REG - Accsys Technologies - Preliminary Results for year ended 31 March 2015 <Origin Href="QuoteRef">ACCS.L</Origin> - Part 3
16/07/2015 11:05
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capitalised, and is
subject to annual impairment reviews by the Directors. Any impairment arising is charged to the statement of comprehensive
income. Where the fair value of the identifiable assets and liabilities acquired is greater than the fair value of
consideration paid, the resulting amount is treated as a gain on a bargain purchase and has been recognised in the income
statement.
Other intangible assets
Intellectual property rights, including patents, which cover a portfolio of novel processes and products, are shown in the
financial statements at cost less accumulated amortisation and any amounts by which the carrying value is assessed during
an annual review to have been impaired. At present, the useful economic life of the intellectual property is considered to
be 20 years.
Internal development costs are incurred as part of the Group's activities including new processes, process improvements,
identifying new species and improving the Group's existing products. Research costs are expensed as incurred. Development
costs are capitalised when all of the criteria set out in IAS 38 'Intangible Assets' (including criteria concerning
technical feasibility, ability and intention to use or sell, ability to generate future economic benefits, ability to
complete the development and ability to reliably measure the expenditure) have been met. These internal development costs
are amortised on a straight line basis over their useful economic life, between 10 and 20 years.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment charged. Cost includes
the original purchase price of the asset as well as costs of bringing the asset to the working condition and location of
its intended use. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each
asset, except freehold land, over its expected useful life on a straight line basis, as follows:
Plant and machinery These assets comprise pilot plants and production facilities. These
facilities are depreciated from the date they become available for use at rates applicable to the asset lives expected for
each class of asset, with rates between 5% and 20%.
Office equipment Between 20% and 50%.
Leased land and buildings Land held under a finance lease is depreciated over the life of the lease.
Freehold land Freehold land is not depreciated.
Impairment of non-financial assets
The carrying amount of the non-current non-financial assets of the Group is compared to the recoverable amount of the
assets whenever events or changes in circumstances indicate that the net book value may not be recoverable, or in the case
of goodwill, annually. The recoverable amount is the higher of value in use and the fair value less cost to sell. In
assessing the value in use, the expected future cash flows from the assets are determined by applying a discount rate to
the anticipated pre-tax future cash flows. An impairment charge is recognised in the statement of comprehensive income to
the extent that the carrying amount exceeds the assets' recoverable amount. The revised carrying amounts are amortised or
depreciated in line with Group accounting policies. A previously recognised impairment loss, other than on goodwill, is
reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the
impairment. This reversal is recognised in the statement of comprehensive income and is limited to the carrying amount
that would have been determined, net of depreciation, had no impairment loss been recognised in prior years. Assets are
grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units) for purposes of
assessing impairment.
Leases
Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis
over the lease term.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the
lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance
expenses and reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the
liability.
Inventories
Raw materials, which consist of unprocessed timber and chemicals used in manufacturing operations are valued at the lower
of cost and net realisable value. The basis on which cost is derived is a first-in, first-out basis.
Finished goods, comprising processed timber, are stated at the lower of weighted average cost of production or net
realisable value. Costs include direct materials, direct labour costs and production overheads (excluding the
depreciation/depletion of relevant property and plant and equipment) absorbed at an appropriate level of capacity
utilisation. Net realisable value represents the estimated selling price less all expected costs to completion and costs
to be incurred in selling and distribution.
Financial assets
Financial assets are classified as cash and cash equivalents, available for sale investments and loans and receivables,
depending on the purpose for which the asset was acquired. When financial assets are recognised initially, they are
measured at fair value plus, in the case of investments not at fair value, through profit or loss directly attributable
transaction costs.
Except where a reliable fair value cannot be obtained, unlisted shares held by the Group are classified as available for
sale investments and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly
in equity, with the exception of impairment losses which are recognised directly in profit or loss. Where an investment is
disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the profit or loss in the
year. Where it is not possible to obtain a reliable fair value, these investments are held at cost less provision for
impairment.
Loans and receivables, which comprise non-derivative financial assets with fixed and determinable payments that are not
quoted on an active market are initially recognised at fair value plus transaction costs that are directly attributable to
their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less
provision for impairment.
Trade and other receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted on an active
market. They arise principally from the provision of goods and services to customers. Trade receivables are initially
recognised at fair value less an allowance for any uncollectible amounts. A provision for impairment is made when there is
objective evidence that the Group will not be able to collect debts. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits,
including liquidity funds, with an original maturity of three months or less. For the purpose of the statement of
consolidated cash flow, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding
bank overdrafts.
Financial liabilities
Other financial liabilities
Trade payables and other financial liabilities are initially recognised at fair value and subsequently carried at amortised
cost using the effective interest method.
Share capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of
a financial liability. The Group's shares are classified as equity instruments.
Accounting estimates and judgements
In preparing the Consolidated Financial Statements, management has to make judgments on how to apply the Group's accounting
policies and make estimates about the future. The critical judgments that have been made in arriving at the amounts
recognised in the Consolidated Financial Statements and the key sources of estimation and uncertainty that have a
significant risk of causing a material adjustment to the carrying value of assets and liabilities in the next financial
year are discussed below:
Revenue recognition
The Group has considered the criteria for the recognition of licence fee income over the period of the agreement and is
satisfied that the recognition of such revenue is appropriate. The recognition of licence fees is based upon an assessment
of the work required before the licence is signed and subsequently during the construction and commissioning of the
licensees' plant, with an appropriate proportion of the fee recognised upon signing and the balance recognised as the
project progresses to completion. The Group also considers the recoverability of amounts before recognising them as
income.
Goodwill
The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated
above. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These
calculations require the use of judgments in relation to discount rates and future forecasts. (See note 15). The
recoverability of these balances is dependent upon the Group's existing licensees progressing with the completion of their
manufacturing facilities or the signing of new licence or consortium agreements. While the scope and timing of the
production facilities to be built under the Group's existing and future agreements remains uncertain, the Directors remain
confident that revenue from either existing licensees or under new license or consortium agreements will be generated,
demonstrating the recoverability of these balances.
Intellectual property rights and property, plant and equipment
The Group tests the carrying amount of the intellectual property rights and property, plant and equipment whenever events
or changes in circumstances indicate that the net book value may not be recoverable. These calculations require the use of
estimates in respect of future cash-flows from the assets by applying a discount rate to the anticipated pre-tax future
cash-flows. The Group also reviews the estimated useful lives at the end of each annual reporting period. (See note 15 &
16). The price of the Accoya® wood and the raw materials and other inputs vary according to market conditions outside of
the Group's control. Should the price of the raw materials increase greater than the sales price or in a way which no
longer makes as Accoya® competitive, then the carrying value of the property, plant and equipment or IPR may be in doubt
and become impaired. The Directors consider that the current market and best estimates of future prices mean that this risk
is limited.
Inventories
The Group reviews the net realisable value of, and demand for, its inventory on a monthly basis to provide assurance that
recorded inventory is stated at the lower of cost and net realisable value after taking into account the age and condition
of inventory. (See note 20).
Available for sale investments
The Group has an investment in unlisted equity shares carried at nil value. The investment is valued at cost less any
impairment as a reliable fair value cannot be obtained since there is no active market for the shares and there is
currently uncertainty around the future funding of the business. The Group makes appropriate enquiries and considers all of
the information available to it in order to assess whether any impairment has occurred. (See note 17).
New standards and interpretations in issue but not yet effective at the date of authorisation of these financial
statements:
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been
applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by
the EU).
• IFRS 9 'Financial Instruments'
• IFRS 10 'Consolidated Financial Statements'
• IFRS 12 'Disclosure of Interests in Other Entities'
• IAS 27 (amendments) 'Separate financial statements'
• IAS 28 (amendments) 'Associates and joint ventures'
• IAS 32 (amendments) 'Financial instruments presentation'
• IAS 36 (amendments) 'Recoverable Amount Disclosures for Non-Financial Assets'
The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact
on the financial statements of the Group in future periods.
2. Segmental reporting
The Group's business is the development, commercialisation and licensing of proprietary technology for the manufacture of
Accoya® wood, Tricoya® wood elements and related acetylation technologies. Segmental reporting is divided between licensing
and business development activities, the manufacturing and sale of Accoya® and research and development activities.
Result by Segment: Licensing, Management and Business Development
2015 2014
E'000 E'000
Revenue 1,051 1,134
Cost of sales - -
Gross profit 1,051 1,134
Other operating costs (8,527) (6,954)
Exceptional Items (2,937) (726)
Other operating costs (11,464) (7,680)
Loss from operations (10,413) (6,546)
Loss from Operations (10,413) (6,546)
Depreciation and amortisation 430 412
EBITDA (9,983) (6,134)
Manufacturing
Revenue 45,026 32,378
Cost of sales (33,842) (25,753)
Gross profit 11,184 6,625
Other operating costs (6,253) (6,142)
Profit/(loss) from operations 4,931 483
Profit/(loss) from Operations 4,931 483
Depreciation and amortisation 2,004 1,910
EBITDA 6,935 2,393
Research and Development
Revenue - -
Cost of sales - -
Gross result - -
Other operating costs (1,205) (1,151)
Loss from operations (1,205) (1,151)
Loss from Operations (1,205) (1,151)
Depreciation and amortisation 41 54
EBITDA (1,164) (1,097)
Total
Revenue 46,077 33,512
Cost of sales (33,842) (25,753)
Gross profit 12,235 7,759
Other operating costs (15,985) (14,247)
Exceptional Items (2,937) (726)
Other operating costs (18,922) (14,973)
Loss from operations (6,687) (7,214)
Share of joint venture loss (1,098) (905)
Finance income 73 155
Finance expense (208) (226)
Exceptional gain on acquisition of subsidiary 267 -
Loss before taxation (7,653) (8,190)
Loss from Operations (6,687) (7,214)
Share of joint venture loss (1,098) (905)
Depreciation and amortsation 2,475 2,377
EBITDA (5,310) (5,742)
EBITDA (before exceptional items) (2,372) (5,017)
Licensing, Management and Business Development
Revenue is attributable to fees from licensees of the Group's technology to third parties.
Other operating costs include all remaining costs unless they are directly attributable to Manufacturing or Research and
Development. This includes marketing, business development, management and the majority of the Group's administration costs
including the head office in Windsor as well as the US office.
Headcount = 21 (2014: 21)
Manufacturing
Revenue includes the sale of Accoya® and other revenue, principally relating to the sale of acetic acid.
All costs of sales are allocated against manufacturing activities in Arnhem unless they can be directly attributable to a
licensee.
Other operating costs include depreciation of the Arnhem property, plant and equipment together will all other costs
associated with the operation of the Arnhem manufacturing site, including directly attributable administration costs.
Headcount = 77 (2014: 67)
Research and Development
Costs are associated with various R&D activities associated with Accoya® and processes. The costs are reported excluding
E201,000 of costs which have been capitalised in accordance with IFRS. (2014: E455,000).
Headcount = 13 (2014: 13)
Assets and liabilities cannot be readily allocated to the three segments and therefore no additional segmental information
has been disclosed.
Analysis of Revenue by geographical area of customers: 2015 2014
E'000 E'000
UK and Ireland 17,760 11,300
Benelux 8,431 8,822
Rest of Europe 10,704 7,501
Americas 5,522 3,377
Asia-Pacific 3,151 1,901
Rest of World 509 612
46,077 33,512
Revenue generated from two customers exceeded 10% of Group revenue of 2015, represented by 34% and 31% respectively, of the
revenue from the United Kingdom and Ireland and relates to manufacturing revenue. Revenue generated from one single
customer exceeded 10% of Group revenue in 2014. (43% of United Kingdom).
Analysis of non-current assets (Other than financial assets and deferred tax): 2015 2014
E'000 E'000
UK 5,803 4,491
Other countries 19,528 20,690
Un-allocated - Goodwill 4,231 4,231
29,562 29,412
The segmental assets in the current year and the previous year were predominantly held in Europe. Additions to property,
plant, equipment and intangible assets in the current year and the previous year were predominantly incurred in Europe.
There are no significant intersegment revenues.
3. Other operating costs
Other operating costs consist of the operating costs, other than the cost of sales, associated with the operation of the
plant in Arnhem and the offices in Dallas and Windsor:
2015 2014
E'000 E'000
Sales and marketing 3,191 2,882
Research and development 1,205 1,151
Depreciation and amortisation 2,475 2,377
Other operating costs 2,395 2,243
Administration costs 6,719 5,594
Exceptional Items 2,937 726
18,922 14,973
During the period, E201,000 (2014: E459,000) of development costs were capitalised and included in intangible fixed assets.
This includes nil in respect of the Accoya® licence Process Design Package (2014: E152,000).
Administration costs also include the costs associated with the Group's head office in Windsor, the US office in Dallas
together with business development and management costs.
Exceptional costs relate to the arbitration with Diamond Wood - see note 4.
4. Exceptional items
On 25 July 2014 Accsys announced that the arbitration tribunal (the "Tribunal") appointed in relation to the dispute
between Accsys and Diamond Wood China Limited ("Diamond Wood") had delivered a 'First Partial Final Award' (the "Award").
In response to Diamond Wood's claim against Accsys, namely for damages in excess of E140 million as previously published by
Diamond Wood, and for the continuation of the Licence Agreement, the Tribunal ruled that Diamond Wood could only claim for
limited damages (if any) up to a maximum of E250,000. However, the Tribunal also ruled that the licence agreement between
the two parties is to continue.
On 19 September 2014 Accsys announced that the Tribunal issued a final award in respect of costs relating to the Ruling
which are payable to Diamond Wood, being approximately £1.6m.
The Exceptional item therefore includes E2.4m in respect of the awards for damages and Diamond Wood's costs. In addition,
Accsys has incurred a further E0.5m in respect of its own legal costs in the period. This is in addition to E0.7m incurred
in the previous financial year which has also been represented as an exceptional item.
In addition there is also an exceptional item gain of E267,000 recorded in the period relating to the acquisition of the
remaining 50% of Tricoya Technologies Limited - see note 8.
5. Employees
2015 2014
E'000 E'000
Staff costs (including Directors) consist of:
Wages and salaries 7,138 6,469
Social security costs 1,051 926
Other pension costs 516 434
Share based payments 1,427 1,177
10,131 9,006
The average monthly number of employees, including Executive Directors, during the year was as follows:
Number Number
Administration, research and engineering 67 67
Operating 44 34
111 101
6. Directors' remuneration
2015 2014
E'000 E'000
Directors' remuneration consists of:
Directors' emoluments 992 894
Company contributions to money purchase pension schemes 50 47
1,042 941
Compensation of key management personnel included the following amounts:
Salary, bonus and short term benefits Share based payments charge
2015 2014
Pension Total Total
E'000 E'000 E'000 E'000 E'000
Paul Clegg 403 31 482 916 826
Hans Pauli 266 12 154 432 393
William Rudge 179 7 83 269 232
848 50 719 1,617 1,451
The Group made contributions to 3 (2014: 3) Directors' personal pension plans.
7. Operating loss
2015 2014
E'000 E'000
This has been arrived at after charging:
Staff costs 10,131 9,006
Legal costs - Diamond Wood arbitration (note 4) 2,937 726
Depreciation of property, plant and equipment 2,100 2,024
Amortisation of intangible assets 375 352
Operating lease rentals 1,030 1,011
Foreign exchange (gains)/losses (31) 65
Research & Development (excluding staff costs) 658 535
Loss on disposal of property, plant and equipment - 77
Fees payable to the Company's auditors for the audit of the Company's annual financial statements 72 63
Fees payable to the Company's auditors for other services:
- audit of the Company's subsidiaries pursuant to legislation 91 80
- audit related assurance services 27 24
Total audit and audit related services: 190 167
- tax compliance services 71 53
- all other services 15 27
Total tax and other services: 86 80
8. Joint venture and business combination
On 5 October 2012, Accsys entered into a 50:50 joint venture with Ineos to exploit Accsys' intellectual property
surrounding its proprietary Tricoya® wood elements acetylation technology and processes, which is expected to lead to the
accelerated global deployment of Tricoya.The company, Tricoya Technologies Limited ('TTL'), will develop and exploit
Accsys' Tricoya technology for use within MDF, particle board and wood plastic composites in a worldwide panel products
market estimated to be worth more than E60 billion annually.
As part of the transaction, TTL was granted rights to exploit Accsys' Tricoya® technology and also benefited from a licence
of any intellectual property held by Ineos that may assist the joint venture in maximising the value of the Tricoya®
proposition. Results generated by TTL were to be shared between Accsys and Ineos in a way that reflected each party's
interest, which was 50% during the period.
TTL has been accounted for during the period using the equity method reflecting that it was a joint venture. On 31 March
2015, Accsys agreed to acquire Ineos's 50% equity interest as part of terms which included the termination of the joint
venture agreement and for consideration of E1. Therefore as at 31 March 2015, Accsys owned 100% of the share capital of TTL
and its balance sheet has been fully consolidated.
The fair value of the assets and liabilities acquired was determined to be the same as the book value held in TTL's own
books (as below) and no additional assets or liabilities were identified in the business combination. A resulting gain of
E267,000 has been recorded in the period as a gain on acquisition of subsidiary due to this bargain purchase, and is shown
as an exceptional item.
Income statement of TTL joint venture:
2015 2014
E'000 E'000
Revenue 483 153
Costs:
Staff costs 1,346 1,230
Research & development (excluding staff costs) 515 278
Intellectual Property 242 133
Sales & marketing 576 322
Joint venture loss 2,196 1,810
Group share of joint venture loss 1,098 905
Investment in joint venture at 1 April 340 62
Group share of loss reported (1,098) (905)
Less elimination of mark-up on recharged costs 29 (17)
Investments in joint venture 1,600 1,200
Disposal of investment in joint venture on acquisition of investment in subsidiary (871) -
Carrying value of joint venture at 31 March - 340
Tricoya Technologies Limited statement of financial position at 31 March 2015:
2015 2014
E'000 E'000
Non-current assets
Intangible assets 1,855 1,382
Current assets
Receivables due within one year 71 150
Cash and cash equivalents 1,338 499
1,409 649
Current liabilities
Trade and other payables (2,229) (1,302)
Net current assets (820) (653)
Net assets 1,035 729
100% attributable to Accsys Technologies (2014: 50%) 1,035 365
Less elimination of mark-up on recharged costs 29 (17)
Equity and reserves
Share capital 5,900 3,400
Accumulated loss (4,865) (2,671)
Total equity 1,035 729
9. Finance income
2015 2014
E'000 E'000
Interest receivable on bank and other deposits 73 155
10. Finance expense
2015 2014
E'000 E'000
Arnhem land sale and leaseback finance charge 208 226
11. Tax expense
2015 2014
E'000 E'000
(a) Tax recognised in the statement of comprehensive income comprises:
Current tax expense
UK Corporation tax on profits for the year - -
Research and development tax credit in respect of current year (190) (169)
(190) (169)
Overseas tax at rate of 15% 39 2
Overseas tax at rate of 25% 758 -
Deferred Tax
Utilisation of deferred tax asset - 866
Total tax charge reported in the statement of comprehensive income 607 699
2015 2014
E'000 E'000
(b) The tax credit for the period is lower than the standard rate of
corporation tax in the UK (2015: 21%, 2014: 23%) due to:
Loss profit before tax (7,653) (8,190)
Expected tax credit at 21% (2014 - 23%) (1,607) (1,884)
Expenses not deductible in determining taxable profit 79 367
Under/(over) provision in respect of prior years 802 (383)
Losses transferred to deferred tax asset but not recognised 1,042 2,420
Effects of overseas taxation 109 67
Other temporary differences (8) (57)
Research and development tax credit in respect of prior years (29) -
Research and development tax credit in respect of current year 219 169
Total tax charge reported in the statement of comprehensive income 607 699
12. Dividends Paid
2015 2014
E'000 E'000
Final Dividend ENil (2014: ENil) per Ordinary share proposed
and paid during year relating to the previous year's results - -
13. Loss per share
The calculation of loss per ordinary share is based on loss after tax and the weighted average number of ordinary shares in
issue during the year.
Basic and diluted earnings per share 2015 2015 2014 2014
Before exceptional items Total Before exceptional items Total
Weighted average number of Ordinary shares in issue ('000) 88,538 88,538 87,482 87,482
Loss for the year (E'000) (5,590) (8,260) (8,163) (8,889)
Basic and diluted loss per share E(0.06) E(0.09) E(0.09) E(0.10)
Basic and diluted losses per share are based upon the same figures. There are no dilutive share options as these would
increase the loss per share.
The weighted average number of shares has been represented for all periods to take account of the 5 to 1 share
consolidation which became effective on 12th September 2014.
14. Share based payments
The group operates a number of share schemes which give rise to a share based payment charge. During the prior period, the
group introduced a Long Term Incentive Plan ('LTIP') in order to reward members of the senior management team and the
executive directors. As part of the award of nil costs options under the LTIP, the recipients relinquished all share
options that they held which had been awarded under the 2005 and 2008 Share Option plans. Other employees continue to hold
options awarded under these earlier schemes.
In addition, the group operates an Employee Share Participation Plan, which is available to all employees, and also makes
annual awards under the Employee Benefit Trust. Details of all these schemes are given below.
Options - total
The following figures take into account options awarded under the LTIP in the period together with share options awarded in
previous years under the 2005 and 2008 Share Option schemes.
Outstanding options granted are as follows:
Number of outstanding Weighted average remaining
options at 31 March contractual life, in years
Date of grant 2015 2014 2015 2014
1 March 2005 - 269,265 - 0.9
28 March 2007 115,586 747,958 2 3
20 November 2007 48,444 242,236 2.6 3.6
18 June 2008 8,498 42,498 3.3 4.3
8 December 2008 37,110 206,821 3.7 4.7
27 July 2010 164,321 821,620 5.3 6.3
1 August 2011 160,000 800,000 6.3 7.3
19 September 2013 (LTIP) 4,278,630 21,393,185 8.5 9.5
Total 4,812,589 24,523,583 7.9 8.9
Movements in the weighted average values are as follows:
Weighted
average
exercise
price Number
Outstanding at 31 March 2013 E0.38 25,448,374
Granted during the year - LTIP E 0.00 21,393,185
Cancellation of options (in relation to LTIP) E 0.32 (22,281,145)
Forfeited during the year E1.66 (36,831)
Outstanding at 31 March 2014 E0.10 24,523,583
Forfeited before 12 September 2014 E 0.97 (21,248)
Oustanding 11 September 2014 E 0.11 24,502,335
Adjustment for 12 September 2014 share consolidation E 0.45 (19,601,898)
Outstanding - after impact of 2014 share consolidation E 0.56 4,900,437
Forfeited after 12 September 2014 E 9.15 (33,998)
Expired during the year E1.60 (53,850)
Outstanding at 31 March 2015 E0.48 4,812,589
The exercise price of options outstanding at the end of the year ranged between Enil (for LTIP options) and E12.90 (2014:
NIL and E12.90) and their weighted average contractual life was 8.1 years (2014: 8.9 years).
Of the total number of options outstanding at the end of the year, 77,057 (2014: 202,500) had vested and were exercisable
at the end of the year. No options were exercised in the current or previous year.
Long Term Incentive Plan ('LTIP')
During the prior period, the group established a Long Term Incentive Plan, the participants of which are key members of the
management team. The establishment of the LTIP was approved by the shareholders at the AGM in September 2013.
A prerequisite of participation in the LTIP was for the management team to agree to the cancellation of their entire
outstanding share
options, providing the Company with a 5% reduction in the level of dilution to make the new awards. A cancellation was
agreed as the most appropriate action as it would focus the management team on the new LTIP and not on historical awards or
arrangements. Details of the cancellation of the share options in the prior period (previously awarded under the 2005 and
2008 Share Option schemes) are set out further below.
LTIP overview
Under the LTIP, awards can be granted on a discretionary basis to key members of the management team. During the prior
period, an initial 'one off' grant was made in order to focus the management team on the growth of the Company over the
next three years. Awards were granted in the form of nil-cost options and consist of the following 'elements':
Element Objective Description
A Retention based award to lock-in executives whohave contributed to theturnaround In consideration to agreeing to the cancellation of the participant's existing options, a proportion of the new share award vests on continuity of employment over the next three years.To ensure there is no value shift to the participants via the cancellation, this element requires an additional three years of services from the participant and will be forfeited if the share price at the end of the performance period is
below E0.65.
B Performance based shareaward This element aligns the participant to the future success of the Company by linking the level of vesting to EBITDA and share price growth against the constituents of the MSCI Europe Index (or another other broad based European index as deemed appropriate by the Remuneration Committee).
C Exceptional performancemultiplier This element ensures that if significant value is created for shareholders then participants will be entitled to receive an appropriate proportion of this value.
Performance conditions
Awards granted under the LTIP are subject to continued employment and satisfaction of the performance conditions.
Performance will be measured at the end of a three year performance period for each Element.
Element A - Vesting is contingent upon continued employment for three years and share price not falling below E0.65 at the
end of the performance period.
Element B - Measured against two equally weighted performance conditions:
Threshold Target Maximum
EBITDA (50% of Element B) E0m E1.6m E4m
Share price growth(50% of Element B) Median of the constituents ofthe MSCI Europe Index 60th percentile of theconstituents of the MSCIEurope Index Upper quartile of theconstituents of the MSCIEurope Index
Vesting level1 25% 60% 100%
Notes:
1. Vesting is on a straight line basis between the respective EBITDA and share price targets.
Element C - This element vests in full if the share price is at or above E1.30 at the end of the performance period.
Awards made in prior period
Immediately following the establishment of the new LTIP in September 2013, awards were made to members of the management
team. A total of 4,278,630 nil cost options were awarded. 1,593,331 were allocated as Element A, 1,837,572 as Element B and
847,727 were allocated as Element C. At the same time, a total of 4,456,229 of old options were cancelled.
All recipients were still employed by the Group as at 31 March 2015.
Element A was designed to recognise the contribution made by individuals to the turnaround of the Company and the
cancellation of the existing options was a prerequisite for participation in the LTIP. The quantum of Element A for each
participant was linked to the expected value of the existing options which were cancelled where there was a reasonable
probability of pay out. As a result, under IFRS 2, the award of Element A was accounted for as a modification of the
existing share options and as the award was designed to avoid any transfer of value, the resulting share based payment
charge is the same as if the existing options had not been cancelled.
Elements B and C have been accounted for as new awards with the fair value calculated based on a modified Black-Scholes
model assuming inputs described below:
Element Element B Element B Element C
(EBITDA) (Share price growth)
Grant date 19Sep13 19Sep13 19Sep13
Share price at grant date (E) 0.70 0.70 0.70
Exercise price (E) 0.00 0.00 0.00
Expected life (years)
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