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Stadium Group PLC  -  SDM   

Final Results

Released 07:00 14-Mar-2017

RNS Number : 3435Z
Stadium Group PLC
14 March 2017
 

 

This announcement contains information which, prior to its disclosure, was considered inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR).

 

Stadium Group plc

("Stadium" or the "Group" or the "Company")

 

Final results for the year ended 31 December 2016

 

Stadium Group plc (AIM: SDM), a leading supplier of wireless solutions, power supplies, interface displays and electronic assemblies, announces its results for the year ended 31 December 2016.

 

Headlines 

·     Statutory reported profit before tax up 29% to £2.2m (2015: £1.7m)

·     Year end order book up 36% to £25.8m (2015: £19.0m) underpinned by Technology Products growth

 

Financial highlights 

·     Revenues of £53.1m (2015: £53.9m)

§ Technology Products sales up 18.1% to £31.9m (2015: £27.0m), now 60.1% of Group sales

§ Electronic Assemblies sales down 21.1% to £21.2m (2015: £26.9m)

·     Normalised gross profit margin increased to 25.1% (2015: 23.2%)

·     Normalised profit before tax* up 5.2% to £4.2m (2015: £4.0m)

·     Net debt improved to £3.3m (2015: £4.7m), with cash in the bank of £4.6m

·     Adjusted earnings per share* of 9.1p (2015: 9.9p)

·     Statutory earnings per share of 4.9p (2015: 4.2p)

·     Final dividend proposed of 1.95p per share (2015: 1.8p)

·     Total dividends up 7.4% to 2.9p per share (2015: 2.7p)

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration - see notes 2 and 12 for further information.

·     Order intake increased by 11% up to £59.8m

·     Regional design centre fully established in Stockholm to become hub of growing wireless business

·     Stontronics, acquired in August 2015, now fully integrated and performing well

·     Key appointments have significantly strengthened leadership team and design engineering capability

·     Further optimisation of global operational footprint

§ Consolidated four UK manufacturing sites into two at Hartlepool and Southampton

§ Established two new regional fulfilment centres in Reading for Europe & Hong Kong for APAC region  

Post-period end highlights

·     Acquisition of the assets of Cable Power Ltd strengthens integrated technology offering

·     Investment in Stadium Group Inc. to further develop our North American sales activity

"We are very excited about the prospects for the Group and believe that our operating model focused around strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres will allow us to deliver accelerated growth in 2017. Our order book at the year-end was at record levels, up 36% on the previous year end at £25.8m. Our offering of complementary electronic technologies and design-focused engineering expertise is proving very attractive to current, previous and new customers, and this growing demand gives us confidence in the outlook for 2017, which has started positively."

 

 

 

For further information please contact:

 

Stadium Group plc

www.stadiumgroupplc.com

Charlie Peppiatt, Chief Executive Officer

Tel: 0118 931 1199

Andrew Tonks, Interim Finance Director

 

 

 

Walbrook PR

Tel: 020 7933 8780 or stadium@walbrookpr.com

Paul McManus

Mob: 07980 541 893

Helen Cresswell

Mob: 07841 917 679

 

 

N+1 Singer

Tel: 020 7496 3000

Richard Lindley

 

 

 

 

The annual report will be made available on the Company's website (www.stadiuminvestors.com)  on or around 14 March 2017 and will be sent to all shareholders shortly.

 

This announcement will also be available on the Company's website.

 

Investor Teach in

Stadium will be holding a teach-in for investors at the London Capital Club, 15 Abchurch Lane, London EC4N 7BW at 2.00 pm on 26 April 2017.  A presentation will be given by CEO, Charlie Peppiatt and other key members of the senior management team and will provide investors with a greater understanding of its divisions and integrated design-led technology offering. The presentation will last for approximately 60 minutes, and will be followed by a Q&A session. To register for the event, please e-mail stadium@walbrookpr.com or telephone Walbrook PR on the number above.

 

About Stadium Group plc (www.stadiumgroupplc.com)

Stadium Group plc is a leading supplier of wireless solutions, power supplies, interface displays and electronic assemblies with design and manufacturing operations in the UK, Sweden and Asia. The Company consists of two divisions:

 

1.    Technology Products (60% of 2016 revenues)

·     Wireless solutions - design, integration and manufacture of machine-to-machine ("M2M") and Internet of Things ("IoT") wireless solutions

·     Power supplies (including Stontronics) - custom and standard power product solutions from 1W to 10kW

·     Human Machine Interface - intelligent "HMI" integrated solutions

 

2.    Electronic Assemblies (40% of 2016 revenues) - previously known as Electronic Manufacturing Services

·     Electronic manufacturing services to global original equipment manufacturers

 

 

 

 

 

Chairman's statement

For the year ended 31 December 2016

 

I am very pleased to report another year of good progress, as we further transition Stadium from an electronic manufacturing services company to a high growth technology-led business. Whilst we are disappointed not to have secured the accelerated sales growth that we had originally anticipated during the year, we are greatly encouraged by a record order book across the Group, the improving sales mix towards Technology Products and improving margins, whilst delivering incremental growth in normalised profit before tax. 

 

In 2016 we continued to develop the operating model to deliver an attractive, customer-focused, design-led technology proposition supported by strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres to deliver organic growth across the Group. The most recent addition to our regional design centre model, located at the Kista Science City in Stockholm, Sweden, has been particularly successful and has become the cornerstone of our wireless design activity. We are now increasingly recognised by customers as a reliable design-led technology partner, not just in the UK, but also in North America and Europe.

 

We believe that Stadium is now well placed for future growth and this is reflected in a record order book of £25.8m at the year end. Therefore, we remain confident about the outlook for 2017 and beyond.

 

Financial Highlights

Overall revenues for the full year were down slightly at £53.1m (2015: £53.9m). Underlying this is a shift in favour of our higher margin Technology Products division, which continues to perform well. Technology Products sales increased 18.1% to £31.9m (2015: £27.0m) and now represent 60% of total sales, compared to 50% in the previous year. Electronic Assemblies sales reduced to £21.2m (2015: £26.9m), reflecting continued reductions in sales volume, further price pressure and our ongoing commitment to strategically review non-core, low margins sales. This is allowing us to better use our Electronic Assemblies capacity to support the activities of our higher margin / higher value added Technology Products division. Pleasingly, several Electronics Assemblies customers are being transitioned into Technology Products customers as they seek new design-led solutions from Stadium.

 

Because of this more favourable sales mix, normalised gross profit margins improved to 25.1% (2015: 23.2%) Normalised operating profit margins* were 8.6% (2015: 8.5%) with normalised operating profit* at £4.56m (2015: £4.58m). Normalised profit before tax* grew by 5.2% to £4.22m (2015: £4.01m) and adjusted EPS was 9.1p (2015: 9.9p).

 

 * Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to Financial Review and Note 2 for further information.

 

Statutory reported profit before tax was up 29.4% to £2.20m (2015: £1.70m), which includes non-recurring items such as reorganisation costs, the release of the deferred consideration relating to the Stontronics acquisition, amortisation of acquired intangible assets and interest charged on the fair value of deferred consideration.

 

In 2015, we invested significantly to relocate and materially upgrade our facilities in Asia, and in 2016 we addressed our operating model in Europe, through both investment and reorganisation in facilities, equipment, R&D and people. Net debt was £3.3m (2015: £4.7m), with cash (net of overdrafts and invoice discounting) at £4.6m (2015: £3.8m), enabling the Group to maintain the flexibility to invest appropriately.

 

Dividend

The Board targets a progressive dividend policy, which enables the Group to retain sufficient cash flow to meet its investment needs and support growth. The Board has recommended a final dividend of 1.95 pence per share (2015: 1.80 pence per share) giving a total for the year of 2.90 pence per share (2015: 2.70 pence per share), an increase of 7.4% over the prior year. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 10 May 2017 to shareholders registered at the close of business on 7 April 2017. The ex-dividend date is 6 April 2017.   

 

2016: Establishing a platform for future growth

Over the last two years we have consistently invested across our Technology Products division to drive and support growth over the long-term, and to ensure that our design and manufacturing capabilities are world-class. To complement our existing regional design centres in Shanghai, Southampton and Norwich, we opened a fourth design centre in Stockholm, Sweden, at Kista Science City.  Deemed one of the world's leading high-tech clusters and often described as Europe's "Wireless Valley", this enables us to focus on our fast-growing wireless business and will act as the hub for the Group's research and development (R&D) activities.

 

Following the successful upgrade and relocation to a new facility at our manufacturing centre of excellence in Asia in 2015, we consolidated our European manufacturing footprint from four separate locations into two main manufacturing centres of excellence at Hartlepool and Southampton in the UK. At the same time, we expanded and upgraded the facility in Reading to become the distribution centre for Europe and also completed the successful move to a new distribution and logistics centre in Kowloon, Hong Kong to service the APAC region. During the year we also moved the Group's registered head office from Hartlepool to Reading.

 

In January 2017, post period-end, we invested in a complementary addition to our technology expertise through the acquisition of the assets of Cable Power Ltd ("Cable Power"), a specialist manufacturer and distributor of bespoke cable and power products and accessories to single board computing providers, for £0.75 million in cash. The combination of Cable Power and Stontronics sees Stadium uniquely positioned to offer a highly compelling, exclusively approved 'one-stop-shop' solution for the rapidly expanding single board computer sector a key component in the growth of the Internet of Things (IoT).

 

During the period the decision was taken to establish Stadium Group Inc. to increase our ability to support the development of our activities in North America. This is underpinned by a growing number of new business opportunities for our design-led technology solutions, from both existing and new customers in this region. The ability to support this new business with capability located in the USA is seen as critical to develop this channel for the Group.

 

A more detailed overview of the operational performance of the divisions and business units can be found in the Chief Executive's Operational Review.

 

Board Changes

In October 2016 Joanne Estell, Chief Financial Officer and Company Secretary, stepped down from the Board to pursue new opportunities outside of the Group, and in January 2017 we announced the appointment of Andrew Tonks as Interim Finance Director with immediate effect. On behalf of the Board and shareholders of Stadium, I would like to thank Joanne for her contribution to the business during a period of major transition and her efforts throughout a series of strategic acquisitions. We are also very grateful to Joanne for making herself available to ensure an orderly handover to Andrew. The process to appoint a permanent Finance Director is continuing and we will update shareholders as appropriate.

 

Outlook

We are very excited about the prospects for the Group and believe that our operating model, focused around strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres, will allow us to deliver accelerated growth in 2017. Our capability has been further enhanced by the establishment of Stadium Group Inc. which has strengthened our presence in North America.  Our record year end order book at £25.8m, up 36% on the previous year end, continues to rise. Our offering of complementary electronic technologies and specialist design-focused engineering expertise is proving very attractive to current, previous and new customers, and this growing demand gives us confidence in the outlook for 2017 and beyond.

 

Nick Brayshaw OBE

Chairman

 

14 March 2017

 

Chief Executive's Review

Stadium Group has now been successfully realigned into two distinct divisions: Technology Products, comprising of Wireless solutions, Power supplies and Human Machine Interface ("HMI"); and Electronic Assemblies.

 

The overall contribution from our Technology Products division continued to grow, benefitting from the first full year's contribution from Stontronics, and this helped to mitigate the impact of the loss of a significant wireless customer during the year. Revenues from our Electronic Assemblies division declined faster than expected and we continued to actively manage our exposure to this area where margins are typically lower and the pricing environment remains highly competitive. These factors delayed the accelerated sales growth that we had expected in 2016. However, with a record order book and with a greater number of customers recognising the value of our design-led technology solutions, we are confident of delivering this growth in 2017 and beyond.

 

Technology Products

The Technology Products division recorded revenue growth of 18.1% over the previous year, contributing £31.9m to overall sales, and now represents 60% of total sales, compared to 50% in 2015 and 34% in 2014. This division contributed 72.8% of normalised operating profits, including Group overhead.

 

Wireless Solutions

Our Wireless division has quickly become a key cornerstone of the Group's technology offering following the successful integration of Stadium United Wireless, acquired in July 2014. We are confident that we now have in place a very compelling proposition with a highly experienced new divisional leadership team, supported by our regional design centres, that will not only attract existing and new customers, but which will also allow us to address the needs of previous customers seeking a design-led solution.

 

Vehicle telematics applications continues to be a significant driver of our current business in Wireless and, in March 2016, we announced that we had secured a manufacturing contract worth £5 million with Trak Global Solutions Ltd ("Trak Global"), a leading UK based telematics business. This new contract extends our existing supply partnership whereby Stadium provides Trak Global with their insurance telematics and usage-based insurance units.

 

Underpinned by the design capability of our engineering team in Stockholm, we are also starting to see an exciting new project pipeline develop in other high growth IoT vertical markets such as Smart Home, mHealth, Wearables, industrial automation, energy management and asset tracking. We maintain the view that the IoT/M2M wireless market is an exciting growth space for Stadium and the latest market intelligence continues to suggest strong growth for the foreseeable future:

 

"Berg Insight estimates that the global number of cellular M2M subscribers increased by 30% during 2016 to reach 398.1 million at the end of the year - corresponding to around 5% of all mobile subscribers. Until 2021, the number of cellular M2M subscribers is forecasted to grow at a compound annual growth rate (CAGR) of 26.2% to reach 1,274.8 million at the end of the period. During the same period, cellular M2M network revenues are forecasted to grow at a compound annual growth rate (CAGR) of 26.0% from €6.7 billion in 2015 to approximately €21.4 billion in 2021." The Global M2M/IoT Communications Market - 2015 Report Berg Insight.

 

Power Products

The Power business delivered good growth mainly benefitting from the first full year contribution of Stontronics, which was acquired in August 2015. Stontronics has performed well for the business and the Power division remains focused on offering customised power solutions, enhanced by the technical skills of the teams at regional design centres in Norwich and China.

 

In March 2016, we announced the appointment of Stontronics as the only approved external power supply manufacturer for the new Raspberry Pi 3, a credit-card-sized single board computer ("SBC"). We believe that the SBC market offers significant opportunities for new business. According to a February 2017 report from GM Insights, the global market size for the SBC market "grew to over USD 440 million in 2015 with 12.5% CAGR estimation from 2016 to 2024".

 

Following the year end, we strengthened our position in the SBC market further through the acquisition of the assets of Cable Power Ltd ("Cable Power"), a specialist manufacturer and distributor of bespoke cable and power products and accessories to SBC providers, for £0.75 million in cash. Cable Power's customers include a number of blue chip OEMs, global distributors and Raspberry Pi, with whom it has exclusivity for several accessories, including HDMI cables, power connectors and other accessory bundles. Bringing together the expertise of Cable Power and Stontronics places Stadium in a unique position to offer a highly compelling, exclusively approved 'one-stop-shop' solution for the growing SBC sector.

 

Human Machine Interface (HMI) 

Our HMI business delivered growth ahead of plan. As expected the second half benefitted from a number of new orders, including instrumentation and lighting systems for the aerospace industry as well as a control system for use in military vehicles and other automotive related contracts.

 

Electronic Assemblies

The Electronic Assemblies business remains a key element of our integrated sales strategy, supplying directly to OEM customers, as well as taking on an increasing role as a vertically integrated supplier to the rest of the Group. Electronic Assemblies sales reduced significantly during the period, and at a faster rate than expected, to £21.2m (2015: £26.9m). This was a result of a slowdown in UK demand during the second and third quarters of the year, further reductions in the sales volumes of some legacy products, relentless price pressure and our ongoing commitment to strategically review non-core, low margin sales. This is allowing us to better use our Electronic Assemblies capacity to support the Technology Products division. In addition, a number of historic Electronic Assemblies customers have been converted into Technology Products clients, taking advantage of our design-led offering, particularly with Wireless connectivity solutions and energy efficient Power products designs.

 

Our strategy remains unchanged as we continue to build the business through a combination of design-led organic growth, leveraging our global manufacturing capability and our network of regional design centres, and in a targeted way, to acquire technologies and capabilities that will generate long-term value and improve the quality of earnings.

 

In 2016 we set ourselves the following 'Vital Few' strategic objectives, and I set out below our progress:

 

·     Drive further sales growth and leverage global partnerships

·     Enhance our global operations and develop our technology roadmap

·     Leverage manufacturing capacity to support growth

·     Identify complementary acquisitions

 

Drive further sales growth and leverage global partnerships

Having invested in our technical sales capability in 2015 and 2016 we have been keen to maximise opportunities for further sales growth from existing and new customers, as well as targeting previous clients that can be attracted back with our enhanced design-led offering.

 

In terms of existing customers we are seeing two patterns emerging: a number of existing OEM customers that have used our electronic manufacturing services are being transitioned to our custom-designed products, or those with existing custom-designed products are looking to use Stadium for new design programmes or second generation products. It is also pleasing to see that an increasing number of our customers are now requesting a combination of our technology offerings. As well as targeting new customers with our integrated technology products offering we have also had some initial success in winning back some lost customers who have recognised and welcomed the step-change in our design capability.

 

In terms of global expansion, we have been particularly successful in moving our business away from a traditionally UK centric customer base to a wider mix of UK, North American and European customers.  North America accounted for 11% of Group sales in 2016 and interest is increasing significantly from the region, which currently represents more than 20% of the pipeline going forward.  To support existing customers, new customer wins and further potential sales growth in North America we have established Stadium Group Inc. and will invest circa £0.5 million in 2017 in technical sales and regional fulfilment capability in the region.

 

Enhance our global operations and develop our technology roadmap

Having already made significant investment in our new Asia facility and significantly upgrading our technical capabilities through the establishment of three Regional Design Centres, in 2016 we focused on reviewing our European manufacturing and distribution footprint. During the year we consolidated four separate locations into two main manufacturing centres of excellence in the UK at Hartlepool and Southampton, as well as expanding and upgrading our facility in Reading to become our distribution centre for Europe.  Our UK site rationalisation is now complete.

 

In May 2016, we opened a fourth design and R&D centre for customer-focused wireless connectivity solutions in Kista, near Stockholm, Sweden. Kista Science City is the largest Information and Communication Technology (ICT) cluster in Europe often described as 'Wireless Valley' and the third largest ICT cluster in the world, housing more than 1,000 technology companies. Kista is Stadium Group's hub for wireless technology development, working alongside the Group's additional design centres in Shanghai China, Norwich UK and Southampton UK.

 

This new design centre is led by a high calibre team whose expertise in Wireless Connectivity and IoT technology is world class, specialising in the development of wireless solutions that support data transfer between devices encompassing connectivity in all the different current and next generation global technology platforms.

 

During the year, Kjell Karlsson was appointed as Managing Director of Stadium's Wireless division and our new Swedish entity (SGW Sweden AB). Kjell has over 18 years' experience in the wireless electronics sector and was formerly Managing Director EU & USA for Sunway Communications, a high-tech enterprise focusing on the R&D and manufacture of the mobile terminal antennae and connectors with high electromagnetic compatibility. Prior to that he was Engineering Director for Laird Technologies' Mobile Antenna Systems division, overseeing a global network of design centres. As well as Kjell's appointment we have expanded the team with highly experienced wireless, RF, hardware and software engineers and experienced technical sales capability. Our customers see this capacity as a strong differentiator for Stadium.

 

This year we further strengthened our management team with the appointment of Martin Brabham as Managing Director for our global power supplies business, comprising Stadium Power and Stontronics Ltd, integrated under the banner of Stadium Stontronics. Martin joined Stadium from XP Power where he held a senior commercial position, and has over 25 years' experience in the power products and electronics industry.  He has a detailed knowledge of the sales and marketing of electronic sub‐systems and components to OEMs in the defence, healthcare, communications and industrial sectors.

 

Leverage manufacturing capacity to support growth

The shift to provide a greater proportion of our Technology Products from our manufacturing centres of excellence continued as the three manufacturing sites in Hartlepool, Southampton and Asia act as vertically integrated suppliers to the different business units. All three sites, following investment and upgrades, are now well placed to produce more technically challenging Technology Products. 

 

Interestingly, during 2016 the level of vertically integrated activity in our Electronic Assemblies plants for the Technology Products division increased to greater than 25%. This is expected to double to more than 50% of activity levels in 2017.

 

Identify complementary acquisitions

As previously mentioned, since the year end we strengthened our position in the SBC market by acquiring the assets of Cable Power, a specialist manufacturer and distributor of bespoke cables, power products and accessories.

We believe that there is an opportunity to acquire further complementary technology businesses to strengthen our market position in this sector. We remain committed to acquiring companies that bring a clear value proposition for the Group, and we continue to seek potential targets that increase our exposure to high growth markets, increase our global reach and complement our existing technologies.

 

Outlook

The key focus for our team this year has been to ensure that we have in place the correct operating model that puts 'the customer at the centre of our business' through strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres. This will allow us to deliver the accelerated growth trajectory in 2017 that we had hoped to achieve in 2016. The best indicator of our successful execution of this plan is the £59.8m order intake in 2016, up 11% on the prior year, with a record year end order book for the Group of £25.8m which has continued to grow since the year end.

 

Our enhanced offering of integrated technology products within wireless, power and interface displays, supported by a quality team of talented design engineers, is proving to be very attractive to our customer base and we remain confident that 2017 will be a year characterised by strong sales growth.

 

Finally, I would like to thank all employees across the whole Group for their commitment, positive contribution, enthusiasm and hard work, which I am sure will all combine to deliver the accelerated growth trajectory anticipated for 2017.

 

Charlie Peppiatt

Chief Executive Officer

 

14 March 2017

 

 

 

 

FINANCIAL REVIEW

 

Revenue

Revenues for the year were £53.1m (2015: £53.9m).

 

In-line with the strategy to be a design-led organisation, the Technology Products division increased revenues year on year by 18.1% to £31.9m (2015: £27.0m), contributing 60.1% of Group revenues. This increase was driven by the growth in power products following the Stontronics acquisition. Underlying growth elsewhere in the Technology Products division largely offset the loss of a major wireless customer in the year. Revenues from the Electronic Assemblies division were £21.2m (2015: £26.9m), declining year-on-year by 21.1%. This reflects the decision to exit low margin non-core accounts and the migration of some Electronic Assemblies customers towards the services supplied by the Technology Products division.

 

Profit

Gross margin on a normalised basis improved by 190 basis points to 25.1% (2015: 23.2%) due to the progressive increase in sales from the higher margin Technology Products division and the benefits arising from the recent investment in the operating structure. Acquisitions have also been gross margin accretive. 

  

Operating expenses, excluding non-recurring expenses, increased year on year by £0.7m after the impact of acquisitions and investing £0.5m in the regional design centres. 

 

The above results translated into a normalised profit before tax* (PBT) of £4.2m (2015: £4.0m) and an improvement in return on sales to 8.0% (2015: 7.5%).

 

*Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to table below and note 2 for further information.

 

Normalised adjustments relating to continuing activities excluded from normalised profit before tax are detailed below:

 

 

 

2016

£000

2015

£000

Profit before tax attributable to equity holders of the parent

 

2,201

1,704

 

 

 

Amortisation of acquired intangible assets

 

861

1,026

Interest charge on the fair value of deferred consideration

 

125

134

Acquisition costs

 

67

201

Directorate change (including severance, recruitment and consultancy costs)

 

179

-

Release of deferred consideration no longer payable

 

(500)

-

UK site rationalisation/ re-organisation

 

1,290

334

Asia factory relocation works

 

-

615

 

4,223

4,014

         

 

Statutory reported profit before taxation of £2.2m (2015: £1.7m) was 29% higher than the prior year. This includes the reversal of £0.5m of deferred consideration provided in 2016; as a result of the non-achievement of part of the Stontronics acquisition earnout.

 

Interest and other financing costs

Finance costs in the consolidated income statement were £712k (2015: £783k) analysed as follows:

·     interest payable on debt (net of interest earned on cash deposits) of £189k (2015: £231k);

·     net interest on the net defined benefit pension scheme liability of £386k (2015: £395k);

·     interest on finance leases of £12k (2015: £23k); 

·     interest of £125k (2015: £134k) relating to the charge on the fair value of deferred consideration, which is excluded from normalised profit before tax.

 

Taxation

On a reported profit basis, the charge for taxation was £363k (2015: £321k), an effective rate of taxation of 16.5% (2015: 18.8%).

Earnings per share

On a statutory basis, earnings per share from continuing operations was 4.9p (2015: 4.2p) an increase of 16.7%. Basic adjusted earnings* per share from continuing operations was 9.1p (2015: 9.9p).

 

*Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to note 12 for reconciliation.

 

Dividends

During the year, the Company paid a final dividend for 2015 of 1.80p per share, and a 2016 interim dividend of 0.95p per share. Total cash outflow in respect of dividends paid was £1.0m (2015: £0.8m).

 

The Board proposes a final dividend of 1.95p per share (2015: 1.80p per share), giving a total dividend for the year of 2.90p per share (2015: 2.70p per share), an increase of 7% and a total cash cost of £1.1m (2015: £1.0m). This final dividend is expected to be paid on 10 May 2017 to shareholders on the register on 7 April 2017 with an ex-dividend date of 6 April 2017.

 

Balance sheet

 

Shareholders' funds

Shareholders' funds increased to £18.9m (2015: £18.2m). Movements of note include the following: net debt reduced by £1.4m, trade payables increased by £1.2m and accruals and deferred income increased by £0.6m, offset by an increase in the Group's legacy net pension liabilities of £1.4m.

 

Goodwill and intangibles

As previously reported under IFRS, goodwill is no longer amortised but is instead subject to an annual impairment review. There were no impairments identified in the year. Goodwill on the balance sheet is valued at £15.4m (2015: £15.4m). There were no acquisitions in the year. 

 

Intangible assets arising from business combinations are assessed at the time of acquisition in accordance with IFRS 3 and are amortised over their expected useful life.

 

Other intangible assets comprise development costs, which are capitalised as intangible assets (as required by IFRS), acquisition related customer intangible assets and software costs. Investment in capitalised research and development increased by £0.3m in the year to £0.7m (2015: £0.4m) to support the growth in the Technology Products revenues.

 

The software costs capitalised relate to £0.4m (2015: £nil) of costs associated with the development of a new business system prior to implementation at the first Group location in 2017. Whilst the software purchased is an established ERP software package, as is normal, there is a level of configuration required to ensure the software implemented is optimised for the current and future requirements of the Group and the costs capitalised relate to this work.   

 

Tangible assets

The Group has property, plant and equipment totalling £4.4m (2015: £4.4m). Capital expenditure in the year was £0.4m (2015: £1.5m). The investment in 2015 included £1.2m relating to the Asia factory relocation project, which was successfully completed on time and to budget.

 

Pension schemes

The Stadium Group plc 1974 Pension Scheme and the Southern & Redfern Limited Scheme are final salary pension plans, which are closed to new entrants and future accruals. 

 

The net pension liabilities at the end of 2016 (net of the related deferred tax asset) have increased to £5.6m (2015: £4.2m). The increase in the IAS 19 deficit is predominantly due to a decrease in the discount rate applied from 3.60% in 2015 to 2.60% in 2016. 

 

At the year end, the value of plan assets as a percentage of the defined benefit obligation is as follows: The Stadium Group plc 1974 plan funding status is 82.1% (2015: 84.5%) and the Southern & Redfern Limited Scheme is 107.7% (2015: 111.2%).

 

The Stadium Group plc 1974 Pension Scheme underwent its triennial valuation in early 2015. Given the Group's increasing financial strength and recent developments in pension legislation, a reduction in deficit funding was agreed with the pension Trustees. Going forward, the Company will contribute £0.5m annually to this legacy pension scheme; this was previously agreed at £1.0m. The change was implemented under a plan for the Company to eliminate the pension plan deficit by 31 March 2019. During 2016, the Company made pension contributions of £0.5m (2015: £0.5m).

 

Cash generation and net debt

After payment of the pension deficit contributions and tax amounting to £1.2m (2015: £0.7m), net cash inflow from operating activities was £4.2m (2015: £2.9m), an increase of 47%. This was largely driven by an improvement in working capital management, a continuing area of management focus. Free cash flow was £2.1m (2015: £0.4m). Free cash flow is stated after interest, tax and pensions financing, but before acquisitions, financing activities and dividends, as shown in the table below.

 

 

 

2016

£000

2015

£000

Operating profit

 

2,664

2,402

Depreciation, amortisation, profit/loss on sales of fixed assets and foreign currency translation

 

2,455

2,643

Working capital movement

 

289

(1,476)

Proceeds from sale of property, plant and equipment

 

-

40

Capital expenditure on plant and equipment and software

 

(834)

(1,465)

Development costs

 

(696)

(385)

Difference between pension charge and cash contribution

 

(317)

(323)

Tax

 

(874)

(378)

Interest paid

 

(581)

(673)

 

2,106

385

         

 

At 31 December 2016, net debt including finance leases was £3.3m (2015: £4.7m).

 

Bank facilities

The Group has agreed debt facilities with HSBC, totalling £11.7m at the balance sheet date. £5.0m of this is a revolving credit facility, which was used to fund the acquisition of Stadium United Wireless in 2014. This is repayable in July 2019 with no repayment schedule prior to that date. The remaining balance is a term loan and, to support short-term liquidity, the Group has access to a £0.6m overdraft facility of which £nil (2015: £nil) was utilised. The term loan balance was £2.4m (2015: £2.9m). This loan is repayable in increasing instalments across the period to October 2019.  The Group also has access to an invoice discounting and factoring arrangement of £3.7m is available for draw down, which was not being utilised at 31 December 2016 (2015: £2.4m utilised) as the Group had sufficient funds due to strong cash management.

 

All Group companies have complied with all the financial covenants relating to these facilities.

 

Treasury and risk management

 

Foreign currency effects

The Group has limited exposure to transactional currency effects, as the currency of revenue and cost streams are largely matched by region. Most sales originating from UK operations are denominated in Sterling, so are largely matched with the underlying costs. Similarly, sales made from Asia are normally denominated in US dollars and the cost streams are in US Dollars or local currencies. To the extent that the Group suffers a transactional currency effect, some of the impact has been passed on to customers through price increases.

 

There is a translation effect on consolidation of trading activities from our Asian operations into Sterling for reporting purposes. This effect only becomes realised upon remittance. The strengthening of the average Hong Kong dollar rate against Sterling (compared to the previous year) increased revenues by approximately £2.3m and operating profit by approximately £0.3m.

 

Post balance sheet events

 

Acquisition

The Group announced on 11 January 2017 the acquisition of the assets of Cable Power Ltd, a specialist manufacturer and distributor of bespoke cables, power products and accessories to the single board computing market. The consideration paid was £0.75m in cash. Further details of this acquisition are shown in Note 21 to the accounts.

 

Stadium Inc.

On the 8 February 2017 Stadium incorporated a new legal entity in the state of Delaware, namely Stadium Group Inc. This is currently a non-trading entity and a wholly owned subsidiary of Stadium Group plc.

 

Capital reduction

A special resolution to apply to the Courts for a capital reduction was approved by the shareholders of the Company at the General Meeting held on 19 January 2017. This resolution, which was subsequently approved by the Court on 15 February 2017, has enabled the Company to increase its distributable reserves by £5.3m. These additional distributable reserves provide the Company with greater flexibility with the payment of future dividends and we would like to thank the shareholders, creditors and others for their support in approving this resolution.

 

 

Andrew Tonks

Interim Finance Director

 

14 March 2017

 

 

 

 

Consolidated income statement

for the year ended 31 December 2016

 

 

 

2016

2015

 

Note

£000

£000

Revenue

1

53,069

53,872

Cost of sales

 

(39,744)

(41,365)

Cost of sales - non-recurring

2

(363)

-

Total cost of sales

 

(40,107)

(41,365)

Gross profit

 

12,962

12,507

Other operating income - non-recurring

2

500

-

Operating expenses

2

(9,625)

(8,955)

Operating expenses - non-recurring

2

(1,173)

(1,150)

Total operating expenses

2

(10,798)

(10,105)

Operating profit

 

2,664

2,402

Finance expense

2

(712)

(783)

Finance income

2

249

85

Profit before tax

 

2,201

1,704

Taxation

 

(363)

(321)

Profit attributable to equity holders of the parent

 

1,838

1,383

Basic earnings per share (p)

12

4.9

4.2

Diluted earnings per share (p)

12

4.7

3.8

 

Consolidated statement of comprehensive income

for the year ended 31 December 2016

 

 

 

2016

2015

 

Note

£000

£000

Profit for the year attributable to equity holders of the parent

 

1,838

1,383

Other comprehensive income

 

 

 

Items that will or may be reclassified to profit and loss

 

 

 

Exchange differences on translating foreign operations

 

904

471

Items that will not be reclassified to profit and loss

 

 

 

Actuarial (loss)/gain in pension scheme, net of deferred tax

 

(1,715)

900

Other comprehensive (expense)/income for the year, net of tax

 

(811)

1,371

Total comprehensive income for the year attributable to equity holders of the parent

 

1,027

2,754

 

 

 

 

 

Consolidated statement of financial position

at 31 December 2016

Company number: 00236394

 

 

 

2016

2015

 

 

 

restated*

 

Note

£000

£000

Assets

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

6

4,379

4,363

Goodwill

5

15,379

15,379

Other intangible assets

7

2,194

2,223

Deferred tax assets

 

1,150

1,041

Other receivables

 

119

156

 

 

23,221

23,162

Current assets

 

 

 

Inventories

 

8,148

7,518

Trade and other receivables

 

13,932

13,739

Cash and cash equivalents

 

4,601

8,489

 

 

26,681

29,746

Total assets

 

49,902

52,908

Equity attributable to equity holders of the parent

 

 

 

Equity share capital

11

1,909

1,826

Share premium

 

9,673

9,673

Merger reserve

 

1,559

924

Capital redemption reserve

 

88

88

Translation reserve

 

1,405

501

Retained earnings

 

4,237

5,146

Total equity

 

18,871

18,158

Non-current liabilities

 

 

 

Bank loans

9

6,713

7,350

Finance leases

 

385

455

Other non-trade payables

 

1,108

2,150

Deferred tax

 

215

421

Gross pension liability

 

6,767

5,205

Total non-current liabilities

 

15,188

15,581

Current liabilities

 

 

 

Bank loans and overdrafts

 

637

2,814

Invoice securitisation

 

-

2,399

Finance leases

 

143

153

Trade payables

 

9,994

8,773

Current tax payable

 

237

576

Other payables

 

4,562

4,139

Provisions

 

270

315

Total current liabilities

 

15,843

19,169

Total liabilities

 

31,031

34,750

Total equity and liabilities

 

49,902

52,908

 

*Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. A third balance sheet to restate 2014 has not been included as the adjustment has no net effect on shareholders' funds.

 

 

 

Consolidated statement of changes in equity

for the year ended 31 December 2016

 

 

 

 

Share

Merger

Capital

 

 

 

 

 

 

Ordinary

premium

reserve

redemption

Translation

Retained

 

 

 

shares

restated*

restated*

reserve

reserve

earnings

Total

 

Note

£000

£000

£000

£000

£000

£000

£000

Balance at 31 December 2014

 

1,554

5,302

-

88

30

3,263

10,237

Prior period adjustment

 

-

(924)

924

-

-

-

-

Balance at 31 December 2014 as restated

 

1,554

4,378

924

88

30

3,263

10,237

 

Changes in equity for 2015

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

-

-

-

1,383

1,383

Total profit for the period

 

-

-

-

-

-

1,383

1,383

 

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

-

-

-

-

471

-

471

Actuarial gain on defined benefit plan net of deferred taxation

 

-

-

-

-

-

900

900

Other comprehensive income

 

-

-

-

-

471

900

1,371

Total comprehensive income for the period

 

-

-

 

-

-

471

2,283

2,754

Transactions with owners in their capacity as owners

 

 

 

 

 

 

 

 

Equity settled share based payment transactions

 

-

-

 

-

-

-

364

364

Issue of share capital

11

272

5,737

-

-

-

-

5,999

Payment of transaction costs

 

-

(432)

-

-

-

-

(432)

Dividends

4

-

-

-

-

-

(764)

(764)

Total transactions with owners of the Company

 

272

5,295

 

-

-

(400)

5,167

Balance at 31 December 2015

 

1,826

9,673

924

88

501

5,146

18,158

 

Changes in equity for 2016

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

-

-

-

1,838

1,838

Total profit for the period

 

-

-

-

-

-

1,838

1,838

 

 

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

-

-

 

-

-

904

-

904

 

Actuarial loss on defined benefit plan net of deferred taxation

 

-

-

 

-

-

-

(1,715)

(1,715)

 

Other comprehensive income

 

-

-

-

-

904

(1,715)

(811)

 

Total comprehensive income for the period

 

-

-

 

-

-

904

123

1,027

 

Transactions with owners in their capacity as owners

 

 

 

 

 

 

 

 

 

Equity settled share based payment transactions

 

-

-

 

-

-

-

(7)

(7)

 

Issue of share capital

11

83

-

635

-

-

-

718

 

Dividends

4

-

-

-

-

-

(1,025)

(1,025)

 

Total transactions with owners of the Company

 

83

-

 

635

-

-

(1,032)

(314)

 

Balance at 31 December 2016

 

1,909

9,673

1,559

88

1,405

4,237

18,871

 

                           

 

*Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014.  The amount is equal to the difference between the fair value on issue and the nominal value.

 

The following describes the nature and purpose of each reserve within equity:

Reserve

 

Description and purpose

Ordinary shares

 

Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

Share premium

 

Amount subscribed for share capital in excess of nominal value.

Merger reserve

 

The excess of the fair value over nominal value of shares issued by the Company for the acquisition of businesses is credited to the merger reserve.  This is in accordance with S610 of the Companies Act 2006.

Capital redemption reserve

 

Amounts transferred from share capital on redemption of issued shares.

Translation reserve

 

Gains/losses arising on retranslating the net assets of overseas operations into Sterling.

Retained earnings

 

All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

 

 

 

Consolidated statement of cash flows

for the year ended 31 December 2016

 

Cash flows from operating activities

 

 

2016

2015

 

Note

£000

£000

Profit for the year

 

1,838

1,383

Adjustments for:

 

 

 

Income tax expense

 

363

321

Finance income

2

(249)

(85)

Finance expense

2

712

783

Operating profit

 

2,664

2,402

Share option costs

 

(7)

364

Depreciation

6

731

627

Amortisation of intangibles

7

1,144

1,214

Loss on sale of fixed assets

 

36

58

Effect of exchange rate fluctuations

 

550

380

(Increase)/decrease in inventories

 

(630)

183

Increase in trade and other receivables

 

(157)

(3,239)

Increase in trade and other payables

 

1,101

1,580

Cash generated from operations

 

5,432

3,569

Difference between pension charge and cash contributions

 

(317)

(323)

Tax paid

 

(874)

(378)

Net cash flows from operating activities

 

4,241

2,868

Investing activities

 

 

 

Acquisition of subsidiaries, net of cash acquired

 

-

(4,738)

Purchase of property, plant & equipment and software

 

(834)

(1,465)

Proceeds from sale of property, plant and equipment

 

-

40

Development costs

 

(696)

(385)

Cash flows from investing activities

 

(1,530)

(6,548)

Financing activities

 

 

 

Equity share capital subscribed

 

50

6,000

Payment of share issue transaction costs

 

-

(432)

Interest paid

 

(581)

(673)

Non-operating loan payments received

 

60

112

Net (repayments)/proceeds from use of invoice discounting

 

(2,399)

2,023

Repayment of borrowings

 

(525)

(125)

Finance lease repayments

 

(182)

(233)

Dividends paid on ordinary shares

 

(1,025)

(764)

Cash flows from financing activities

 

(4,602)

5,908

Net (decrease)/increase in cash and cash equivalents

 

(1,891)

2,228

Cash and cash equivalents at start of period

 

6,200

3,906

Exchange gains on cash and cash equivalents

 

292

66

Cash and cash equivalents at end of period

 

4,601

6,200

 

Analysis of changes in net debt

 

 

 

 

Other non-

Foreign

 

 

 

2016

Cash flow

cash changes

exchange

2015

 

 

£000

£000

£000

£000

£000

Cash

 

4,601

(4,180)

-

292

8,489

Overdrafts

 

-

2,289

-

-

(2,289)

Total cash and cash equivalents

 

4,601

(1,891)

-

292

6,200

Loans

 

(7,350)

525

-

-

(7,875)

Invoice discounting

 

-

2,399

-

-

(2,399)

Finance leases

 

(528)

182

(13)

(89)

(608)

Net (debt)/funds

 

(3,277)

1,215

(13)

203

(4,682)

Total equity

 

18,871

 

 

 

18,158

Gearing

 

17.4%

 

 

 

25.8%

 

Gearing is defined as the ratio of net debt to total equity.
 

 

Statement of accounting policies

for the year ended 31 December 2016

 

Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 December 2016, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The information in this preliminary statement has been extracted from the financial statements for the year ended 31 December 2016 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with IFRS. The Group's Annual Report for the year ended 31 December 2016 has yet to be delivered to the Registrar of Companies. The auditors have reported on these accounts. Their report was not qualified and did not contain a statement under Section 498 of the Companies Act 2006. The figures for the year ended 31 December 2016 and 31 December 2015 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies.

 

The report of the auditor was:

 

i. unqualified,

ii. did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and

iii. did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

The preliminary announcement was approved by the Board and authorised for issue on 14 March 2016.

 

Accounting developments and changes

The Group's IFRS accounting policies, have been consistently applied to all the periods presented. The accounting policies have been applied consistently by Group entities.

 

The following standards or interpretations are effective for the first time for periods beginning on or after 1 January 2016:-

 

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11): 1 January 2016

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38): 1 January 2016

Equity Method in Separate Financial Statements (Amendments to IAS 27): 1 January 2016

Annual Improvements to IFRSs (2012-2014 Cycle): 1 January 2016

Disclosure Initiative (Amendments to IAS 1): 1 January 2016

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28): 1 January 2016

 

None of these amendments to standards have a significant effect on the Group's financial statements.

 

Basis of consolidation

The consolidated financial statements present the results of the Company and its subsidiaries (the "Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

 

Accounting estimates and judgements

In preparing these consolidated financial statements, management has made estimates, assumptions and judgements that affect the application of the Group's accounting policies and the reported amounts of assets and liabilities. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Assumptions and estimation uncertainties

Key sources of estimation uncertainty are:

Asset useful life estimates

-

Tangible and intangible assets are depreciated and amortised over their estimated useful lives. Risk arises in determining the actual period that the assets will continue to generate income and therefore the depreciation and amortisation charges appropriate to each financial reporting period.

Development cost useful life estimates

-

Development expenditure is stated at cost less accumulated amortisation. Risk arises in assessing the future period that matches the anticipated revenue generation profile of the product and therefore the amortisation charges appropriate to each financial reporting period.

Stock provisions

-

The stock provision is based on the age of stock to identify items for which there is no current demand or for which net realisable value (NRV) is lower than cost.

Retirement benefit obligations

-

Refer to Note 19 for disclosure of the key sources of estimation uncertainty relating to the retirement benefit obligation.

Goodwill

-

Goodwill is evaluated for impairment at each reporting date. The recoverable amounts of cash generating units have been estimated based on value-in-use calculations.

Credit risk

-

Trade and other receivables are recognised to the extent that, in the opinion of the Directors, they are recoverable in the ordinary course of business. Risk arises from the potential of any customer failing to meet their contractual obligations and settle debts when due. It is Group policy to assess creditworthiness of new customers, to review and, where necessary, renegotiate terms of trade from customers with which it has a good trading history, and to actively monitor customer compliance, ensuring that trading terms are adhered to.

Identification of intangibles on business combinations

-

Identified intangibles acquired in business combinations are recognised separately from goodwill. An intangible asset is identified if it arises from contractual or legal rights or if it is separable. Determining the fair value of intangible assets acquired requires estimates of the future cash flows related to the intangibles and a suitable discount rate to calculate the present value.

Income taxes

-

The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact current and deferred tax expenses and balances in the period in which such determination is made.

Judgements

Key judgements relate to:

 

 

Non-recurring items

-

Transactions classified as non-recurring require judgement to be exercised in identifying which items are of a nature that they will not be expected to recur in the ordinary course of trade and are material for the financial statements to present a true and fair view.

Notes to the financial statements

for the year ended 31 December 2016

 

1. Segmental reporting by operating segment

The Group measures its revenues across two main areas of activity: Electronic Assemblies is the global provision of sub-contract electronic manufacturing services and Technology is the design and manufacture of power supplies, intelligent interface displays and specialist M2M wireless connectivity. Our operating segments are based on the management structure of the Group. Segmental analysis is provided below in respect of these two segments. The Group manages its operations down to operating profit by operating unit and centrally manages its Group taxation and capital structure, including net equity and net debt.

 

The below is the level of information provided to the board, which is considered to be the Chief Operating Decision Maker (CODM). Inter-segment sales are made on an arms length basis. This policy was applied consistently throughout the current and prior period.

 

2016

 

 

Electronic

Non-recurring

 

 

Technology

Products

Assemblies

costs

Total

2016

£000

£000

£000

£000

Total revenue

31,912

21,299

-

53,211

Inter-segmental revenue

(44)

(98)

-

(142)

Total revenue - external customers

31,868

21,201

-

53,069

Segment profit before Group charges

3,947

2,029

(1,036)

4,940

Group charges

(1,252)

(1,024)

-

(2,276)

Operating profit

2,695

1,005

(1,036)

2,664

Finance expense

 

 

 

(712)

Finance income

 

 

 

249

Taxation

 

 

 

(363)

Profit for the year

 

 

 

1,838

 

Non-recurring costs of £156,000 were incurred from the restructuring of the Electronic Assemblies segment of the business, £813,000 from the restructuring of the Technology Products segment of the business and £67,000 from making the post year end acquisition of Cable Power Limited as outlined in Note 23.

 

 

2015

 

 

Electronic

Non-recurring

 

 

Technology Products

Assemblies

costs

Total

2015

£000

£000

£000

£000

Total revenue

27,202

26,955

-

54,157

Inter-segmental revenue

(215)

(70)

-

(285)

Total revenue - external customers

26,987

26,885

-

53,872

Segment profit before Group charges

3,386

2,779

(1,150)

5,015

Group charges

(1,155)

(1,458)

-

(2,613)

Operating profit

2,231

1,321

(1,150)

2,402

Finance expense

 

 

 

(783)

Finance income

 

 

 

85

Taxation

 

 

 

(321)

Profit for the year

 

 

 

1,383

 

Non-recurring costs of £156,000 were incurred from the restructuring of the Electronic Assemblies segment of the business, £178,000 from the restructuring of the Technology Products segment of the business, £615,000 from relocating the Asia factory and £201,000 from making the acquisition of Stontronics Limited.

 

 

 

 

Unallocated

 

 

 

Electronic

and

 

 

Technology Products

Assemblies

adjustments

Total

2016

£000

£000

£000

£000

Segment assets

15,738

13,349

20,815

49,902

Segment liabilities

(4,097)

(10,147)

(16,787)

(31,031)

Segment net assets

11,641

3,202

4,028

18,871

Expenditure on property, plant and equipment*

222

207

-

429

Expenditure on intangibles*

696

-

405

1,101

Depreciation and amortisation

1,165

708

2

1,875

 

 

 

 

Unallocated

 

 

 

Electronic

and

 

 

Technology Products

Assemblies

adjustments

Total

2015

£000

£000

£000

£000

Segment assets

14,935

12,674

25,299

52,908

Segment liabilities

(6,565)

(6,580)

(21,605)

(34,750)

Segment net assets

8,370

6,094

3,694

18,158

Expenditure on property, plant and equipment*

312

1,295

-

1,607

Expenditure on intangibles*

772

-

-

772

Depreciation and amortisation

1,296

545

-

1,841

 

*     Including those acquired in a business combination. The financial information provided to the Board of Directors in respect of total assets and liabilities is measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

 

Segmental reporting by geographical location

 

 

Revenue

 

 

 

- external

Non-current

 

 

customers

assets

 

 

by location

by location

 

 

of customer

of assets

2016

 

£000

£000

UK

 

33,183

20,375

Europe

 

11,328

89

Asia Pacific

 

2,490

2,757

North America

 

6,068

-

 

 

53,069

23,221

 

Sales to the Group's largest single customer of £5,878,000 represented 11% of Group revenues. These sales are recorded within the Electronic Assemblies and Asia segments. No other customer exceeded more than 10% of Group revenues.

 

 

 

Revenue

 

 

 

- external

Non-current

 

 

customers

assets

 

 

by location

by location

 

 

of customer

of assets

2015

 

£000

£000

UK

 

31,483

20,755

Europe

 

8,648

-

Asia Pacific

 

4,198

2,407

North America

 

9,543

-

 

 

53,872

23,162

 

Sales to no single customer exceeded more than 10% of Group revenues.

2. Profit before taxation

 

2016

2015

 

£000

£000

(a)           Operating expenses

 

 

                Distribution costs

(1,014)

(482)

                Administrative expenses

(9,784)

(9,623)

 

(10,798)

(10,105)

(b)           Non-recurring items

 

 

                  Included within cost of sales is the following one-off item, which is considered material due to its size and nature:

 

 

                Technology Products division reorganisation costs

(363)

-

                  Included within other operating income is the following one-off item, which is considered material due to its size and nature:

 

 

                Release of deferred consideration no longer payable - Stontronics Limited

500

-

                  Included within operating expenses are the following one-off items, which are considered material due to their size and nature, or a combination of both:

 

 

                Electronic Assemblies division reorganisation costs

(156)

(156)

                Technology Products division reorganisation costs

(950)

(178)

                Asia factory relocation costs

-

(615)

                Acquisition costs

(67)

(201)

               

(1,173)

(1,150)

(c)           Profit before taxation is stated after charging:

 

 

                Inventories recognised as costs of sale

32,665

34,208

                Costs of equity settled share based payments

(7)

364

                Foreign exchange losses

43

355

                Amortisation of bank loan facility fees

18

13

                Auditor's remuneration

 

 

                Fees payable to the Company's auditor for audit of the parent company and consolidated financial statements

57

56

                The audit of the Company's subsidiaries pursuant to legislation

82

76

                Taxation services

26

22

                Other services

6

34

                For audit of Company pension schemes

12

12

                Operating lease costs - plant and machinery

161

201

                Operating lease costs - other

648

666

                Depreciation

731

627

                Loss on disposal of fixed assets

36

58

                Research and development expenditure

508

109

                Amortisation of development costs and other intangible assets

1,144

1,214

(d)           Finance cost (net) comprises:

 

 

                Interest payable on bank loan, overdrafts and invoice discounting

(189)

(231)

                Other finance costs

(523)

(552)

 

(712)

(e)           Other finance costs comprise:

 

 

                Net interest on the net defined benefit pension scheme liabilities

(386)

(395)

                Interest on finance leases

(12)

(23)

                Interest charge on the fair value of deferred consideration

(125)

(134)

 

(523)

(552)

(f)            Finance income comprises:

 

 

                Non-operating loan interest income

46

54

                Net foreign exchange gain on financing

203

31

 

249

85

 

Normalised Profit

 

Normalised results refer to the underlying performance of the Group and exclude items that are considered to be non-recurring and amortisation of acquired intangibles and interest charged on the fair value of consideration.

 

 

Normalised adjustments:

 

2016

2015

 

£000

£000

Operating profit per Consolidated income statement

2,664

2,402

Adjustments:

 

 

Non-recurring items per Note 2b above

1,036

1,150

Amortisation of acquired intangibles

861

1,026

Normalised operating profit

4,561

4,578

 

 

2016

2015

 

£000

£000

Profit before tax per Consolidated income statement

2,201

1,704

Adjustments:

 

 

Non-recurring items per Note 2b above

1,036

1,150

Amortisation of acquired intangibles

861

1,026

Interest charge on the fair value of consideration

125

134

Normalised profit before tax

4,223

4,014

 

3. Employees

 

2016

2015

 

 

 

Average number of employees (including Directors) during the year was:

 

 

Direct production

 

 

                UK

175

200

                Asia

227

281

Selling and administrative (including indirect production)

270

276

 

672

757

 

Directors' remuneration

 

2016

2015

 

£000

£000

Salaries and benefits in kind

478

624

Severance costs

90

-

Pensions

36

33

Social security costs

71

77

Share based payments

(25)

221

 

650

955

 

Details of the highest paid director are shown in the Report of the Remuneration Committee. The directors are considered to be the key management personnel.

 

4. Dividends

 

2016

2015

 

£000

£000

Ordinary dividends

 

 

2015 final dividend at 1.8p per share (2014: 1.40p)

671

435

2016 interim dividend at 0.95p per share (2015: 0.90p)

354

329

 

1,025

764

 

The Board proposes to pay a 2016 final dividend of 1.95p per share (2015: 1.80p) on 10 May 2017 to shareholders on the register on 7 April 2017, amounting to £727,000 (2015: £671,000).

 

5. Goodwill

 

2016

2015

 

£000

£000

Cost

 

 

At 1 January

15,379

11,149

Acquired during the year through business combinations

-

4,230

At 31 December

15,379

15,379

Accumulated impairment loss

 

 

At 1 January

-

-

Charge for the year

-

-

At 31 December

-

-

Net book value

 

 

At start of year

15,379

11,149

At end of year

15,379

15,379

 

Goodwill acquired through business combinations has been allocated at acquisition to the cash generating units (CGUs) that are expected to benefit from that business combination. The Group's identifiable CGUs are assessed as the core business strategies pursued by the Group and combine entities delivering the same core products. These CGUs are then combined as noted below to create the two recognised operating segments as defined in IFRS 8. Goodwill, however, is still assessed at an individual CGU level. The carrying amount of goodwill has been allocated as per the table below:

 

 

2016

2015

 

 

Electronic

 

 

Electronic

 

 

Technology Products

Assemblies

Total

Technology Products

Assemblies

Total

 

£000

£000

£000

£000

£000

£000

UK - Power

5,218

-

5,218

5,218

-

5,218

UK - Interface & Displays

2,464

-

2,464

2,464

-

2,464

UK - Wireless*

7,161

-

7,161

7,161

-

7,161

Asia - Electronic Assemblies

-

536

536

-

536

536

 

14,843

536

15,379

14,843

536

15,379

*Goodwill in relation to Stadium Zirkon Limited is assessed as part of the Wireless CGU.

 

Goodwill arises on the consolidation of subsidiary undertakings. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP net book value subject to being tested for impairment at that date.

 

In accordance with the requirements of IAS36, Impairment of Assets, goodwill is allocated to the Group's CGUs which are identified by the way that goodwill is monitored for impairment. The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.

 

As part of the annual impairment test review, the carrying value of goodwill has been assessed with reference to value in use over a projected period of five years together with a terminal value. This reflects the projected cash flows of each CGI based on the actual operating results, the most recent Board-approved budget, strategic plans and management projections. Given that Stadium is a technology-led business and the established nature of the subsidiary investments and with regard to the expected longevity of clients, management considers this approach to be appropriate.

 

The key assumptions to the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to sales and overheads during the period. Management uses discount rates of 11% post-tax which reflect the current market assessment of the time value of money and the risks specific to the UK.

 

The growth rates are based on industry growth forecasts and the corporate strategy.

 

The Technology sector offers the opportunity for significantly higher growth than electronics industry averages. Therefore, nominal growth rates for the first five years were used of 20% for Wireless; 5% for Interface and Displays; 3.1% for Power, and thereafter 1.5%. For Electronic Assemblies, a nominal growth rate of 0% was used throughout the years.

 

The growth rate assumed in the terminal value calculations is 1.5%.

 

The following specific individual sensitivities of reasonably possible change have been considered for each CGU in relation to the value-in-use calculations, resulting in the carrying amount not exceeding the recoverable amount:

•    if the long-term growth rate assumption was reduced to 0% and a 2 percentage point increase in the discount rate applied, there would still be sufficient headroom for no impairment to be required.

 

Given the level of headroom indicated by the impairment review no assumption is considered to be sufficiently sensitive to impact the conclusion of the review.

 

6. Property, plant and equipment

 

Freehold

 

 

 

 

land and

Plant and

Fixtures and

 

 

buildings

machinery

equipment

Total

 

£000

£000

£000

£000

Cost

 

 

 

 

At 31 December 2014

1,856

8,537

1,879

12,272

Other additions

19

438

1,027

1,484

Acquisitions

-

75

48

123

Disposals

-

(1,511)

(381)

(1,892)

Foreign exchange movements

-

231

58

289

At 31 December 2015

1,875

7,770

2,631

12,276

Additions

-

224

205

429

Disposals

-

(654)

(299)

(953)

Foreign exchange movements

1

624

323

948

At 31 December 2016

1,876

7,964

2,860

12,700

Depreciation

 

 

 

 

At 31 December 2014

874

6,157

1,790

8,821

Charge in year

42

511

74

627

Disposals

-

(1,423)

(371)

(1,794)

Foreign exchange movements

-

201

58

259

At 31 December 2015

916

5,446

1,551

7,913

Charge in year

40

504

187

731

Disposals

-

(624)

(293)

(917)

Foreign exchange movements

-

449

145

594

At 31 December 2016

956

5,775

1,590

8,321

NBV

 

 

 

 

NBV at 31 December 2016

920

2,189

1,270

4,379

NBV at 31 December 2015

959

2,324

1,080

4,363

NBV at 31 December 2014

982

2,380

89

3,451

 

There were no outstanding commitments in respect of Group capital expenditure. The net book value (NBV) of property, plant and equipment includes £632,000 (2015: £755,000) in relation to plant and machinery held under finance leases. Freehold land and buildings includes assets with an NBV of £899,000 (2015: £935,000) which are the subject of the fixed charges referred to in Note 9.

 

7. Other intangible assets

 

Customer

Customer

Development

Software

 

 

order books

relationships

costs

costs

Total

 

£000

£000

£000

£000

£000

Cost

 

 

 

 

 

At 31 December 2014

680

2,178

731

-

3,589

Acquired through business combinations

100

672

-

-

772

Other additions

-

-

385

-

385

Disposals

-

-

-

-

-

At 31 December 2015

780

2,850

1,116

-

4,746

Acquired through business combinations

-

-

-

-

-

Other additions

-

-

696

405

1,101

Disposals

-

-

-

-

-

Foreign exchange movements

-

-

36

-

36

At 31 December 2016

780

2,850

1,848

405

5,883

Amortisation and impairment losses

 

 

 

 

 

At 31 December 2014

307

675

327

-

1,309

Amortisation for the year

410

616

188

-

1,214

Disposals

-

-

-

-

-

At 31 December 2015

717

1,291

515

-

2,523

Amortisation for the year

63

798

281

2

1,144

Disposals

-

-

-

-

-

Foreign exchange movements

-

-

22

-

22

At 31 December 2016

780

2,089

818

2

3,689

NBV

 

 

 

 

 

NBV at 31 December 2016

-

761

1,030

403

2,194

NBV at 31 December 2015

63

1,559

601

-

2,223

NBV at 31 December 2014

373

1,503

404

-

2,280

 

Amortisation of development costs is recognised in cost of sales as inventory is sold over periods of up to five years consistent with the revenue generation profile of the product. Customer relationships are amortised over a period of between three and five years from acquisition and customer order books over twelve months from acquisition. The intangible assets in respect of customer relationships and order books are acquired in business combinations and are only recognised on consolidation. Software costs are amortised over periods of between three to ten years. The main additions to software costs in the year were under development at the year end and were yet to be implemented, hence the minimal amortisation charge in the year.

 

8. Current payables

 

2016

2015

 

£000

£000

Overdrafts

-

2,289

Current portion of secured bank borrowings

637

525

Invoice securitisation

-

2,399

Finance leases

143

153

Trade payables

9,994

8,773

Current tax payable

237

576

Other payables:

 

 

Tax and social security

1,006

1,244

Other non-trade payables

512

473

Accruals and deferred income

2,377

1,755

Deferred consideration

667

667

Provisions (Note 21)

270

315

 

15,843

19,169

 

9. Non-current payables

 

2016

2015

 

£000

£000

Long-term portion of secured bank borrowings - between one and five years

6,713

7,350

Finance leases - between one and five years

385

455

Deferred consideration - between one and five years

1,108

2,150

 

8,206

9,955

 

The net bank borrowings, including overdrafts and invoice securitisation, of Group companies are secured by fixed and floating charges over the assets of the Group. There is a guarantee relating to indebtedness of all Stadium Group companies to HSBC Bank plc, which is secured by a fixed and floating charge over the assets of all Group companies.

 

The Group has two structured loans bearing interest at an annual rate equal to LIBOR plus 1.9% to 2.3%, based on total net leverage ratio. The first is repayable in increasing instalments across the period to July 2019. At the year-end £2,350,000 (2015: £2,875,000) remained repayable. The second loan of £5,000,000 is repayable in July 2019 and has no formal repayment schedule prior to that date.

 

The Group has additional flexible credit for working capital from invoice securitisation in the form of invoice discounting with the Group's bankers, HSBC. These facilities allow the Group to draw money against its sales invoices before the customer has actually paid. Any borrowings are secured by a fixed charge over those sales invoices borrowed against and a floating charge over remaining Group assets. At the year end the Group had undrawn invoice discounting facilities of £3,726,000.

 

10. Financial instruments

 

Set out below are the narrative and numerical disclosures which the Directors consider to be material and required by International Financial Reporting Standard (IFRS) 7 Financial Instruments.

 

Financial instruments

The Group's financial instruments comprise borrowings, some cash and liquid resources and various items such as trade receivables, trade payables, etc. that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group's operations. It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

 

 

 

 

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers and cash balances.

 

Exposure to credit risk arises on trade receivables on sales to customers and other non-trade receivables totalling £13,358,000. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are carried out on all significant prospective customers and all existing customers requiring credit beyond a certain threshold. Varying approval levels are set on the extension of credit depending upon the value of the sale.

 

Where credit risk is deemed to have risen to an unacceptable level, remedial actions, including the variation of terms of trade, are implemented under the guidance of senior management until the level of credit risk has been normalised.

 

Trade receivables at 31 December 2016 comprised:

 

2016

2015

 

£000

£000

Gross amount:

 

 

Neither impaired nor past due

10,990

11,543

Past due and impaired

93

105

Past due but not impaired:

 

 

-  1-30 days

921

1,256

- 31-60 days

147

10

- 61-90 days

26

32

- 91-120 days

-

-

- more than 121 days

9

-

 

12,186

12,946

Less: provisions held

(93)

(105)

Carrying amount

12,093

12,841

 

The movement in the provision for doubtful debts is as follows:

 

2016

2015

 

£000

£000

Provision for doubtful debts:

 

 

Opening balance

105

85

Bad debts previously provided for now written off or released

(105)

(85)

New and increased doubtful debts provided for

93

105

Closing balance

93

105

 

The Group allows an average debtor's payment period of between 45 and 75 days from invoice date. Trade receivables that are neither impaired nor past due are made up of approximately 200 balances. The largest individual balance was 21% of the total balance and the three largest balances combined represented 39% of the total balance. Historically, these debtors have always paid balances when due, unless the balance or the quality of goods delivered is disputed. The average age of these debtors is 60 days.

 

The Group held cash of £4,601,000 at 31 December 2016 (2015: £8,489,000). The cash is held around the world with HSBC Bank plc and its subsidiaries. It is rated as AA- by Fitch, A1 by Moody's and A by Standard & Poor's.

 

Interest rate risk

 

The Group finances its operations through a mixture of equity, retained earnings and bank borrowings. The Group holds cash and borrows in Sterling, US Dollars and Hong Kong Dollars at floating rates of interest and does not undertake any hedging activity in this area. (Fixed rate finance leases are also used, denominated in Hong Kong Dollars and Euros).

 

The Group's exposure to interest rate risk all relates to the floating rates at which it borrows and lends. This exposure is monitored continually to ensure that the Group remains able to meet its financing commitments from operational cash flows.

The Group's financial liabilities are denominated in Sterling, US Dollars, Hong Kong Dollars and Euros, and have fixed and floating interest rates. The financial liabilities with floating interest rates comprise:

 

•    bank borrowings in Hong Kong Dollars that bear interest on a floating rate of LIBOR plus 2.0%;

•    loans in Sterling that bear interest at rates based on a floating rate of LIBOR plus 1.9%-2.3%;

•    an overdraft in Sterling that bears interest on a floating rate of LIBOR plus 2.0%-2.3% after offset of Sterling deposits; and

•    invoice securitisation that bears interest on a floating rate of LIBOR plus 1.65%.

 

 

The interest rate profile of the Group's financial assets and liabilities at 31 December was as follows:

 

 

 

2016

2015

 

Interest rate

£000

£000

Assets

 

 

 

Sterling

3.25%

157

170

Liabilities

 

 

 

Sterling

0.0%

-

2,289

Sterling

2.5%

7,350

7,879

Sterling

2.2%

-

2,241

Euros

2.0%

495

522

US Dollars

2.0%

-

158

HK Dollars

2.2%

33

82

 

 

7,878

13,171

 

The financial liabilities comprise bank loans and overdrafts bearing interest rates set by reference to the relevant LIBOR rate and finance leases bearing interest at a fixed rate. The financial assets comprise the deferred consideration on the sale of surplus property bearing interest set by the relevant base rate.

 

The maturity profile of the Group's loans and overdrafts and undrawn facilities at 31 December was as follows:

 

 

2016

2016

2015

2015

 

Liabilities

Undrawn

Liabilities

Undrawn

 

£000

£000

£000

£000

On demand - overdraft facilities

-

565

2,289

506

In one year or less

799

3,726

3,116

2,739

In more than one year but not more than two years

995

-

813

-

In more than two years but not more than five years

5,935

-

6,948

-

In more than five years

-

-

-

-

 

7,729

4,291

13,166

3,245

Future finance charges

(379)

-

(603)

-

Present value

7,350

4,291

12,563

3,245

 

The maturity profile of the Group's finance leases is included in Note 22.

 

It is estimated that a 1% change in relevant LIBOR rates would have an annual impact of £65,000 (2015: £79,000) on interest costs.

 

Liquidity risk

 

The Group's exposure to liquidity risk reflects its ability to readily access the funds to support its operations. The Group's policy is to maintain undrawn overdraft borrowing facilities in order to provide the flexibility required in the management of the Group's liquidity. The Group's liquidity requirements are continually reviewed and additional facilities put in place as appropriate.

 

At the year end the Group had overdraft facilities under a cash pooling arrangement across all Group companies of £565,000 (2015: £506,000) of which £Nil (2015: £Nil) was being utilised. Invoice discounting and factoring facilities offered £3,726,000 (2015: £5,138,000) of which £Nil (2015: £2,399,000) was being utilised.

 

Foreign currency risk

 

The Group's exposure to currency risk arises from transactions which are not in the functional currency of the operating unit and from the retranslation of the operating unit's results into Sterling, being the Group's presentational currency.

 

The Group manages its exposure to currency risk by matching the currency of payments and receipts in order to minimise exposure and buys currency when the liability falls due. The Directors do not believe that the Group has significant foreign currency exposure on transactions.

 

The Group foreign currency risk exposure from recognised assets and liabilities arises primarily from its investment in Stadium Asia Limited denominated in Hong Kong Dollars (Notes 1 and 9).

 

There is no significant impact on the income statement from foreign currency movements associated with these assets and liabilities as the effective portion of foreign currency gains and losses arising is recorded through the translation reserve.

At 31 December 2016 the Group had net borrowings denominated in US Dollars of £Nil (2015: £159,000), in Hong Kong Dollars of £33,000 (2015: £82,000) and in Euros of £495,000 (2015: £522,000).

 

It is estimated that a 1% movement in the exchange rate would have an impact of £16,000 (2015: £6,000) on the Group's operating profit and £112,000 (2015: £83,000) on the Group's net assets.

 

 

Fair values of financial assets and liabilities

 

Set out below is a comparison by category of book values and fair values of the Group's financial assets and liabilities as at 31 December 2016:

 

 

2016

2015

 

Book value

Fair value

Book value

Fair value

 

£000

£000

£000

£000

Loans and receivables

 

 

 

 

Cash at bank

4,601

4,601

8,489

8,489

Loans receivable

157

157

170

170

Trade receivables

12,093

12,093

12,841

12,841

Other receivables

1,108

1,108

489

489

 

17,959

17,959

21,989

21,989

Other financial liabilities at amortised cost

 

 

 

 

Bank loans and overdrafts repayable within one year

(637)

(637)

(2,814)

(2,814)

Bank loans repayable after more than one year

(6,713)

(6,713)

(7,350)

(7,350)

Invoice securitisation

-

-

(2,399)

(2,399)

Trade payables

(9,994)

(9,994)

(8,773)

(8,773)

Other payables

(6,764)

(6,705)

(7,971)

(7,788)

 

(24,108)

(24,049)

(29,307)

(29,124)

 

In the opinion of the Directors, there is no material difference between the book value and the fair value of cash, bank borrowings, trade receivables, and trade and other payables in view of their short-term nature, with the exception of deferred consideration, which has been discounted to reflect the time value of money. Within other payables is contingent consideration of £1,775,000 (2015: £2,817,000), which is measured at fair value rather than amortised cost. The fair value is estimated by discounting the expected future contractual cash flows at the current market interest rate. These payables are deemed to fall within fair value hierarchy level 1. Within the period, £500,000 has been released to the income statement as disclosed in Note 2 and described in the Strategic report and £667,000 has been settled by the issue of ordinary shares to that value. The remaining movement in the period of £125,000 relates to the unwinding of the interest charge.

 

11. Equity share capital

 

2016

2015

 

£000

£000

Authorised:

 

 

40,140,000 ordinary shares of 5p each

2,007

2,007

Allotted, called up and fully paid:

 

 

1 January 2016: 36,527,096 ordinary shares of 5p each

1,826

1,554

Issued during the year: 1,651,026 (2015: 5,454,546) ordinary shares of 5p each

83

272

31 December 2016: 38,178,122 ordinary shares of 5p each

1,909

1,826

 

Shares issued during the year included 641,026 in settlement of the first tranche of deferred consideration for the purchase of Stadium United Wireless Limited.

 

Option agreements existed at 31 December 2016 to purchase ordinary shares of 5p each as follows:

Date granted

Number of options

Exercisable between

Price

25 March 2015

245,000

25 March 2018 and 25 September 2018

5.0p

3 May 2016

  90,000

  3 May 2019 and 3 November 2019

5.0p

 

During 2014 the Group acquired all of the shares of Stadium United Wireless Limited. The Group will give additional consideration for the acquisition dependent upon certain EBIT targets being achieved over the following three years. One third of the additional consideration was settled during the year ended 2016. The maximum further earn-out that can be achieved is the issue of further Stadium shares of market value equal to £1,333,333 based on the future share price at the time of the award. The Directors are of the opinion that the profit will exceed the target set for the additional maximum consideration to be made.

 

Share based payments

The Company has operated two schemes offering share based incentives to employees. The Executive Share Option Scheme provided employees the option to buy shares, subject to certain performance criteria being met, between three and ten years from the date of grant (between five and ten years for certain categories of option) at an exercise price equivalent to the share price on the date of grant. The scheme ceased to offer new grants of options in 2005.

 

The Performance Share Plan offers employees the option to buy shares, subject to certain performance criteria being met, three years from the date of grant at an exercise price equivalent to the nominal value of 5p each. The last grant of options under this scheme took place in May 2016.

 

 

 

Details in respect of options outstanding and movements during the year are as follows:

 

 

2016

2015

 

 

Weighted

 

Weighted

 

 

average

 

average

 

 

exercise

 

exercise

 

Number of

price

Number of

price

 

options

£

options

£

Executive scheme

 

 

 

 

At 1 January

-

-

172,000

0.86

Options lapsed

-

-

(172,000)

0.86

Options exercised

-

-

-

-

At 31 December

-

-

-

-

Out of which exercisable

-

-

-

-

Performance Share Plan

 

 

 

 

At 1 January

1,905,000

0.05

1,555,000

0.05

Granted in year

100,000

0.05

400,000

0.05

Options lapsed

(660,000)

0.05

(170,000)

0.05

Options reinstated 2011 issue

-

0.05

120,000

0.05

Options exercised

(1,010,000)

0.05

-

0.05

At 31 December

335,000

0.05

1,905,000

0.05

Out of which exercisable

-

0.05

-

0.05

 

The weighted average share price of options exercised during the year was £0.82 (2015: £Nil).

 

Total share options outstanding at 31 December 2016 had a weighted average exercise price of £0.05 (2015: £0.05) and a weighted average contractual life of four years (2015: two and three quarter years).

 

The charge to the income statement account during the year, based on the fair value of options using Black-Scholes, was as follows:

 

 

2016

2015

 

£000

£000

Fair value of options recognised

346

374

Credit in respect of options lapsed during vesting period

(353)

(10)

Charge to income statement

(7)

364

 

The credit includes a total of £25,000 (2015: £221,000 charge) relating to the two Executive Directors who served during the year.

 

Measurement of share based payments

The fair value of services received in return for share options granted is based on the fair value of share options granted, measured internally using a Black-Scholes model. The key inputs to the model were:

 

 

Options

Options

Options

Options

 

granted

granted

granted

granted

 

October

September

March

May

 

2013

2014

2015

2016

Fair value at measurement date

£0.34

£0.78

£0.95

£0.98

Share price

£0.51

£1.05

£1.16

£1.19

Exercise price

£0.05

£0.05

£0.05

£0.05

Expected volatility

54.1%

47.6%

38.3%

34.4%

Risk-free interest rate

0.8%

1.3%

0.6%

0.6%

 

Managing capital

 

The Group's objectives when managing capital are:

 

•    to safeguard the entity's ability to continue as a going concern so that it can continue to provide returns to shareholders and benefits to other stakeholders; and

•    to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

 

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

The Group monitors capital on the basis of the gearing ratio. Gearing is calculated as net debt divided by total equity. During 2016 the Group maintained gearing in the range between 17% and 26%, which, in the opinion of the Directors, is appropriate to the business activities undertaken. Details of the Group's gearing are given in the "Analysis of changes in net debt" note to the Consolidated statement of cash flows.

 

12. Earnings per share

 

2016

2015

 

Earnings

EPS

Earnings

EPS

 

£000

Pence

£000

Pence

From continuing operations

 

 

 

 

Basic earnings per ordinary share

1,838

4.9

1,383

4.2

Fully diluted earnings per ordinary share

1,838

4.7

1,383

3.8

 

The calculation of basic earnings per share is based on the profit for the financial year of £1,838,000 (2015: £1,383,000) and the weighted average number of ordinary shares in issue during the year of 37,226,717 (2015: 33,149,761).

 

As Stadium United Wireless Limited is expected to meet the earn-out criteria for contingent consideration to be payable, 1,550,387 shares are treated as outstanding and included in the calculation of diluted earnings per share. However, this performance expectation does need to be maintained for a further year for the shares to become fully dilutive. Fully diluted earnings per share therefore reflects both dilutive options granted and shares to be issued as part of contingent consideration resulting in a weighted average number of shares of 39,094,262 ordinary shares (2015: 36,826,317) and profit for the financial year of £1,838,000 (2015: £1,383,000).

 

Adjusted earnings per share from continuing operations is stated before amortisation of acquired intangibles and excluding non-recurring items as follows:

 

 

2016

2015

 

£000

£000

Profit attributable to equity holders of the parent

1,838

1,383

Adjustments:

 

 

Amortisation of acquired intangibles

861

1,026

Interest charge on the fair value of deferred consideration

125

134

UK site rationalisation/reorganisation projects

1,290

334

Asia factory relocation works

-

615

Directorate change

179

-

Acquisition costs of subsidiaries

67

201

Release of deferred consideration no longer payable

(500)

-

Tax effects of above adjustments

(466)

(395)

Adjusted profit from continuing operations

3,394

3,298

 

 

2016

2015

 

Pence

Pence

Adjusted basic earnings per share

9.1

9.9

Adjusted fully diluted earnings per share

8.7

9.0

 

13. Post balance sheet events

 

Acquisition of Cable Power Limited's assets

On 11 January 2017 the Group acquired the assets of Cable Power Limited, a specialist manufacturer and distributor of bespoke cable and power products and accessories to Single Board Computing providers, for £0.75m in cash. There is no contingent consideration payable. This transaction will be accounted for in accordance with IFRS 3 in the 31 December 2017 financial statements.

 

The provisional assessment of the acquisition is net assets acquired of £156,000, intangible customer contracts of £322,000 and goodwill of £272,000.

 

For the year ended 31 December 2016, Cable Power recorded sales of circa £0.7m and profit before interest and tax of circa £0.1m.

 

Colchester-based Cable Power's customers include RS Components, Rapid Electronics, Farnell, CPC and Raspberry Pi, with whom it has exclusivity for several accessories, including HDMI cables, power connectors and other accessory bundles. Cable Power will join Stadium's Power division, Stadium Stontronics, which announced in March 2016 that it had become the only approved external power supply manufacturer for the Raspberry Pi 3.  Cable Power is an excellent fit which complements the Company's strategy to grow its design-led range of technology products.

 

Capital Reduction

Stadium announced on 15 February 2017 that the Court granted an order approving the reduction of the Company's share premium account (the "Capital Reduction"), as approved by shareholders on 19 January 2017. The Company has filed this order with the Registrar of Companies and it is therefore now effective as at 15 February 2017. The purpose of the Capital Reduction was to create additional distributable reserves which will provide the Company with further flexibility in relation to the payment of future dividends.

The background to and reasons for the Capital Reduction relate to the adverse movement on the Group's legacy defined benefit pension scheme, The Stadium Group plc 1974 Pension Scheme. As at 31 December 2015, the deficit on the pension scheme, measured under IAS 19, was £5.2m. Subsequent to the EU referendum result on 23 June 2016, corporate bond yields have fallen significantly in the UK and, as this yield is used to discount the Group's pension liability under IAS 19, if the corporate bond yield remains at the current low levels then it is likely to result in a significant increase in the Group's pension deficit. This likely increased IAS 19 pension deficit would have the effect of materially reducing the Company's available distributable reserves, affecting the Company's ability to distribute profits to Shareholders as dividends.

 

As a result of the 2015 fundraising, the Company's share premium account was increased by £5.3m and, as at 31 December 2015, stood at £10.6m. A share premium account is an un-distributable reserve and, accordingly, the purposes for which the Company can use it are extremely restricted. In particular, it cannot be used for paying dividends.

 

Therefore, given the enlarged share premium account as a result of the 2015 fundraising the Board recommended that the share premium account be reduced by £5.3m, which would restore it to its level prior to the 2015 fundraising. This was approved by the shareholders on 19 January 2017. This has had the effect of creating distributable reserves of this amount, which has provided the Board with additional flexibility to distribute profits to Shareholders as dividends, subject to the financial performance of the Company and the Act.

 

Following the implementation of the Capital Reduction, there is no change in the nominal value of the Ordinary Shares or the number of Ordinary Shares in issue. No new share certificates were issued as a result of the Capital Reduction.

 

Stadium Group Inc

On 8 February 2017 Stadium incorporated a new legal entity in the state of Delaware, namely Stadium Group Inc. This is currently a non-trading entity. It is anticipated in 2017 that this legal entity will facilitate the increase in US business the Group is currently transacting and will support new business wins.  

 

The Directors are not aware of any other post balance sheet events.

 

Annual General Meeting

The annual general meeting will be held at N+1 Singer's offices at One Bartholomew Lane, London EC2N 2AX on 4 May 2017 at 11.00 am.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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