operations prepare relevant local risk registers which are then reviewed by a committee of executive Group management who then in turn report to the main Board. Clear channels of communication exist to ensure that risk management objectives are communicated across the company and that risks are reported up to the Board and relevant management. External auditors are used where necessary and the Group will consider the need to establish an internal audit process as the Group expands. This may include operational reviews (such as compliance with aviation security standards) as well as the traditional financial and compliance aspects. Risk Committee The purpose of the Risk Committee (the “Committee”) is to perform centralised oversight and policy setting of risk management activities and to provide communication to the Board of Directors (the Board) of the Westminster Group (the Company) regarding important risks and related risk management activities. The Committee’s key areas of responsibility are • Oversight of risk; • Adherence to internal risk management policies and procedures; • Compliance with risk-related regulatory requirements; and • External risk assessments in relation to the company’s international business. The risk committee is chaired by James Sutcliffe and its members are Sir Tony Baldry (non-executive during the year), Peter Fowler (CEO) and Martin Boden (CFO). The Risk Committee met twice during the year. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 19 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 19 Directors’ Report continued The Board of Directors has identified the Principal Risks and Uncertainties facing the Group and these are shown below, together with how we manage or mitigate them: Macro-economic outlook Risk and potential impact Current global economic, political and financial market conditions may materially and adversely affect the Group’s operational performance. A downturn may affect customers, suppliers and other parties we do business with. The Group operates in emerging and frontier markets and therefore is exposed to the political, geographic and economic risks of such territories. With the UK committed to leaving the European Union, we will continue to see uncertainty in the UK, Eurozone and elsewhere as the economic and political relationship between the UK and EU is determined. The Board considers that the current level of market risk is higher than normal given the level of geo-political unrest. Financial risks Risk and potential impact The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. Legislation and regulations Risk and potential impact There is a risk that the Group may not always be in complete compliance with local laws and regulations in overseas territories. For example, the risk to the Group’s reputation of failure to comply with ethical and environmental regulations arising in the countries in which it operates. An example of this could be inappropriate business ethics in one of the territories from which Westminster Group operates. Mitigation The Directors are seeking to ensure that the Group’s activities are not significantly concentrated in any one individual customer or territory, so as to mitigate the exposure of any downturn in activity levels. In the event of a downturn the business could reduce investment plans and downscale its cost base in line with a deterioration in forecasted sales in any one particular market. The Group regularly reviews the relevant insurance requirements. Probability Possible Potential financial impact Major Mitigation The Directors regularly review and agree policies for managing these risks. Credit risk is managed by monitoring limits and payment performance of counterparties. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group’s exposure. Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. This is regularly reviewed as the Group wins new business in foreign currency and we continue to monitor the business impact of macro-economic factors, which could affect the value of Sterling and in turn have an impact on supply chain costs. If required, surplus currency will be protected through forward foreign exchange contracts. Liquidity risk is managed by the close control of cash and frequent cash flow forecasting, together with modest overdraft facilities and additional financing to provide short-term flexibility. Interest rate risk is low with all Group borrowings having fixed rates of interest. The Group’s capital raising ability can be affected by movements in capital markets. Probability Possible Potential financial impact Moderate Mitigation The Directors have taken steps to ensure that all the Group’s global operations are conducted to the highest ethical and environmental standards. Westminster Group maintains a strict anti-bribery policy with both Agents and employees given training through a series of webinars. The Group appoints relevant advisors to ensure regulatory requirements are complied with. Counterparties are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of the regulations. Probability Unlikely Potential financial impact Moderate 20 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 20 30/05/2018 10:58 Information technology Risk and potential impact The Group’s systems and data are subject to security and availability risks, particularly in some of the territories the Group operates in. The Group is dependent on these systems for the day-to-day management of the Company. Any disruption to the Group’s information systems could have a significant impact on the business. Mitigation To mitigate these risks the Group ensures a regular full backup of our systems and data in case of an event. Disaster recovery plans are in place and are reviewed by senior management for suitability. Only current and fully supported systems are used to minimise the risk of cyber-attacks on Group systems. The Group uses external consultants to test the relevant systems vulnerability from time to time. Data backups are held in multiple locations to minimise recovery periods. Contractual liabilities Risk and potential impact Failure to deliver a contract in a timely manner, according to an agreed specification could lead to higher costs, penalties and reputational damage. Talent succession planning Risk and potential impact The loss of key personnel or the failure to have an adequate succession plan could have an impact on the Group’s overall performance. Recruiting and retaining skilled personnel at a board and operational levels, particularly overseas, is a continual challenge and competition is fierce in certain territories the Group operates in. Without the necessary talent recruited and embedded into the business this could adversely affect the Group’s growth plans resulting in a loss of market share and the inability to compete and deliver in its chosen markets. Probability Possible Potential financial impact Moderate Mitigation The Group mitigates this risk by ensuring adequate project management is in place and any issues identified are dealt with in a timely and efficient manner. Warranties are sought from equipment suppliers where appropriate. Material contracts are reviewed by the Board on a regular basis to ensure that contractual liabilities are met. Probability Possible Potential financial impact Major Mitigation The risk is mitigated by ensuring development plans are in place, salary packages are competitive and talent is sourced where necessary. The Chief Executive reviews all the senior managers’ performance and competencies in the organisation and identifies critical retention employees, reporting the findings to the Board of Directors. Probability Possible Potential financial impact Moderate 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 21 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 21 Directors’ Report continued Results and dividends The Group’s results for the financial year are set out in the consolidated statement of comprehensive income. The Directors do not recommend the payment of a dividend (2016: £nil). Directors’ interests in share capital and share options Details of the Directors’ interests in share capital and share options are contained in the Remuneration Committee report. Other significant interests in the Company At 24 May 2018, those shareholders, other than Directors, who had disclosed to the Company an interest of more than 3 per cent of the issued share capital, are set out as follows. Name o f shareholder o r nominee Hargreave Hale Mr Hamed Al Jamal No o f shares 13,133,333 4,000,000 Holding % 10.5 3.2 Policy on payments to suppliers It is a policy of the Group in respect of all suppliers, where reasonably practical, to agree the terms of payment with those suppliers when agreeing the terms of each transaction and to abide by them. The ratio of amounts owed by the Group to trade creditors at the year-end represented 24 days (2016: 35 days). Share price During 2017 the Company’s share price ranged from 9.0p to 24.0p and the share price at 31 December 2017 was 24.0p (2016: 21p). Directors’ and officers’ liability insurance The Company, as permitted by sections 234 and 235 of the Companies Act 2006, maintains insurance cover on behalf of the Directors and Company secretary indemnifying them against certain liabilities which may be incurred by them in relation to the Company. Events after the reporting period These are detailed in the CFO report and in note 30 to the financial statements. Going concern The financial statements are prepared on a going concern basis. In assessing whether the going concern assumption is appropriate, management have taken into account all relevant available information about the future. As part of its assessment, management have taken into account the profit and cash forecasts, the continued support of the shareholders and loan note holders and Directors and management ability to affect costs and revenues. Management regularly forecast results, financial position and cash flows for the Group. The Group’s convertible secured loan notes have a principal value of £2.245m and the term has recently been extended from 18 June 2018 to 31 December 2019. Whilst not repayable in the 12 months from the date of these financial statements, the board believes that the pipeline of potential Managed Services contracts could either give the Company the capability of repayments from cash flow, or that the bondholders could covert to equity. As part of a routine planning process the Board has identified options for the repayment of the convertible secured loan notes from either cash generated from operations or as part of any financing to support new projects won. Based upon these projections the Group has adequate working capital for the 12 months following the date of signing these financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Auditor A resolution to reappoint Moore Stephens LLP as auditor will be proposed at the Annual General Meeting to be held on 26 June 2018. In so far as each of the directors is aware • There is no relevant audit information which the Group’s auditor is unaware, and • The Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Peter Fowler Director 24 May 2018 Martin Boden Director 22 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 22 30/05/2018 10:58 Remuneration Committee Report Introduction As an AIM listed company, the preparation of a Remuneration Committee report is not an obligation. The Group has, however, sought to provide information that is appropriate to its size and organisation. The Remuneration Committee of the Board was established on admission of the Company to AIM in June 2007 and consists solely of the following Directors: Lt. Col. Sir Malcolm Ross (Chairman) Sir Tony Baldry James Sutcliffe Each of these Directors were Non-Executive Directors during 2017. Sir Tony Baldry became Executive Chairman on 31 January 2018 and will continue to serve on the Remuneration Committee until a Non-Executive replacement is appointed. The Remuneration Committee is responsible for establishing a formal and transparent procedure for developing policy on executive remuneration and to set the remuneration packages of individual Directors. This includes agreeing with the Board the framework for remuneration of the Chief Executive, all other Executive Directors and such other members of the executive management of the Company as it is designated to consider. It is furthermore responsible for determining the total individual remuneration packages of each Director, including, where appropriate, bonuses, incentive payments and share options. The Committee’s policy is to provide a remuneration package which will attract and retain Directors and management with the ability and experience required to manage the Group and to provide superior long-term performance. It is the aim of the Committee to reward Directors competitively and on the broad principle that their remuneration should be in line with the remuneration paid to senior management of comparable companies. There are four main elements of the remuneration package for Executive Directors: base salary, share options, benefits and annual bonus. Notice periods for Executive Directors are 12 months. • Base salary is reviewed annually and in setting salary levels the Remuneration Committee considers the experience and responsibilities of the Executive Directors and their personal performance during the previous year. The Committee also takes account of external market data, as well as the rates of increases for other employees within the Group • Share options are granted having regard to an individual’s seniority within the business and are designed to give Directors an interest in the increase in the value of the Group • Benefits primarily comprise the provision of company cars, pension payments, health insurance and participation in the Group life assurance scheme • All Executive Directors and executive management participate in the Group’s annual bonus scheme, which is based upon the assessment of individual performance, subject to the Group achieving profitability commensurate with its revenues and capital employed Meetings The Remuneration Committee met three times during the year. Options The Group considers it important to incentivise employees and Directors through share incentive arrangements. The Group adopted a new Share Option Scheme in September 2017, under which it plans to award both EMI options and unapproved options to certain employees and Directors over its ordinary shares. An option grant was made to the Directors in December 2014 under the previous 2007 Share Option Scheme, the details of which are set out in Note 22 of these financial statements. A demanding share price target of 60p before vesting must be achieved In order for the Directors to benefit from this scheme. In context, this threshold represents a premium of 140 per cent. to the placing price of the £1 million fundraising in December 2014 and a premium of 66% per cent. to the average equity issue price between July 2011 and December 2014. The Group believes that such schemes (as well as Long Term Incentive Plans) align executives with long term shareholder value. Non-Executive Directors’ remuneration Non-Executive Directors’ remuneration is determined by the Board as a whole, each refraining from determining his own remuneration. The fees paid to Non-Executive Directors are set at a level intended to attract individuals with the necessary experience and ability to make a significant contribution to the Group. The service contracts of the Non-Executive Directors specify the following: Non-Executive Directors Severance Lt. Col. Sir Malcolm Ross Sir Tony Baldry James Sutcliffe None None None Notice 3 months 3 months 3 months Contractual fees £ 18,000 40,000 24,000 There were no Non-Executive Director changes in 2017. Sir Tony Baldry was appointed to the board on 30 June 2016 and James Sutcliffe joined the board on 1 December 2016. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 23 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 23 Remuneration Committee Report continued Executive and Non-Executive Directors’ remuneration package and interest in share capital Details of the Executive and Non-Executive Directors’ remuneration and interest in share capital for the year ended 31 December 2017 are as follows: Audited Executive Directors Peter Fowler Stuart Fowler Martin Boden Ian Selby Roger Worrall Total Executive Remuneration Non-Executive Directors Lt. Col. Sir Malcolm Ross Sir Tony Baldry James Sutcliffe Sir Michael Pakenham Total Non-Executive Remuneration Total Board Remuneration Basic salary/ fee £’000 Benefits in kind £’000 Group national insurance cost £’000 Share Based Payment cost £’000 Total cost of employment £’000 Total 2016 £’000 157 104 75 94 - 430 17 49 32 - 98 528 1 - 1 - - 2 4 - - - 4 6 22 14 10 6 - 52 2 7 - - 9 61 12 10 - 5 - 27 1 - - - 1 28 192 128 86 105 - 511 24 56 32 - 112 623 192 128 - 111 58 489 23 20 2 7 52 541 No options were issued or exercised during the year and no cash benefit was therefore received by the directors and the share-based payment expense relates to a non-cash value. The Executive and Non-Executive Directors who held office during the year had no interests in the shares or loan stock of the Company or any of its subsidiaries except for the following holdings of ordinary shares in the Company: Executive Directors and Non-Executive Directors Interest at start and end of year Lt. Col. Sir Malcolm Ross Peter Fowler and Mrs P J Fowler Stuart Fowler Martin Boden Sir Tony Baldry James Sutcliffe 140,884 6,361,794 541,618 - - - 24 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 24 30/05/2018 10:58 In addition to the interests disclosed above, the following Executive and Non-Executive Directors have options to acquire ordinary shares of 10p each in the Company granted under the 2007 Share Option Plan. Full details are as follows: Directors Lt. Col. Sir Malcolm Ross Stuart Fowler Stuart Fowler Sir Malcolm Ross Peter Fowler Stuart Fowler At 1 January 2017 and 31 Dec 2017 Grant price Market price at date of grant Date from which exercisable 2,000 48,000 15,000 93,750 781,250 625,000 67.5p 10.0p 34.5p 28.5p 28.5p 28.5p 67.5p 5.7p 34.5p 25.5p 25.5p 25.5p 21 April 2011 05 April 2009 25 September 2011 10 June 2016* 10 June 2016* 10 June 2016* The market price of the shares at 31 December 2017 was 24.0p and the range during the year was 9.0p to 24.0p. (*) These options were granted to the Directors at a price of 28.5 pence under the 2007 EMI Scheme. Executive Directors are issued share options under the EMI Scheme and Non-Executive Directors under an unapproved scheme, which has the same rules as the EMI Scheme but without the relevant tax concessions. Save for a change of control in the Company, Share Options granted to Directors will only vest if the Company’s share price has reached 60 pence at any time and became exercisable from 10 June 2016. All share options have an exercise period of 10 years from grant under the rules of the EMI Scheme. The vesting price threshold of 60p represented a 140% premium to the price of the equity issued on the same day. On behalf of the Board Lt. Col. Sir Malcolm Ross Chairman of the Remuneration Committee 24 May 2018 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 25 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 25 Corporate Governance Report The Directors are committed to delivering high standards of corporate governance to the Group’s shareholders and other stakeholders including employees, suppliers and the wider community. As an AIM listed company, full compliance with the UK Corporate Governance Code 2016 (“the Code”) or the Quoted Companies Alliance Corporate Governance Code, is not a formal obligation. The Directors recognise the importance of sound corporate governance and the Group has sought to adopt the provisions of the Code that are appropriate to its size and organisation and establish frameworks for the achievement of this objective. The Board of Directors operates within the framework described below. The Board The Board sets the Group’s strategic aims and ensures that necessary resources are in place for the Group to meet its objectives. All members of the Board take collective responsibility for the performance of the Group and all decisions are taken in the interests of the Group. Whilst the Board has delegated the normal operational management of the Group to the Executive Directors and other senior management, there are detailed specific matters subject to decision by the Board of Directors. These include acquisitions and disposals, joint ventures and investments, projects of a capital nature and all significant contracts. The Non-Executive Directors have a responsibility to challenge constructively the strategy proposed by the Executive Directors; to scrutinise and challenge performance; to ensure appropriate remuneration and that succession planning arrangements are in place in relation to Executive Directors and other senior members of the management team. The senior executives enjoy open access to the Non-Executive Directors. The Chairman is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role. The Chairman sets the Board’s agenda and ensures that adequate time is available for discussion of all agenda items, especially strategic issues. The Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors and ensuring constructive relations between Executive and Non-Executive Directors. The Chairman is also responsible for ensuring that the Directors receive accurate, timely and clear information. The Chairman ensures effective communication with shareholders. All Directors allocate sufficient time to the Group to discharge their duties. There is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board. The search for Board candidates is conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board. The Board is responsible for ensuring that a sound system of internal control exists to safeguard shareholders’ interests and the Group’s assets. It is responsible for the regular review of the effectiveness of the systems of internal control. Internal controls are designed to manage rather than eliminate risk and therefore even the most effective system cannot provide assurance that every risk, present and future, has been addressed. The key features of the system that operated during the year are described below. Organisational structure and control environment The Board of Directors meets at least six times a year to review the performance of the Group. It seeks to foster a strong ethical culture across the Group. There are clearly defined lines of responsibility and delegation of authority from the Board to the operating subsidiaries. The Directors of each trading subsidiary meet on a regular basis with at least two members of the Group Board in attendance. Internal control The key procedures which the Directors have established with a view to providing effective internal control are as follows: • Regular Board meetings to consider the schedule of matters reserved for Directors’ consideration; • A risk management process; • An established organisational structure with clearly defined lines of responsibility and delegation of authority; • Appointment of staff of the necessary calibre to fulfil their allotted responsibilities; Comprehensive budgets, forecasts and business plans approved by the Board, reviewed on a regular basis, with performance monitored against them and explanations obtained for material variances; and • An Audit Committee of the Board, comprising Non-Executive Directors, which considers significant financial control matters as appropriate. Risk management The Board has the primary responsibility for identifying the major risks facing the Group. The Board has adopted a schedule of matters which are required to be brought to it for decision, ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. The Board has identified a number of key areas which are subject to regular reporting to the Board. The policies include defined procedures for seeking and obtaining approval for major transactions and organisational changes. The Group has a dedicated Risk Committee as detailed on page 19 of this report. Risk reviews are carried out by each subsidiary and reviewed annually as part of an ongoing risk assessment process. The focus of these reviews is to identify the circumstances, both internally and externally, where risks might affect the Group’s ability to achieve its business objectives. The management of each subsidiary periodically reports to the Board any new risks. In addition to risk assessment, the Board believes that the management structure within the Group facilitates free and rapid communication across the subsidiaries and between the Group Board and those subsidiaries and consequently allows a consistent approach to managing risks. Certain key functions are centralised, enabling the Group to address risks to the business present in those functions quickly and efficiently. The key risks and mitigation strategies of the business are set out on pages 20 and 21 of this report. 26 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 26 30/05/2018 10:58 Audit Committee This committee was set up with Terms of Reference agreed in February 2017. It oversees and reviews the Company’s financial reporting and internal control processes, its relationship with external auditors and the conduct of the audit process together with its process for ensuring compliance with laws, regulations and corporate governance. It is composed entirely of non-executive directors but other individuals such as the Company’s CFO and CEO and representatives of the finance team may be invited to attend all or any part of any meeting when deemed appropriate. The Company’s external auditors will be invited to attend meetings of the Committee on a regular basis There is currently no internal audit function in view of the size of the Group, although this is kept under annual review. The audit committee comprises; James Sutcliffe - Chairman Lt. Col. Sir Malcolm Ross Sir Tony Baldry The Audit Committee met three times during the year Nomination Committee This committee was set up with Terms of Reference agreed in February 2017. It leads the process for Board Appointments and to make recommendations to the Board on the constitution of the Board in view of the needs of the group. The majority of members are non-executive directors and it comprises; Sir Tony Baldry – Chairman Lt. Col. Sir Malcolm Ross James Sutcliffe Peter Fowler Other individuals may be invited to attend all or part of any meeting of the Committee when deemed appropriate. The Nomination Committee met twice during the year. Disclosure Committee This committee was set up with Terms of Reference agreed in February 2017. It oversees and regulates the Company’s disclosure obligations and to ensure compliance with Market Abuse Regulations (MAR) and London Stock Exchange rules and it comprises; Sir Tony Baldry – Chairman James Sutcliffe Peter Fowler Roger Worrall (Secretary) The Disclosure Committee met three times during the year. Corporate responsibility The Board is very aware of the importance of its corporate responsibilities, particularly in terms of ensuring that high standards of behaviour are maintained wherever the Group is operating. The following principles and processes have been established for that purpose: • Only supply goods and services that improve people’s safety and security – no offensive activities; • Protecting the health and safety of all employees is paramount; • • ISO 9001:2008 certified; ISO 14001:2004 environmental management system certification; • Members of ADS Aerospace, Defence & Security Association; • Operate a strict ethical policy with both employees and agents within the principles of CIS (Common Industry Standard) produced by the Aerospace and Defence Organisation of Europe; • Comply with UK and International Export Controls criteria – key employees have attended required courses; • Providing valuable employment and investment opportunities in third world areas; • Promoting environmental solutions – e.g. solar street lighting, oil leak detection etc; • Providing speakers at conferences & seminars, referenced by press & media; • Supporting and assisting local and international charities; and • The Group maintains a stringent anti-bribery policy and complies with both UK and local statutes. Financial planning, budgeting and monitoring The Group operates a planning and budgeting system with an annual budget approved by the Board. There is a financial reporting system which compares results with the budget and the previous year each month to identify any variances from approved plans. Monthly rolling cash flow forecasts form part of the reporting system. The Group remains alert to react to other business opportunities as they arise. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 27 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 27 Corporate Governance Report continued Capital management policies and procedures The Group’s capital management objectives are: • To ensure the Group’s ability to continue as a going concern; and • provide an adequate return to shareholders. The Group monitors capital on the basis of the carrying amount of equity plus its convertible loan, less cash and cash equivalents as presented on the face of the statement of financial position. The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities other than its convertible loan. The Group manages the capital structure and adjusts to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may review any dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. There is no requirement for the Group to maintain a strong capital base for each of its UK subsidiaries and therefore each subsidiary is financed by inter-company debt from the Company. These policies have not changed in the year. The Directors believe that they have been able to meet their objectives in managing the capital of the Group. Non-Executive Directors The Non-Executive Directors are considered by the Board to be independent in character and judgement and there are not considered to be any circumstances that are likely to affect their judgement as Directors of the Group. Their interests in the share capital of the Company are not considered to be likely to affect their judgement as Directors of the Group. Annual report The Directors 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 Company’s performance, business model and strategy. 28 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 28 30/05/2018 10:58 Statement of Directors’ Responsibilities Directors’ responsibilities statement The Directors are responsible for preparing the strategic report, the Directors’ report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). 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 of the Group and Company for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to • Select suitable accounting policies and then apply them consistently; • Make judgements and accounting estimates that are reasonable and prudent; • State whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and 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 Company 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 financial statements are made available on a website. Financial statements are published on the Company’s website 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. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. On behalf of the Board Peter Fowler Director 24 May 2018 Martin Boden Director 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 29 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 29 Independent Auditor’s Report to the Members of Westminster Group Plc Opinion We have audited the financial statements of Westminster Group PLC for the year ended 31 December 2017 which comprise: • • • • • 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, which include a summary of significant accounting policies and other explanatory notes. The financial reporting framework that has been applied in the preparation of the consolidated and parent company financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the 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 the parent company’s affairs as at 31 December 2017 and of the group’s loss 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 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, and we have fulfilled our 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 audit opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate, or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. An overview of the scope of our audit The group operates through nine trading subsidiaries which we considered to be significant components for the purposes of the consolidated financial statements. The financial statements consolidate these entities together with a number of non-trading subsidiary undertakings. In establishing our overall approach to the group audit, we determined the type of audit work that needed to be performed on each subsidiary. This consisted of us carrying out a full audit of six significant components of the group in the United Kingdom and reviewing the component auditors’ working papers on three significant components in Sierra Leone. We considered the risk of the financial statements being misstated or not prepared in accordance with the underlying legislation or standards. We then directed our work towards those areas of the financial statements which we assessed as having the highest risk of containing material misstatements. We tested and examined information using both analytical procedures and tests of detail, to the extent necessary to provide us with a reasonable basis to draw conclusions. These procedures, together with our detailed review of the procedures performed by component auditors, gave us the evidence that we need for our opinion on the financial statements as a whole and, in particular, helped mitigate the risks of material misstatements mentioned below. Key audit matters Key audit matters are those matters that, in our professional judgement, were the most significant 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 the fraud) we identified, including 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 for the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 30 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 30 30/05/2018 10:58 1) Impairment of Sierra Queen and onerous exit costs within Sovereign Ferries Limited During the year the group’s ferry operations were closed down resulting in an impairment of £2,491,000. Given that the ferry operations have been treated as discontinued in the financial statements for the year ended 31 December 2017, there is a risk that assets relating to these operations may have been recorded at amounts higher than their recoverable amounts and costs relating to the exit from these operations are not sufficiently provided for at the end of the reporting period. In this area our procedures included: • Reviewing the company’s assessment of the ferry operation, ensuring that the impairment charge is properly quantified, recorded and disclosed in the financial statements; • Ensuring that all costs that may be associated with the discontinued operations have been recorded and disclosed in the financial statements; and • Performing unrecorded liabilities testing and reviewing transactions around the year end to confirm amounts are correctly recorded and disclosed in the financial statements. 2) Going concern Significant losses are being incurred by the group and it continue to rely on external finance for its operating needs during the year. There is a risk that the group might not be a going concern. In this area our procedures included: • Reviewing management’s cash flow forecasts, which cover a future period of 6 years from the financial reporting date; • Making enquiries with management and obtaining support for the significant inputs and assumptions used in the forecasts. We also carried out sensitivity analysis on the revenue projections; • Reviewing board minutes during the year and up to the date of approval of the financial statements to indicate any other issues that may indicate the inability of the group to continue as a going concern; • Reviewing documentation relating to the rollover of the convertible loan notes through to 30 June 2019; and • Reviewing the group’s ability to raise new funds successfully from the market since the financial reporting date. Based on the outcome of the above procedures, we concluded that there was no material uncertainty in relation to going concern. Our application of materiality We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. We determined the materiality of the consolidated financial statements as a whole to be £161,000, calculated with reference to a benchmark of 5% of the group loss before tax before impairment. This is the threshold above which missing or incorrect information in the financial statements is considered to have an impact on the decision making of users. The parent company materiality was set at £109,000 being 5% of loss before tax. We reported to the Audit Committee all potential adjustments above £5,500 being 5% of the materiality for the financial statements as a whole. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and audit report thereon. Our opinion on the financial statements does not cover the other information and, except to the extend 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 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 misstatements in the financial statements or a material misstatement of the other information. If, based on our work we have performed, we conclude that there is a material misstatement of this other information, we are required to report the fact. We have nothing to report in this regards. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 31 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 31 Independent Auditor’s Report continued Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In 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: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the Directors’ responsibilities statement, 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 consolidated 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 consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located on the Financial Reporting Councils 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. Michael Simms, Senior Statutory Auditor For and on behalf of Moore Stephens LLP, Statutory Auditor 150 Aldersgate Street London EC1A 4AB 24 May 2018 32 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 32 30/05/2018 10:58 Westminster Group PLC Consolidated Statement of Comprehensive Income For the year ended 31 December 2017 Note 2017 Continuing Operations £’000 2017 Discontinued Operations £’000 3 5,330 (2,015) 3,315 66 (182) (116) REVENUE Cost of sales GROSS PROFIT 2016 Continuing Operations £’000 2016 Discontinued Operations £’000 2017 Total £’000 5,396 4,397 (2,197) (1,217) 3,199 3,180 Administrative expenses (5,133) (3,553) (8,686) (3,757) LOSS FROM OPERATIONS 6 (1,818) (3,669) (5,487) (577) 2016 Total £’000 4,406 (1,296) 3,110 (4,499) (1,389) 9 (79) (70) (742) (812) Analysis of operating loss Loss from operations Add back amortisation Add back depreciation Add back impairment charges Add back share option expense 11 12 Add back exceptional items1 4 EBITDA Profit/(loss) from underlying operations Finance costs LOSS BEFORE TAXATION Taxation 5 7 LOSS AND TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR LOSS AND TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO: (1,818) (3,669) (5,487) (577) (812) (1,389) 31 139 397 63 653 - 144 31 283 2,491 2,888 - 335 63 988 (535) (699) (1,234) 7 110 - 103 492 135 - 117 - - 7 227 - 103 585 1,077 (110) 25 (630) - (630) (566) - (566) (2,448) (3,669) (6,117) (1,143) (812) (1,955) - - - 46 - 46 (2,448) (3,669) (6,117) (1,097) (812) (1,909) OWNERS OF THE PARENT (2,248) (3,669) (5,917) (1,097) (812) (1,909) NON-CONTROLLING INTEREST (200) - (200) - - - LOSS AND TOTAL COMPREHENSIVE LOSS (2,448) (3,669) (6,117) (1,097) (812)- (1,909) LOSS PER SHARE 9 (2.24p) (3.36p) (5.60p) (1.42p) (1.04p) (2.46p) The accompanying notes form part of these financial statements. 1 Exceptional items relate to certain costs or incomes that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded by virtue of their size and nature in order to reflect management’s view of the performance of the Group 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 33 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 33 Westminster Group PLC Consolidated and Company Statements of Financial Position As at 31 December 2017 Goodwill Other intangible assets Property, plant and equipment Investment in subsidiaries TOTAL NON-CURRENT ASSETS Inventories Trade and other receivables Cash and cash equivalents TOTAL CURRENT ASSETS Assets of disposal groups classified as held for sale TOTAL ASSETS Called up share capital Share premium account Merger relief reserve Share based payment reserve Equity reserve on convertible loan note Revaluation reserve Retained earnings: At 1 January (Loss)/profit for the year Other changes in retained earnings Note 10 11 12 14 18 19 20 29 21 Group Company 2017 £’000 - 129 1,952 - 2,081 39 693 392 1,124 - 3,205 12,074 9,226 299 621 186 134 2016 £’000 397 132 4,635 - 5,164 198 894 152 1,244 - 6,408 8,711 9,169 299 569 186 134 (16,772) (5,917) 36 (14,739) (1,909) (124) 2017 £’000 - 128 1,028 7,116 8,272 - 42 78 120 - 8,392 12,074 9,226 299 621 - 134 (6,135) (8,128) 36 2016 £’000 - 103 1,031 12,683 13,817 - 108 21 129 - 13,946 8,711 9,169 299 569 - 134 (6,071) 60 (124) At 31 December (22,653) (16,772) (14,227) (6,135) (DEFICIT)/EQUITY ATTRIBUTABLE TO: OWNERS OF THE COMPANY NON CONTROLLING INTEREST TOTAL (DEFICIT)/EQUITY Borrowings Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES Deferred income Trade and other payables TOTAL CURRENT LIABILITIES Liabilities of disposal group classified as held for sale TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 23 17 24 24 29 (113) (200) (313) 2,184 - 2,184 - 1,096 1,096 238 3,518 3,205 2,296 - 2,296 3,059 - 3,059 27 1,026 1,053 - 4,112 6,408 8,127 - 8,127 - - - - 265 265 - 265 8,392 12,747 - 12,747 988 - 988 - 211 211 - 1,199 13,946 The accompanying notes form part of these financial statements. The Group and Company financial statements were approved by the Board and authorised for issue on 24 May 2018 and signed on its behalf by: Peter Fowler Director Martin Boden Director 24 May 2018 34 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 34 30/05/2018 10:58 Westminster Group PLC Consolidated Statement of Changes in Equity For the year ended 31 December 2017 Called up share capital Share premium account Merger relief reserve £’000 £’000 £’000 Share based payment reserve £’000 Revaluation reserve £’000 Equity Reserve on Convertible Loan Note £’000 Retained earnings Non Controlling interest Total £’000 £’000 £’000 AS OF 1 JANUARY 2017 8,711 9,169 299 569 134 186 (16,772) 12,074 9,226 299 621 134 186 (22,653) (200) (313) (5,917) (200) (6,117) Shares issued for cash 2,291 Cost of share issues Share based payment charge Exercise of share options Lapse of share options CLN conversion TRANSACTIONS WITH OWNERS - - 5 - 1,067 3,363 - (76) - - - 133 57 Total comprehensive expense for the year - - - - - - - - - - - - 88 (2) (34) - 52 - - - - - - - - - - - - - - - - - - - - 2 34 - 36 AS AT 31 DECEMBER 2017 AS OF 1 JANUARY 2016 6,345 9,170 299 258 134 219 (14,739) Shares issued for cash 1,300 Share based payment charge Lapse of share options Warrants issued with loan notes CLN conversion Loan notes issued TRANSACTIONS WITH OWNERS - - - 1,066 - 2,366 - - - - - (1) (1) Total comprehensive expense for the year - - - - - - - - - - - 103 (37) 245 - - 311 - - - - - - - - - - - - - (33) - - - 37 (150) (11) - (33) (124) - (1,909) AS AT 31 DECEMBER 2016 8,711 9,169 299 569 134 186 (16,772) - - - - - - - - 2,296 2,291 (76) 88 5 - 1,200 3,508 - - - - - - - - - - 1,686 1,300 103 - 95 1,022 (1) 2,519 (1,909) 2,296 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 35 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 35 Westminster Group PLC Company Statement of Changes in Equity For the year ended 31 December 2017 Called up share capital Share premium account Merger relief reserve £’000 £’000 £’000 Share based payment reserve £’000 9,169 299 569 AS OF 1 JANUARY 2017 Shares issued for cash Cost of share issues Share based payment charge Exercise of share options Lapse of share options CLN conversion TRANSACTIONS WITH OWNERS 8,711 2,291 - - 5 - 1,067 3,363 Total comprehensive expense for the year - - - (76) - - - 133 57 - - - - - (1) (1) Revaluation reserve £’000 134 - - - - - - - - Equity Reserve on convertible loan note £’000 - - - - - - - - - - Retained earnings Total £’000 £’000 (6,135) 12,747 - - - 2 34 - 36 2,291 (76) 88 5 - 1,200 3,508 (8,128) (8,128) (14,227) 8,127 - - - - - - - - - - - - - - 37 (150) 1,300 103 - 95 (33) - (11) 1,022 - (1) (33) (124) 2,519 - - 60 60 (6,135) (12,747) - - - - - - - - - - 88 (2) (34) - 52 - 258 - 103 (37) 245 - - 311 - - - - - - - - - AS OF 1 JANUARY 2016 Shares issued for cash Share based payment charge Lapse of share options Warrants issued with loan notes CLN conversion Loan notes issued 6,345 1,300 - - - 1,066 - TRANSACTIONS WITH OWNERS 2,366 Total comprehensive income for the year - - AS AT 31 DECEMBER 2016 8,711 9,169 299 569 134 AS AT 31 DECEMBER 2017 12,074 9,226 299 621 134 9,170 299 134 33 (6,071) 10,168 36 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 36 30/05/2018 10:58 Westminster Group PLC Consolidated Cash Flow Statement For the year ended 31 December 2017 LOSS AFTER TAX Taxation credit LOSS BEFORE TAX Note 2017 Continuing Operations £’000 2017 Discontinued Operations £’000 2017 Total £’000 2016 Continuing Operations £’000 2016 Discontinued Operations £’000 2016 Total £’000 (2,448) (3,669) (6,117) (1,097) (812) (1,909) - - - (46) - (46) (2,448) (3,669) (6,117) (1,143) (812) (1,955) Non-cash adjustments Net changes in working capital 25 25 NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES: Purchase of property, plant and equipment Purchase of intangible assets Proceeds from disposal of fixed assets CASH OUTFLOW FROM INVESTING ACTIVITIES CASHFLOWS FROM FINANCING ACTIVITIES: Gross proceeds from the issues of ordinary shares Costs of share issues Net proceeds from the issue of convertible loan notes Costs associated with the issue of convertible loan notes. Interest paid Other loan repayments, including interest CASH INFLOW FROM FINANCING ACTIVITIES Net change in cash and cash equivalents CASH AND EQUIVALENTS AT BEGINNING OF YEAR CASH AND EQUIVALENTS AT END OF YEAR 1,294 435 (719) (69) (56) 1 2,635 206 3,929 641 809 (691) 107 53 916 (638) (828) (1,547) (1,025) (652) (1,677) (4) - - (73) (56) 1 (123) (408) (531) (105) - - - (105) - (124) (4) (128) (228) (408) (636) 2,376 (160) - - (265) (36) 1,915 1,072 - - - - - - - (832) 2,376 1,300 (160) (45) - - (265) (36) 1,675 (272) (247) (96) 1,915 2,315 - - - - - - - 1,062 (1,060) 240 152 392 1,300 (45) 1,675 (272) (247) (96) 2,315 2 150 152 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 37 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 37 Westminster Group PLC Company Cash Flow Statement For the year ended 31 December 2017 Note 25 25 (LOSS)/PROFIT AFTER TAX Non-cash adjustments Net changes in working capital NET CASH (USED IN) /FROM OPERATING ACTIVITIES INVESTING ACTIVITIES: Purchase of property, plant and equipment Purchase of intangible assets Advances to subsidiaries CASH OUTFLOW FROM INVESTING ACTIVITIES CASHFLOWS FROM FINANCING ACTIVITIES: Gross proceeds from the issues of ordinary shares Costs of share issues Net proceeds from the issue of convertible loan notes Costs associated with the issue of convertible loan notes. Interest paid Other loan repayments, including interest CASH INFLOW FROM FINANCING ACTIVITIES Net change in cash and cash equivalents CASH AND EQUIVALENTS AT BEGINNING OF YEAR CASH AND EQUIVALENTS AT END OF YEAR The accompanying notes form part of these financial statements. Company 2017 £’000 (8,128) 6,215 120 (1,793) (9) (56) - (65) 2,376 (160) - - (265) (36) 1,915 57 21 78 Company 2016 £’000 8 597 (90) 515 (2) (105) (2,704) (2,811) 1,300 (45) 1,675 (272) (247) (96) 2,315 19 2 21 38 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 38 30/05/2018 10:58 Notes to the Financial Statements 1. General information and nature of operations Westminster Group plc (“the Company”) was incorporated on 7 April 2000 and is domiciled and incorporated in the United Kingdom and quoted on AIM. The Group’s financial statements for the year ended 31 December 2017 consolidate the individual financial statements of the Company and its subsidiaries. The Group designs, supply and provides on-going advanced technology solutions and services to governmental and non-governmental organisations on a global basis. 2. Summary of significant accounting policies Basis of preparation The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. The Parent Company has elected to prepare its financial statements in accordance with IFRS. The financial information is presented in the Company’s functional currency, which is Great British Pounds (‘GBP’) since that is the currency in which the majority of the Group’s transactions are denominated. Basis of measurement The financial statements have been prepared under the historical cost convention with the exception of certain items which are measured at fair value as disclosed in the accounting policies below. Consolidation (i) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries for the year ended 31 December 2017. (ii) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Subsidiaries are fully consolidated using the purchase method of accounting from the date that control commences until the date that control ceases. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group. (iii) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated financial statements. (iv) Company financial statements Investments in subsidiaries are carried at cost less provision for any impairment. Dividend income is recognised when the right to receive payment is established. Going concern The Group made losses during the period of £6,117,000 (2016: £1,909,000), of which £2,448,000 (2016: £1,097,000) related to continuing operations. The cash outflow from operating activities during the year was £719,000 (2016: £1,025,000), which was financed through raising new equity. The directors have reviewed the Group’s resources at the date of approving the financial statements, and their projections for future trading, which due to discontinuing the Sierra Leone Ferry Operation and winning incremental new business give a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, which for the avoidance of doubt is at least 12 months from the date of signing the financial statements. Thus they continue to adopt the going concern basis of accounting in the preparing the financial statements. Business combinations The consideration transferred by the group to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition date fair values. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 39 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 39 Notes to the Financial Statements continued Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re- measurement of monetary items at year-end exchange rates are recognised in profit or loss. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and not subsequently retranslated. Foreign exchange gains and losses are recognised in arriving at profit before interest and taxation (see Note 6). Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief decision-maker. The chief decision-maker has been identified as the Executive Board, at which level strategic decisions are made. An operating segment is a component of the Group • That engages in business activities from which it may earn revenues and incur expenses, • Whose operating results are regularly reviewed by the entity’s chief operating decisions maker to make decisions about resources to be allocated to the segment and assess its performance, and • For which discrete financial information is available. Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of products and services, net of value added tax, rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows: (i) Supply of products Revenue in respect of the supply of products is recognised when title effectively passes to the customer. (ii) Supply and installation contracts and supply of services Where the outcome can be estimated reliably in respect of long-term contracts and contracts for on-going services, revenue represents the value of work done in the period, including estimates of amounts not invoiced. Revenue in respect of long- term contracts and contracts for on-going services is recognised by reference to the stage of completion, where the stage of completion can be assessed with reasonable accuracy. This is assessed by reference to the estimated project costs incurred to date compared to the total estimated project costs. Revenue is calculated to reflect the substance of the contract, and is reviewed on a contract-by-contract basis, with revenues and costs at each divisible stage reflecting known inequalities of profitability. Where a contract is loss making, the full loss is recognised immediately. Managed Services income is recognised on the basis of the volume of passengers and freight. (iii) Maintenance income Revenues in respect of the supply of maintenance contracts are recognised on a straight line basis over the life of the contract. The unrecognised portion of maintenance income is included within trade and other payables as deferred income. (iv) Training courses Revenues in respect of training courses are recognised when the trainees attend the courses. Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised. Certain items have been disclosed as operating exceptional due to their size and nature and their separate disclosure should enable better understanding of the financial dynamics. Interest income and expenses Interest income and expenses are reported on an accruals basis using the effective interest method. Goodwill Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, and b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition date fair value of any existing equity interest in the acquiree, over the acquisition date fair value of identifiable net assets. If the fair value of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately. Goodwill is carried at cost less accumulated impairment losses. 40 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 40 30/05/2018 10:58 Other intangible assets Acquired intangibles that are as a result of a business combination are recorded at fair value and are amortised on a straight line over the expected useful lives. Other intangible assets comprise website costs and licences. Website costs are capitalised and amortised on a straight line basis over 5 years, the expected economic life of the asset. This amortisation is charged to administrative expenses. Property, plant and equipment Land and buildings held for use are held at their revalued amounts, being the fair value on the date of revaluation, less any subsequent accumulated depreciation. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such land and buildings is recognised in other comprehensive income, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of land and buildings is charged as an expense to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to the statement of comprehensive income. Plant and equipment, office equipment, fixtures and fittings and motor vehicles are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets to their residual value over their estimated useful lives, using the straight-line method, typically at the following rates. Where certain assets are specific for a long term contract and the customer has an obligation to purchase the asset at the end of the contract they are depreciated in accordance with the expected disposal / residual value. Freehold buildings Plant and equipment Office equipment, fixtures & fittings Ferries Motor vehicles Leases Rate 2% 7% to 25% 20% to 33% Depreciated over 21 years 20% Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Impairment on non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 41 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 41 Notes to the Financial Statements continued Financial instruments Financial assets The Group’s financial assets include cash and cash equivalents and loans and other receivables. All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument. All financial assets are initially recognised at fair value, plus transaction costs. They are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Any changes in value are recognised in the Statement of Comprehensive Income. Interest and other cash flows resulting from holding financial assets are recognised in the Statement of Cash Flows when received, regardless of how the related carrying amount of financial assets is measured. Loans and other receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows. Cash and cash equivalents comprise cash at bank and deposits and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities unless a legally enforceable right to offset exists. Financial liabilities The Group’s financial liabilities comprise trade and other payables and borrowings. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. Financial liabilities are derecognised when they are extinguished, discharged, cancelled or expire. Convertible loan notes with an option that leads to a potentially variable number of shares, have been accounted for as a host debt with an embedded derivative. The embedded derivative is accounted for at fair value through profit and loss at each reporting date. The host debt is recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method. Convertible loan notes which can be converted to share capital at the option of the holder, and where the number of shares to be issued does not vary with changes in fair value, are considered to be a compound instrument. The liability component of a compound instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound instrument and fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Investments in subsidiaries Subsidiary fixed asset investments are valued at cost less provision for impairment. Inventories Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Costs principally comprise of materials and bringing them to their present location. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred tax are recognised as an expense or income in profit or loss, except in respect of items dealt with through equity, in which case the tax is also dealt with through equity. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on material differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available 42 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 42 30/05/2018 10:58 against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit not the accounting profit. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities unless a legally enforceable right to offset exists. Equity, reserves and dividend payments Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Merger relief reserve includes any premiums on issue of share capital as part or all of the consideration in a business combination. The share based payment reserve represents equity-settled share-based employee remuneration until such share options are exercised or lapse. The revaluation reserve within equity comprises gains and losses due to the revaluation of property, plant and equipment. Retained earnings include all current and prior period retained profits and losses. Dividend distributions payable to equity shareholders are included in liabilities when the dividends have been approved in a general meeting prior to the reporting date. Defined contribution pension scheme The Group operates a defined contribution pension scheme for employees in the UK and is operating under auto enrolment. Local labour in Africa benefit from a termination payment on leaving employment. The expected value of this is accrued on a monthly basis. Share-based compensation (Employee based benefits) The Group operates an equity-settled share-based compensation plan. The fair value of the employee services received in exchange for the grant of options is recognised as an expense over the vesting period, based on the Group’s estimate of awards that will eventually vest, with a corresponding increase in equity as a share based payment reserve. For plans that include market based vesting conditions, the fair value at the date of grant reflects these conditions and are not subsequently revisited. Fair value is determined using Black-Scholes option pricing models. Non-market based vesting conditions are included in assumptions about the number of options that are expected to vest. At each reporting date, the number of options that are expected to vest is estimated. The impact of any revision of original estimates, if any, is recognised in profit or loss, with a corresponding adjustment to equity, over the remaining vesting period. The proceeds received when vested options are exercised, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated. SIGNIFICANT MANAGEMENT JUDGEMENTS IN APPLYING ACCOUNTING POLICIES The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements. Revenue recognition Recognition of income is considered appropriate when all significant risks and rewards of ownership are transferred to third parties. In respect of long-term contracts and contracts for on-going services, turnover represents the value of work done in the year, including estimates of amounts not invoiced. Turnover in respect of long-term contracts and contracts for on-going services is recognised by reference to the stage of completion, where the stage of completion can be assessed with reasonable accuracy. In this process management make significant judgements about milestones, actual work performed and the estimated costs to complete the work. Revenue is calculated to reflect the substance of the contract, and is reviewed on a contract-by-contract basis, with revenues and costs at each divisible stage reflecting known inequalities of profitability. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 43 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 43 Notes to the Financial Statements continued Consolidation of entities in which the Group holds less than 50% of the voting rights. Management considers that the Group has de facto control of Westminster Sierra Leone Limited even though it has less than 50% of the voting rights. SIGNIFICANT MANAGEMENT ESTIMATES IN APPLYING ACCOUNTING POLICIES The following are significant management estimates in applying the accounting policies of the Group that have the most significant effect on the financial statements. Revalued freehold property The freehold property is stated at fair value. A full revaluation exercise was carried out in May 2017. The fair value is based on market value, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Standards in issue not yet effective New standards, amendments and interpretations No new standards, amendments or interpretations effective for the first time in the year ended 31st December 2017 have had a material impact on Group or parent Company. At the date of authorisation of these financial statements, the following amendments and interpretations to existing accounting standards have been published but are not yet effective. • IFRS 9 Financial Instruments (effective date 1 January 2018) • IFRS 15 Revenue from Contracts with Customers (effective date1 January 2018) • IFRS 16 Leases (effective date 1 January 2019) Management anticipate that the above pronouncements will be adopted in the Group’s accounting policies for the first period after the effective date but will have no material impact on the Group. IFRS 9 ‘Financial instruments’ effective for periods beginning on or after 1 January 2018. The standard removed multiple classification and measurement models for financial assets requirement by IAS 39 and introduces a model that has only three classification categories: fair value through other comprehensive income, fair value through the income statement and amortised cost. Classification is driven by the business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The accounting and presentation for financial liabilities and for derecognising financial instruments is relocated from IAS 39 without any significant changes. IFRS 9 introduces additional changes relating to financial liabilities. IFRS 9 adds new requirements to address the impairment of financial assets and hedge accounting. IFRS 15 ‘Revenue from contracts with customers’; effective for periods beginning on or after January 1, 2018. The standard establishes a new five-step model that will apply to revenue arising from contacts with customers. Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. This is a converged standard on revenue recognition which replaces IAS 18 ‘Revenue’, IAS 11 ‘Construction contracts’ and related interpretations. The Group has assessed the impact of the new standard which is not material to the Group’s operations. IFRS 16 ‘Leases’; effective for periods beginning on or after January 1, 2019. Under IFRS 16, a contract is, or contains a lease if the contact conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The new standard eliminates the classification of leases by lessees as either finance leases or operating leases and instead introduces an integrated lessee accounting model. Applying this model, lessees are required to recognise a lease liability reflecting the obligation to make future lease payments and a ‘right-of-use’ asset for virtually all lease contracts. IFRS 16 includes an optional exemption for certain short-term leases and leases of low-value assets. The Group has assessed the impact of the new standard which is not material to the Group’s operations. Alternative performance measures (APM) In the reporting of financial information, the Directors have adopted the APM ‘EBITDA profit from underlying operations’ (APMs were previously termed ‘Non-GAAP measures’), which is not defined or specified under International Financial Reporting Standards (IFRS). This measure is not defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including those in the Group’s industry. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements. 44 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 44 30/05/2018 10:58 Purpose The Directors believe that this APM assists in providing additional useful information on the underlying trends, performance and position of the Group. This APM is also used to enhance the comparability of information between reporting periods and business units, by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group’s performance. Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and this remains consistent with the prior year. The key APM that the Group has focused on is as follows: EBITDA profit from underlying operations: This is the headline measure used by management to measure the Group’s performance, and is based on operating profit before the impact of financing costs, share based payment charges, depreciation, amortisation, impairment charges and exceptional items. Exceptional items relate to certain costs that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded by virtue of their size and nature in order to reflect management’s view of the performance of the Group. 3. Segment reporting Operating segments The Board considers the Group on a Business Unit basis. Reports by Business Unit are used by the chief decision-maker in the Group. The Business Units operating during the year are the three operating divisions; Managed Services Aviation, Technology and Managed Services Sovereign Ferries. This split of business segments is based on the products and services each offer. 2017 Supply of products Supply and installation contracts Maintenance and services Training courses Ferry ticket sales Revenue Segmental underlying EBITDA Share option expense Exceptional items (note 4) Impairments Depreciation & amortisation Segment operating result Finance cost Profit/(Loss) for the financial year Segment assets Segment liabilities Capital expenditure Technology Group and Central Managed Services Aviation £’000 - - 3,386 174 - £’000 1,470 36 264 - - 3,560 1,770 Managed Services Sovereign Ferries £’000 - - - - 66 66 Group Total £’000 1,470 36 3,650 174 66 5,396 £’000 - - - - - - 1,195 - (603) - (100) 492 - 492 1,429 368 23 (44) (1,714) (671) (1,234) - - - (15) (59) - (59) 360 359 3 (63) (50) (397) (55) - (335) (63) (988) (2,491) (2,888) (144) (314) (2,279) (3,641) (5,487) (630) - (630) (2,909) (3,641) (6,117) 1,414 2,553 99 2 238 4 3,205 3,518 129 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 45 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 45 Notes to the Financial Statements continued 2016 Supply of products Supply and installation contracts Maintenance and Services Training courses Ferry ticket sales Revenue Segmental underlying EBITDA Share option expense Exceptional items (note 4) Depreciation & amortisation Apportionment of central overheads Segment operating result Finance cost Income tax charge Managed Services Aviation Technology Group and Central £’000 £’000 £’000 Managed Services Sovereign Ferries £’000 - - 2,758 16 - 1,286 177 160 - - 2,774 1,623 - - - - - - - - 3 - 6 9 273 (1,418) (110) 1,280 - (492) (79) (1,140) (431) - (7) - - (16) (946) (689) - - Group Total £’000 1,286 177 2,921 16 6 4,406 25 (103) (1,077) (234) - (1,389) (566) 46 - (585) (117) (30) (842) - - (842) (1,909) 2,651 85 408 6,408 4,112 636 (103) - (22) 2,116 573 (566) 53 60 1,523 3,268 107 Profit/(Loss) for the financial year (438) (689) Segment assets Segment liabilities Capital expenditure Geographical areas 1,593 311 79 641 448 42 The Group’s international business is conducted on a global scale, with agents present in all major continents. The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services. United Kingdom & Europe Africa Middle East Rest of the World 2017 £’000 919 3,779 152 546 5,396 2016 £’000 369 3,458 104 475 4,406 Some of the Group’s assets are located outside the United Kingdom where they are being put to operational use on specific contracts. At 31 December 2017 fixed assets with a net book value of £895,000 (2016: £3,591,000) were located in Africa. Major customers who contributed greater than 10% of total Group revenue In 2017 no single customer contributed more than 10% of the Group revenue (in 2016 no customers contributed 10% of the Group’s revenue). Approximately 60% (2016: 60%) of the Group’s revenues are derived from the contract with the Sierra Leone airport authority. This contract contains many individual customers. 46 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 46 30/05/2018 10:58 4. Exceptional Items Middle East airport pre-contract costs Ferry closure costs Ferry pre-launch costs Loss of margin arising from fall in passenger numbers due to Ebola crisis Other 5. Finance costs Interest payable on bank and other borrowings Interest expenses on convertible loan notes (Note 16) Total finance costs 6. Loss from operations The following items have been included in arriving at the loss for the financial year Staff costs (see Note 8) Depreciation of property, plant and equipment Amortisation of intangible assets Operating lease rentals payable - Property - Plant and machinery - Other Foreign exchange loss/(gain) Auditor’s remuneration 2017 £’000 603 335 - - 50 988 Group 2017 £’000 (44) (586) (630) Group 2017 £’000 2,367 283 31 83 3 26 102 2016 £’000 220 - 585 272 - 1,077 2016 £’000 (30) (536) (566) 2016 £’000 2,267 227 7 112 3 42 (22) Amounts payable in both years relate to Moore Stephens LLP in respect of audit and other services with the exception of local audits in Sierra Leone which were performed by BDO LLP. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018 amended p47 p55.indd 47 30/05/2018 15:29 Westminster Group PLC | Annual Report & Financial Statements 2017 47 Notes to the Financial Statements continued Audit services Statutory audit of parent and consolidated financial statements and review of interim results Statutory audit of subsidiaries of the company pursuant to legislation Taxation services including research and development tax credits Other services not included in the above Local audit in Sierra Leone Total fees 7. Taxation Current year UK Corporation tax on profits in the year Potential foreign corporation tax on profits in the year Reconciliation of effective tax rate Loss on ordinary activities before tax Group 2017 £’000 40 30 14 8 21 113 Group 2017 £’000 - - - 2016 £’000 22 31 7 - 15 75 2016 £’000 - 7 7 (6,117) (1,955) Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19.25% (2016: 20.0%) (1,178) Effects of: Expenses not deductible for tax purposes Capital allowances less than depreciation Other short term timing differences Unrecognised losses carried forward Adjustment in respect of prior years Total tax - credit 973 (105) - 310 - - (391) 88 (203) 1 512 (53) (46) Tax losses available for carry forward (subject to HMRC agreement) were £12.6m (2016: £11.0m). Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016) to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements. 48 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 48 30/05/2018 10:58 8. Employee costs Employee costs for the Group during the year Wages and salaries Social security costs Share based payments Group 2017 £’000 2,117 187 2,304 63 2,367 2016 £’000 2,007 157 2,164 103 2,267 The Group operates a stakeholder pension scheme. The Group made pension contributions totalling £7,000 during the year (2016: £10,000), and pension contributions totalling £1,000 were outstanding at the year-end (2016: £1,000). Details of the Directors’ remuneration are included in the Remuneration Committee Report. Key management within the business are considered to be the Board of Directors. The total Directors’ remuneration during the year was £623,000 (2016: £541,000) and the highest paid director received remuneration totalling £192,000 (2016: £192,000). Average monthly number of people (including Executive Directors) employed Group 2017 Number 2016 Number Continuing Operations Discontinued Operations Total Continuing Operations Discontinued Operations Total By function: Sales Operations Administration Management 9. Loss per share 3 220 23 5 251 - 32 - - 32 3 252 23 5 283 3 195 22 6 226 - 14 - - 14 3 209 22 6 240 Earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Only those outstanding options that have an exercise price below the average market share price in the year have been included. The weighted average number of ordinary shares is calculated as follows: Issued ordinary shares Start of year Effect of shares issued during the year Weighted average basic and diluted number of shares for year Group 2017 ’000 87,107 22,087 109,194 2016 ’000 63,455 14,261 77,716 For the year ended 31 December 2017 and 2016 the issue of additional shares on exercise of outstanding share options, convertible loans and warrants would decrease the basic loss per share and there is therefore no dilutive effect. Loss per share was 5.60p (2016: 2.46p). 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 49 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 49 Notes to the Financial Statements continued 10. Goodwill Group Gross carrying amount at 1 January and 31 December Accumulated impairment at 1 January Impairment charge for the year Accumulated impairment at 31 December Carrying amount at 1 January Carrying amount at 31 December 2017 £’000 1,160 (763) (397) (1,160) 397 - 2016 £’000 1,160 (763) - (763) 397 397 The entire goodwill balance relates to the acquisition of Longmoor Security Limited. The directors have reviewed the expected future cash flows from this asset and concluded that these cash flows no longer support the carrying value. As such the goodwill balance has been impaired down to nil during the period. 11. Other intangible assets Group Website and Software £’000 Company Website and Software £’000 2017 Cost At 1 January 2017 Additions Disposals Transfers to assets held for sale At 31 December 2017 Accumulated amortisation and impairment At 1 January 2017 Charge for the year Disposals Impairment of ferry operation Transfer to assets held for sale At 31 December 2017 Net book value at 31 December 2017 2016 Cost At 1 January 2016 Additions At 31 December 2016 Accumulated amortisation At 1 January 2016 Charge for the year At 31 December 2016 Net book value at 31 December 2016 212 56 (43) (32) 193 80 31 (40) 25 (32) 64 129 107 105 212 73 7 80 132 168 56 - - 224 65 31 - - - 96 128 63 105 168 61 4 65 103 The impairment charge recognised during the year relates to the assets related to the Ferry Operations in Sierra Leone which was written down to nil at the year end date. 50 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 50 30/05/2018 10:58 12. Property, plant and equipment Group 2017 Cost or valuation At 1 January 2017 Additions Disposals Transfers Transfer to assets held for sale At 31 December 2017 Accumulated depreciation and impairment At 1 January 2017 Charge for the year Disposals Impairment Transfers Transfer to assets held for sale At 31 December 2017 2016 Cost or valuation At 1 January 2016 Additions Disposals At 31 December 2016 Accumulated depreciation At 1 January 2016 Charge for the year Disposals At 31 December 2016 Freehold property Plant and equipment £’000 £’000 Office equipment, fixtures and fittings £’000 Motor vehicles Total £’000 £’000 1,014 3,407 - - - - 1,014 - - - - - - - 4 (8) 42 (2,718) 727 579 180 (7) 2,385 15 (2,718) 434 293 1,014 3,032 1,270 - - 378 (3) 154 - 1,014 3,407 1,424 - - - - 438 143 (2) 579 1,424 69 (226) (42) (102) 1,123 667 77 (220) 81 (15) (102) 488 635 610 57 - 667 757 99 - - - - 99 63 26 - - - - 89 10 118 - (19) 99 43 27 (7) 63 36 5,944 73 (234) - (2,820) 2,963 1,309 283 (227) 2,466 - (2,820) 1,011 1,952 5,434 532 (22) 5,944 1,091 227 (9) 1,309 4,635 Net book value at 31 December 2017 1,014 Net book value at 31 December 2016 1,014 2,828 The impairment charge recognised during the year relates to the assets related to the Ferry Operations in Sierra Leone which was written down to nil at 30th September 2017 and transferred to assets held for sale. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 51 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 51 Notes to the Financial Statements continued Company Freehold property Freehold property Freehold property Freehold property £’000 £’000 £’000 £’000 2017 Cost or valuation At 1 January 2017 Additions Disposals At 31 December 2017 Accumulated depreciation At 1 January 2017 Charge for the year Disposals At 31 December 2017 Net book value at 31 December 2017 2016 Cost or valuation At 1 January 2016 Additions At 31 December 2016 Accumulated depreciation At 1 January 2016 Charge for the year Disposals At 31 December 2016 Net book value At 31 December 2016 1,014 - - 1,014 - - - - 1,014 1,014 - 1,014 - - - 1,014 20 - (6) 14 17 2 (6) 13 1 20 - 20 15 2 17 3 247 9 (40) 216 233 10 (40) 203 13 245 2 247 218 15 233 14 1,281 9 (46) 1,244 250 12 (46) 216 1,028 1,279 2 1,281 233 17 250 1,031 The freehold property was valued professionally by Brown and Co, Chartered Surveyors, on 16 May 2017, which provided a valuation of £1,014,000. The valuation was made on the basis of recent market transactions on arm’s length terms and on an alternative use basis. The Revaluation Reserve is not available for distribution to shareholders. The directors are of the opinion that the valuation has not moved materially since the last valuation was performed. The valuation was not materially different to the value the asset is recorded at the balance sheet date. No depreciation has been charged on the freehold property. The difference between the net book value of the freehold property if this depreciation had been charged as shown in the financial statements is not materially different to the value the asset is recorded at the balance sheet date. The freehold property is stated at valuation, the comparable historic cost and depreciation values are as follows: Historical cost Accumulated depreciation At 1 January Charge for the year At 31 December Net book value as at 31 December 2017 £’000 697 69 3 72 625 2016 £’000 697 66 3 69 628 The Group’s land and buildings have been pledged as security for contingent liabilities incurred as part of the normal trading of Westminster International, see note 26. 52 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 52 30/05/2018 10:58 13. Operating lease commitments The Group and the Company lease various office equipment and motor vehicles under non-cancellable operating lease agreements. The total commitments under these leases can be analysed as follows: As at 31 December 2017 Within one year In the second to fifth years inclusive Total As at 31 December 2016 Within one year In the second to fifth years inclusive Total Remaining lease terms range from 4 months to 4 years. Minimum lease payments under operating leases recognised as an expense in the year 14. Investment in subsidiaries Company Cost At 31 December Accumulated impairment At 1 January Provided for in the year At 31 December Group Property £’000 Group Other £’000 Group Total £’000 Company Other £’000 57 42 99 51 84 135 14 15 29 91 27 118 71 57 128 142 111 253 3 1 4 14 4 18 Group 2017 £’000 113 Group 2016 £’000 158 Company 2017 £’000 Company 2016 £’000 8 22 2017 £’000 2016 £’000 16,458 16,089 (3,406) (5,936) (9,342) 7,116 (3,406) - (3,406) 12,683 The impairment charge booked in the year relates to the investments in Westminster Facilities Management Limited, Sovereign Ferries Limited, Sovereign Ferries SL Limited, Longmoor Security Limited and CTAC Limited. The expected net present values of cash flows arising from the remaining investments in subsidiaries is expected to be in excess of the carrying value of these investments. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 53 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 53 Notes to the Financial Statements continued 15. Subsidiary undertakings The subsidiary undertakings at 31 December 2017 were as follows: Name Country of incorporation Principal activity % of nominal ordinary share capital and voting rights held Westminster International Limited England Longmoor Security Limited England Westminster Aviation Security Services Limited England Advanced security technology, (Technology division) Close protection training and provision of security services (Managed Services) Managed services of airport security under long term contracts. Managed Services division Sovereign Ferries Limited England Marine Transport West Africa Westminster Operating Limited England Special purpose vehicle which exists solely for listing the 2013 CLN on the CISX. Year end 31 October. Only transactions are intra group Sovereign Ferries SL Limited Sierra Leone Ferry operations (sold Jan 2018) Longmoor (SL) Limited Sierra Leone Security and terminal guarding Facilities Operations Management Limited Sierra Leone Westminster Sierra Leone Limited Sierra Leone Ferry and other infrastructure management Local infrastructure for airport operations Westminster Group GMBH Germany Dormant Westminster Sicherheit GMBH Germany Managed Services infrastructure Westminster Facilities Management Limited England CTAC Limited England Dormant Dormant Westminster Aviation Security Services (ME) Limited England Dormant Westminster JV Holdings Limited Travel Safety and Security Limited England England Dormant (liquidated February 2018) Dormant (liquidated February 2018) Subsidiary company registered addresses: England - Westminster House, Blacklocks Hill, Banbury, Oxfordshire, OX17 2BS, United Kingdom. Sierra Leone – Government Wharf, Freetown, Sierra Leone. Germany - Bernauer Strasse 16, 83209 Prien am Chiensee, Germany. 100 100 100 100 100 100 100 90 49 100 85 100 100 100 100 100 54 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 54 30/05/2018 10:58 16. Financial instruments Categories of financial assets and liabilities The carrying amounts presented in the Consolidated and Company statement of financial position relate to the following categories of assets and liabilities: Financial assets Trade and other receivables (note 19) Cash and cash equivalents (note 20) Financial liabilities Financial liabilities measured at amortised cost Borrowings (note 23) Trade and other payables (note 24) Liabilities held for sale (note 29) Group 2017 £’000 644 392 1,036 2,184 1,040 238 3,462 2016 £’000 814 152 966 3,059 951 - 4,010 Company 2017 £’000 12 78 90 - 231 - 231 2016 £’000 87 21 108 988 182 - 1,170 See note 2 for a description of the accounting policies for each category of financial instruments. The fair values are presented in the related notes. A description of the Group’s risk management and objectives for financial instruments is given in note 27. Convertible Loan Notes The Group had the following convertible loan notes outstanding during the year the key details of which are set out below: Secured Convertible Loan Notes (“CLN”) Amount £2.245m Conversion Price 35p Security Secured fixed and floating subordinate to HSBC Redemption Date 19 June 2018 Management Fee £25,000 per annum Coupon 10% paid quarterly in arrears. Listed on the CISX Conversion Detail Company can force conversion if the share price is > 65p for 15 working days after 19 June 2016. Company can make repayment without penalty if the share price > 42p for 15 working days after 19 June 2016. These conditions were not met in the year. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018 amended p47 p55.indd 55 30/05/2018 15:29 Westminster Group PLC | Annual Report & Financial Statements 2017 55 Notes to the Financial Statements continued At 1 January Fair value of new loans issued Fair value of warrants included in the issue (note 22) Amortised finance cost Interest paid Converted in the year At 31 December 2017 CULN £’000 952 - - 248 - 2017 CLN £’000 2,071 - - 338 (225) 2017 Total £’000 3,023 - - 586 (225) (1,200) - (1,200) - 2,184 2,184 2016 CULN £’000 520 1,408 (112) 116 - (980) 952 2016 CLN £’000 1,972 - - 324 (225) - 2,071 Analysis of movement in debt at principal value (excluding IFRS impacts), memorandum only At 1 January New Issue Conversion Financing Charge (equity settled) Closing Balance 2017 CULN £’000 1,200 - (1,200) - - 2017 CLN £’000 2,245 - - - 2017 Total £’000 3,445 - (1,200) 2016 CULN £’000 2016 CLN £’000 750 2,245 1,675 (1,247) - 22 - - - 2,245 2,245 1,200 2,245 3,445 2016 Total £’000 2,492 1,408 (112) 440 (225) (980) 3,023 2016 Total £’000 2,995 1,675 (1,247) 22 The carrying value of the convertible loan notes upon conversion in the year was as follows: Reconciliation on Conversion Group and Company Amortisation of Loan Note Interest Cost Element Carrying Value at conversion Total 2017 £’000 (248) 1,200 952 2016 £’000 (86) 1,066 980 The Convertible Loan Notes have been separated into two components, the Host Debt Instrument and the Embedded Derivative on initial recognition. The value of the Host Debt Instrument will increase to the principal sum amount by the date of maturity. The effective interest cost of the Notes is the sum of that increasing value in the period and the interest paid to Noteholders. The Derivative element will vary in value according to the market price of the underlying Ordinary Shares and the period remaining for conversion amongst other factors. The value of the embedded derivative was not material at inception and at the end of the year and is included in the fair value of the overall instrument for disclosure. Secured convertible loan notes (CLN) are compound financial instruments that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in fair value. Unlike convertible unsecured loan notes (CULN), this instrument is determined to have a liability and equity component. The liability component is initially recognised at fair value of a similar liability without a conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. It is not subsequently remeasured. The liability component is measured at amortised cost using the effective interest method. 56 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 56 30/05/2018 10:58 17. Deferred tax assets and liabilities Deferred tax assets and liabilities have been calculated using the expected future tax rate of 17% (2016: 18.0%). Any changes in the future would affect these amounts proportionately. The Group has not recognised a UK deferred tax assets of £2,210,000 (2016: £2,340,000) in respect of losses on the grounds that recoverability of the assets is considered uncertain in the foreseeable future based on expected profitability. 18. Inventories Finished goods Group Company 2017 £’000 39 39 2016 £’000 198 198 2017 £’000 - - 2016 £’000 - - The cost of inventories recognised as an expense within cost of sales amounted to £1,182,000 (2016: £1,371,000). No reversal of previous write-downs was recognised as a reduction of expense in 2017 or 2016. 19. Trade and other receivables Amounts falling due within one year: Trade receivables, gross Allowance for credit losses Trade receivables Amounts recoverable on contracts Other receivables Financial assets Prepayments Non-financial assets Trade and other receivables Group 2017 £’000 557 (52) 505 116 23 644 49 49 693 2016 £’000 564 (75) 489 199 126 814 80 80 894 Company 2017 £’000 2016 £’000 - - - - 12 12 30 30 42 - - - - 87 87 21 21 108 The average credit period taken on sale of goods in 2017 was 36 days (2016: 32 days). An allowance has been made for estimated irrecoverable amounts of £52,000 (2016: £75,000). This allowance has been based on the knowledge of the financial circumstances of individual receivables at the reporting date. 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 57 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 57 Notes to the Financial Statements continued The following table provides an analysis of trade and other receivables at 31 December. The Group believes that the balances are ultimately recoverable based upon a review of past payment history and the current financial status of the customers. Current Not more than 3 months More than 3 months but less than 6 months Allowances for Credit Losses Opening balance at 1 January Net amounts written off Impairment loss Closing balance at 31 December 2017 £’000 346 208 3 557 75 (36) 13 52 2016 £’000 342 222 - 564 69 (45) 51 75 There are no significant credit risks from financial assets that are neither past due nor impaired. At 31 December 2017 £510,000 (2016: £353,000) of trade receivables were denominated in US dollars and £nil (2016: £51,000) in Euros, and £47,000 (2016: £160,000) in Sterling. The directors consider that the carrying amount of trade and other receivables approximates to their fair value. 20. Cash and cash equivalents Cash at bank and in hand Bank overdraft Cash and cash equivalents Group 2017 £’000 392 - 392 2016 £’000 181 (29) 152 Company 2017 £’000 78 - 78 2016 £’000 21 - 21 All the bank accounts of the Group are set against each other where a right of offset exists in establishing the cash position of the Group. The bank overdrafts do not therefore represent bank borrowings, which is why they are presented as above for the purposes of the cash flow statement and the statement of financial position. 21. Called up share capital Group and Company The total amount of issued and fully paid shares is as follows: Ordinary Share Capital 2017 2016 At 1 January Arising on conversion of Convertible Loan Notes Arising on exercise of Share Options and Warrants Shares issued to settle an annual broker fee Other Issues for Cash At 31 December Number 87,107,903 10,669,227 55,000 250,000 £’000 8,711 1,067 5 25 Number 63,454,538 10,653,365 - - 22,661,290 2,266 13,000,000 120,743,420 12,074 87,107,903 £’000 6,345 1,066 - - 1,300 8,711 58 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 58 30/05/2018 10:58 During the year the following equity issues took place: Date 1 February 2017 28 February 2017 28 February 2017 4 April 2017 18 April 2017 18 April 2017 18 April 2017 Comment CULN conversion Equity placing CULN conversion Employee share options exercised Equity placing Share based payment CULN conversion 26 September 2017 Equity Placing 22. Share Options Shares Issued Issue price 2,228,367 5,161,290 3,440,860 55,000 10,000,000 250,000 5,000,000 7,500,000 13.463p 11.625p 11.625p 10.0p 10.0p 10.0p 10.0p 10.0p The Company adopted the Share Option Scheme on 3 April 2007 that provides for the granting of both Enterprise Management Incentives and unapproved share options (Westminster Group Individual Share Option Agreements). The main terms of the option scheme are as follows: • Although no special conditions apply to the options granted in 2007, the model form agreement allows the Company to adopt special conditions to tailor an option for any particular employee • The scheme is open to all full time employees and Directors except those who have a material interest in the Company. • For the purposes of this definition, a material interest is either beneficial ownership of, or the ability to control directly, or indirectly, more than 30% of the ordinary share capital of the Company • The Board determines the exercise price of options before they are granted. It is provided in the scheme rules that options must be granted at the prevailing market price in the case of EMI options and must not be granted at an exercise price that is less than the nominal value of a share • There is a limit that options over unissued shares granted under the scheme and any discretionary share option scheme or other option agreement adopted or entered into by the Company must not exceed 10% of the issued share capital. • Options can be exercised on the second anniversary of the date of grant and may be exercised up to the 10th anniversary of granting. Options will remain exercisable for a period of 40 days if the participant is a “good leaver” Options have subsequently been granted on this basis. These options are valued by the use of the Black-Scholes model using a volatility of 50% and a life of 8 years (being the point at which they lapse). The number of options vesting is based on forecast new business from that partner. The company has the following share options outstanding to its employees (including those on good leaver terms) The weighted average share price at the reporting date was 30.5p (2016: 30.7p). The average life of the unexpired share options was 6.6 years (2016: 7.1 years). Grant Date 5 April 2007 21 June 2007 21 April 2008 25 September 2009 27 May 2010 28 June 2012 1 July 2014 10 December 2014 9 October 2015 31 December 2017 31 December 2016 Exercise Price Number Out- standing Average Life Out- standing (Years) Number Out- standing Average Life Out- standing (Years) £0.1000 £0.6750 £0.5250 £0.3450 £0.3275 £0.3650 £0.5100 £0.2850 £0.1400 - - 15,000 58,000 - 295,000 250,000 3,000,000 40,000 3,658,000 n/a n/a 0.3 1.7 n/a 4.5 6.5 6.9 7.3 6.6 176,000 67,862 15,000 58,000 15,000 395,000 320,000 3,000,000 40,000 4,086,862 0.3 0.5 1.3 2.7 3.4 5.5 7.5 7.9 8.3 7.1 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 59 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 59 Notes to the Financial Statements continued During the year, no employee options were granted, 55,000 were exercised and 373,862 lapsed. The weighted average price of the options lapsed in the year was 35.8p (2016: 42.9p). The Black-Scholes option-pricing model is used to determine the fair value of share options at grant date. The assumptions used to determine the fair values of share options at grant dates were as follows: For share options granted post IPO the expected share price volatility was determined taking account of the historic daily share price movements. Since 2009, the standard deviation of the share price over the year has been used to calculate volatility. As the Company was not quoted at the dates of granting of the share options before the IPO on 21 June 2007, the calculation of the expected volatility of the shares was estimated by comparisons of the historic volatility of a sample of securities of companies of a similar size to the Company, quoted on AIM, as well as the volatility of other listed companies in similar industries. The average expected term to exercise used in the models is based on management’s best estimate for the effects of non- transferability, exercise restrictions and behavioural conditions, forfeiture and historical experience. The risk free rate has been determined from market yields for government gilts with outstanding terms equal to the average expected term to exercise for each relevant grant. The amount recognised in profit or loss in respect of employee share-based payments was £63,000 (2016: £112,000). Warrants The Company has historically issued the following warrants which are still in force at the balance sheet date: • On 22 April 2015 (£1.65m CULN) Darwin Securities Limited were issued with 1.1m detachable warrants over 10p ordinary shares. They have a strike price of 39p, a life of 2 years and were exercisable with immediate effect. These lapsed in April 2017 • On 3 June 2016 the Company announced a placing of 10,000,000 Ordinary Shares to Hargreave Hale. For every two shares one detachable warrant was issued to Hargreave, each warrant having a life of three years and an exercise price of 12p per share. Darwin and Hargreave warrants are valued by the use of the Black-Scholes model, using volatility based on the previous three years varying between 50-70% and a relevant risk free rate as noted above. Warrants are recorded at fair value at inception and are not remeasured 23. Borrowings Non-current Convertible loan note (note 16) Convertible unsecured loan note (note 16) Other Total borrowings 24. Trade and other payables Current Trade payables Accruals and other creditors Financial liabilities Other taxes and social security payable Deferred income Non-financial liabilities Group 2017 £’000 2,184 - - 2,184 Group 2017 £’000 257 783 1,040 56 - 56 2016 £’000 2,071 952 36 3,059 2016 £’000 398 553 951 75 27 102 Total current trade and other payables 1,096 1,053 Company 2017 £’000 - - - - Company 2017 £’000 90 141 231 34 - 34 265 2016 £’000 - 952 36 988 2016 £’000 89 93 182 29 - 29 211 60 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 60 30/05/2018 10:58 Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs, as well as payments received in advance on contracts. The average credit period taken for trade purchases in 2017 was 24 days (2016: 35 days). The directors consider that the carrying value of trade payables approximates to their fair value. Deferred income relates to amounts received from customers at year-end but not yet earned. At 31 December 2017 £155,000 (2016: £72,000) of payables were denominated in US dollars, £nil (2016: £56,000) in Euros and £102,000 (2016: £270,000) in Sterling. 25. Cash flow adjustments and changes in working capital The following non-cash flow adjustments and adjustments for changes in working capital have been made to loss before taxation 2017 Continuing Operations £’000 2017 Discontinued Operations £’000 2017 Total £’000 2016 Continuing Operations £’000 2016 Discontinued Operations £’000 2016 Total £’000 to arrive at operating cash flow: Group Adjustments: Depreciation, amortisation and impairment of non-financial assets Finance costs Loss on disposal of non-financial assets Share-based payment expenses 567 630 9 88 2,635 3,202 - - - 630 9 88 Total adjustments 1,294 2,635 3,929 Net changes in working capital: Decrease/(increase) in inventories Decrease/(increase) in trade and other receivables Decrease in deferred income Increase/(decrease) in trade and other payables Total changes in working capital 159 162 (27) 141 435 - 39 - 167 206 159 201 (27) 308 641 Company Adjustments: Depreciation, amortisation and impairment of non-financial assets Finance costs Share-based payment expenses Total adjustments Net changes in working capital: Decrease in trade and other receivables Increase/(decrease) in trade and other payables Total changes in working capital 107 - - - 107 - 21 - 32 53 127 566 13 103 809 (141) (431) - (119) (691) 2017 £’000 5,611 516 88 6,215 66 54 120 234 566 13 103 916 (141) (410) - (87) (638) 2016 £’000 21 473 103 597 18 (108) (90) 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 61 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 61 Notes to the Financial Statements continued 26. Contingent assets and contingent liabilities The Company is party to a multilateral guarantee in respect of bank overdrafts of all companies within the Group. At 31 December 2017, these borrowings amounted to £nil (2016: £6,000). 27. Financial risk management The Group is exposed to various risks in relation to financial assets and liabilities. The main types of risk are foreign currency risk, interest rate risk, credit risk and liquidity risk. The Group’s risk management is closely controlled by the Board and focuses on actively securing the Group’s short to medium term cash flows by minimising the exposure to financial markets. The Group does not actively trade in financial assets for speculative purposes nor does it write options. The most significant financial risks are currency risk and interest rate risk. Foreign currency sensitivity The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro and US dollar. The Group’s policy is to match the currency of the order with the principal currency of the supply of the equipment. Where it is not possible to match those foreign currencies, the Group might consider hedging exchange risk through a variety of hedging instruments such as forward rate agreements, although no such transactions have ever been entered into. Foreign currency denominated financial assets and liabilities, translated into GBP at the closing rate, are as follows. Euro assets and liabilities are not material. Group 31 December 2017 Financial assets Financial liabilities Total exposure 31 December 2016 Financial assets Financial liabilities Total exposure Short-term exposure USD £’000 510 (155) 355 356 (72) 284 If the US dollar were to depreciate by 10% relative to its year end rate, this would cause a loss of profits in 2017 of £194,000 (2016: £27,000). Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s exposure to currency risk. Foreign currency denominated financial assets and liabilities are immaterial for the Company. Interest rate sensitivity The main borrowings of the Group are the convertible loans and bank overdraft and are detailed in note 16. All have fixed interest rates. Interest on the cash holdings of the Group and “other” loans noted in note 23 is not material and therefore no calculation of interest rate sensitivity have been undertaken. Credit risk analysis The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. In the case of material sales transactions, the Group usually demands an initial deposit from customers and generally seeks to ensure that the balance of funds is secured by way of a letter of credit or similar instruments. None of the Group’s financial assets are secured by collateral or other credit enhancements. Details of allowance for credit losses are shown in note 19 of these financial statements. Liquidity risk analysis The Group manages its liquidity needs by monitoring scheduled debt repayments for long term financial liabilities as well as forecast cash flows due in day to day business. Net cash requirements are compared to borrowing facilities in order to determine headroom or any shortfalls. This analysis shows if available borrowing facilities are expected to be sufficient over the lookout period. 62 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 62 30/05/2018 10:58 As at 31 December 2017, the Group’s financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: Current (within 6 months) 6 to 12 months Non Current (1-5 years) Group As at 31 December 2017 Convertible loans Trade and other payables Total Company As at 31 December 2017 Trade and other payables Total Group As at 31 December 2016 Convertible loans Other Loans Trade and other payables Total Company As at 31 December 2016 Other loans Trade and other payables Total 2,184 1,096 3,280 265 265 112 41 1,026 1,179 41 211 252 - - - - - 113 - - 113 - - - - - - - - 2,357 - - 2,357 - - - 28. Discontinued operations At 30 September 2017 the Group took the decision to dispose of its ferry operation in Sierra Leone, from this date the operation together with the related finance obligations was being actively marketed for sale, and therefore has been reclassified as a disposal group held for sale within the financial statements. A discontinued operation is a component of the Group’s activities that is distinguishable by reference to geographical area or line of business that is held for sale, has been disposed of or discontinued, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as discontinued, the comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period. Loss for the year from discontinued operations: Revenue Cost of sales Gross Profit Administration expenses Operating loss from discontinued activities before taxation Income tax expense Loss from discontinued ordinary activities after taxation Earnings per share relating to the discontinued operations Cash flows relating to the discontinued operation are as follows: Operating cash flows Investing cash flows 2017 £’000 66 (182) (116) (3,553) (3,669) - (3,669) (3.36p) (828) (4) 2016 £’000 9 (79) (70) (742) (812) - (812) (1.04p) (652) (408) 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 63 30/05/2018 10:58 Westminster Group PLC | Annual Report & Financial Statements 2017 63 Notes to the Financial Statements continued 29. Disposal groups held for sale At 30 September 2017 the Group took the decision to dispose of its ferry operation in Sierra Leone, from this date the operation together with the related finance obligations was being actively marketed for sale, and therefore has been reclassified as a disposal group held for sale within the financial statements. On this date the Group impaired the assets of the disposal group to nil. Details of the assets and liabilities held for sale are as follows: Assets held for sale: Tangible fixed assets at cost Accumulated depreciation Intangible assets at cost Accumulated amortisation Impairment charge Assets held for sale Related liabilities: Accruals Trade payables Liabilities directly associated with assets classified as held for sale 30. Events after the Reporting Period 2017 £’000 2,820 (354) 32 (7) (2,491) - (222) (16) (238) 2016 £’000 - - - - - - - - - • On 3 January 2018, Beaufort Securities exercised warrants over 875,000 new Ordinary Shares of 10p each at an exercise price of 10p per Ordinary Share. Accordingly, 875,000 new Ordinary Shares were issued in settlement of this exercise. Beaufort Securities Limited are no longer joint broker to the Company • On 31 January 2018, the Company raised £0.75m (gross) through a placing of 3,409,091 new Ordinary Shares of 10p each at 22 pence per Ordinary Share. The placing was undertaken by S P Angel Corporate Finance LLP who received 170,455 Warrants to subscribe for Ordinary Shares at an exercise price of 22 pence per share • On 28 March 2018, the Technology division secured a $4.5m contract for the provision of advanced vehicle screening solutions to an existing client in the Middle East • On 10 May 2018, the Company announced that its major Middle East project opportunity is in Iran. The contract has been signed but the project is on hold as the Company investigates the impact of the US withdrawal from the JCPOA and the implications for the Company’s supply chain • On 24 May 2018, the Company extended the term of its Secured Convertible Loan Notes from 18 June 2018 to 30 June 2019, with an option to extend for a further six months to 31 December 2019. The coupon increases from 10% to 12% until June 2019 and increases to 15% for the six months to 31 December 2019 should the Company exercise its option. The conversion price has been reduced from 35p per share to 25p 64 64 80371 WG_RA_2017_AccountsPages-FINAL may30 2018.indd 64 30/05/2018 10:58 The Westminster Group is a specialist security and services group operating worldwide through an extensive international network of agents and contacts in over 50 countries.  The Group’s operating companies are structured into two vertically integrated operating divisions, Managed Services and Technology and the Group’s principal activity is the design, supply and ongoing support of advanced technology security solutions and the provision of long term managed services, consultancy and training services; primarily to: Governments & Governmental Agencies, Non Governmental Organisations & Blue Chip Commercial Organisations Worldwide with a focus on Africa, Asia, the Middle East & the Americas “Our vision is to build a global business with strong brand recognition delivering niche security solutions and long term managed services to high growth and emerging markets around the world with a particular focus on long term recurring revenues business.” Peter Fowler Chief Executive Officer Company Information Directors Executive Non-Executives Sir Tony Baldry (Chairman) Lt Col Sir Malcolm Ross (Deputy Chairman) James Sutcliffe Peter Fowler Stuart Fowler Martin Boden Secretary Roger Worrall Registered office Westminster House Blacklocks Hill Banbury Oxfordshire OX17 2BS Principal bankers Registrars HSBC Bank Plc 17 Market Place Banbury Oxfordshire OX16 5ED Link Asset Services 6th Floor 65 Gresham Street London EC2V 7NQ Nominated adviser & Stockbroker SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP Financial public relations Solicitors Wallbrook PR 4 Lombard Street London EC3V 9HD Auditor Moore Stephens LLP 150 Aldersgate Street London EC1A 4AB Westminster Group Plc Ashfords LLP 1 New Fetter Lane London EC4A 1AN Bird & Bird LLP 12 New Fetter Lane London EC4A 1JP P +44 (0) 1295 756300 F +44 (0) 1295 756302 E info@wg-plc.com Westminster Aviation Security Services Limited P +44 (0) 1295 756300 F +44 (0) 1295 756302 E info@wass-plc.com Westminster International Limited P +44 (0) 1295 756300 F +44 (0) 1295 756302 E info@wi-ltd.com Westminster Sicherheit GmbH P: +49 8051 93 904 50 F: +49 8051 93 904 57 E: info@w-sicherheit.com Longmoor Security Limited P +44 (0) 1295 756380 F +44 (0) 1295 756381 E info@longmoor-security.com 80371 Westminster artwork WG Annual Report 2017-cov-spineMAY29 2018.indd 2 30/05/2018 11:12 Westminster Group PLC | Annual Report & Financial Statements 2017 65 Annual Report & Financial Statements 2017 W e s t m i n s t e r G r o u p p l c A n n u a l R e p o r t & F i n a n c i a l S t a t e m e n t s 2 0 1 7 Worldwide World Class Protection Managed Services | Security Technology Westminster Group plc Westminster House Blacklocks Hill Banbury Oxfordshire OX17 2BS United Kingdom www.wsg-corporate.com 80371 Westminster artwork WG Annual Report 2017-cov-spineMAY29 2018.indd 1 30/05/2018 11:12 

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