REG - Assoc British Enging - Annual Financial Report <Origin Href="QuoteRef">ASBE.L</Origin> - Part 1
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RNS Number : 6657L
Associated British Engineering PLC
07 July 2014
Company Number: 00110663
ASSOCIATED BRITISH ENGINEERING PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 MARCH 2014
ASSOCIATED BRITISH ENGINEERINGPLC
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2014
CONTENTS
Page
Financial highlights
1
Chairman's statement
2
Directors' report
3
Strategic report
6
Report of the independent auditor - Group
9
Group accounting policies
12
Group income statement
21
Group statement of comprehensive income
21
Group balance sheet
22
Group statement of changes in equity
23
Group cash flow statement
24
Notes to the Group financial statements
25
Report of the independent auditor - Company
38
Principal accounting policies - Company
39
Company balance sheet
41
Notes to the company financial statements
42
Statement of directors' responsibilities
46
Corporate governance report
47
Directors' remuneration report
51
Directors, registered office and advisers
54
The Directors' Report on pages 3 to 5 and the Directors' Remuneration Report on pages 51 and 53 have each been drawn up in
accordance with the requirements of English law and liability in respect thereof is also governed by English law. In
particular, the responsibility of the directors for these reports is owed solely to Associated British Engineering plc.
The directors submit to the members their Report and Accounts for the Group for the year ended 31 March 2014. Pages 1 to 8
and 46 to 54, including the Financial Highlights, Chairman's Statement, Directors' Report, Strategic Report, Corporate
Governance Report, Directors' Remuneration Report and the Directors, Registered Office and Advisers page form part of the
Report of the Directors.
ASSOCIATED BRITISH ENGINEERING PLC
FINANCIAL HIGHLIGHTS
2014 2013
£'000 £'000(restated)
REVENUE 2,667 2,488
OPERATING (LOSS) (308) (31)
LOSS BEFORE TAXATION (328) (71)
NET ASSETS 2,858 3,754
BASIC LOSS PER 2.5p ORDINARY SHARE (4p) (2p)
EQUITY SHAREHOLDERS' FUNDS PER 2.5p ORDINARY SHARE £1.39 £1.83
ASSOCIATED BRITISH ENGINEERING PLC
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 31 MARCH 2014
The Chairman's Statement forms part of the Strategic Report.
The Group's operating loss increased from £31,000 in the previous year to a loss of £308,000 in the year to 31 March 2014.
The increased loss was largely due to losses at British Polar Engines Limited's ("BPE") subsidiary Akoris Trading Limited
("Akoris"). BPE is our main operating subsidiary and its turnover increased from £2.5 million (2013) to £2.7 million on
improved gross margins.
The market in which BPE operates remains unpredictable and subject to sensitivity arising from the wider world economy and
political events; but there are encouraging indications that some stability will return in the near future.
Akoris has started to generate revenue in the post balance sheet period, albeit at modest levels, and we are closely
monitoring progress in our attempts to create value in the company.
The IAS 19 Pension Valuation has resulted in the pension deficit for BPE increasing from £931,000 to £1,414,000 at 31 March
2014. Shareholders will appreciate that the calculations surrounding these figures result from a combination of facts and
assumptions which are set out more fully in the Notes to these accounts.
The Board continues carefully to monitor central costs and is seeking to identify a suitable corporate transaction to take
the Group forward.
D A H Brown
Chairman
7 July 2014
ASSOCIATED BRITISH ENGINEERING PLC
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2014
The directors submit their report and audited accounts for the year ended 31 March 2014.
PRINCIPAL ACTIVITY
During the year the Company acted as a parent undertaking for a subsidiary engaged in diesel and related engineering
activities, for a subsidiary engaged in commodity and natural resource trading, finance and investment and also a dormant
subsidiary. Details of the subsidiaries are set out in note 23.
RESULTS AND DIVIDENDS
The Group's loss after tax amounted to £316,000. The directors are unable to recommend a dividend on the ordinary shares
for the year (2013: nil per ordinary share).
DIRECTORS
The names of the directors who served during the period from 1 April 2013 to 31 March 2014 are:
Mr D A H Brown Chairman
Mr S J Cockburn Non-Executive Director
Mr C Weinberg Non-Executive Director
Mr A R Beaumont Non-Executive Director
Biographical details of the directors are set out on page 53.
In accordance with the Articles of Association Mr S Cockburn retires by rotation and, being eligible, offers himself for
re-election.
SUBSTANTIAL HOLDINGS
As at 12 June 2014 the Company had been notified of the following substantial interests, in excess of 3%, in the issued
ordinary share capital of the Company:
W B Nominees Limited 22.6%
R A Pearce Gould(Part of Mr Pearce Gould's holding for his pension fund is held in Rulegale Nominees Limited - see below) 12.4%
Fiske Nominees Limited (FISKPOOL)(Of which I A W Tyler has 3.2% of issued ordinary shares) 8.9%
Rulegale Nominees Limited(Of which R A Pearce Gould's pension fund has 4.7% of issued ordinary shares; this holding is included above under Mr Pearce Gould's overall beneficial holding) 8.1%
Fitel Nominees Limited (DMOD) 7.3%
BNY (OCS) Nominees Limited(Of which all is The Investment Company PLC) 4.9%
Hargreaves Lansdown (Nominees) Limited(Of which D Newlands has 4.1% of issued ordinary shares) 4.6%
BENEFICIAL INTERESTS IN SIGNIFICANT CONTRACTS
None of the directors had a material interest in any contract of significance to which the Company or any of its
subsidiaries was party during the year.
ASSOCIATED BRITISH ENGINEERING PLC
DIRECTORS' REPORT (continued)
FOR THE YEAR ENDED 31 MARCH 2014
BENEFICIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANY
The beneficial interests of the directors, their spouses and children in the share capital of the Company according to the
register kept by the Company as at 1 April 2013 and 31 March 2014 were as follows:
Ordinary shares of
2.5p 2.5p
2014 2013
No. No.
Mr D A H Brown 93,312 93,312
Mr S J Cockburn 72,237 72,237
Mr C Weinberg 161,416 115,916
At the relevant dates Mr S J Cockburn had a non-beneficial interest in 80,859 (2013: 80,859) ordinary shares.
At 31 March 2014 David Brown had a 12.4% (2013: 12.4%) interest in the shares of Akoris Trading Limited.
No share options were held by any of the directors at 31 March 2014 or 31 March 2013.
Since 31 March 2014 and up to and including 31 May 2014 there have been no changes in the directors' interests in the share
capital of the Company.
The Group uses various financial instruments and these include cash, equity investments, loan stock and various others,
such as trade receivables and trade payables which arise directly from its operations. The main purpose of these financial
instruments is to raise finance for the Group's operations. Details of the group's exposure to price risk, liquidity risk
and credit risk are given in note 19.
The structure of the Group's and Company's capital, at nominal value, is as follows:
No. in issue Nominal Total % of
Value Value Capital
£ £ %
Ordinary shares 2,048,990 0.025 51,225 1.9
Deferred shares 1,313,427 1.975 2,594,018 98.1
========= ====== ========== ======
======
Further details of the policies adopted by the Group in respect of the financial risk management are included within note
19 to the Group financial statements.
DISABLED PERSONS
It is the Group's policy to give sympathetic consideration to the recruitment, continuing employment, training, career
development and promotion of disabled persons.
GLOBAL GHG EMISSIONS DATA FOR THE YEAR ENDED 31 MARCH 2014
In compliance with the Climate Change Act (2008) each business division in the group has reported scope 1 and 2 emissions
to provide a consolidated total of each source of greenhouse gas emissions for the year ended and these were as follows:
ASSOCIATED BRITISH ENGINEERING PLC
DIRECTORS' REPORT (continued)
FOR THE YEAR ENDED 31 MARCH 2014
GLOBAL GHG EMISSIONS DATA FOR THE YEAR ENDED 31 MARCH 2014 (continued)
Combustion of fuel and operation of facilities: 155 tonnes of CO2 e
Electricity, heat, steam and cooling purchased for own use: 89 tonnes of CO2 e
The Group's chosen intensity measurement
Emissions reported above (244 tonnes of CO2 e) normalised to per £'000 of revenue (£2,667k): 0.09
Methodology
We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013. These sources fall within our consolidated financial statements. We do not have responsibility
for any emission sources that are not included in our consolidated financial statements. We have used the GHG Protocol
Corporate Accounting and Reporting Standard (revised edition), to gather data to fulfil our requirements, and emission
factors from the UK Government's GHG Conversion Factors for Company Reporting 2014.
AUDITOR
Grant Thornton UK LLP have expressed willingness to continue in office. In accordance with section 489 (4) of the Companies
Act 2006, a resolution to reappoint Grant Thornton UK LLP will be proposed at the Annual General Meeting.
By order of the Board
For and on behalf of haysmacintyre Company Secretaries Limited
Company Secretary
7 July 2014
ASSOCIATED BRITISH ENGINEERING PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2014
BUSINESS REVIEW
A review of the business and of events during the year is contained in the Chairman's Statement which forms part of the
Strategic Report.
BUSINESS MODEL AND STRATEGY
The Associated British Engineering Group consists of the following two trading subsidiaries:
1. British Polar Engines Limited ("BPE"), a wholly owned subsidiary, carries out Associated British Engineering's core
operating activity of manufacturing and supplying diesel engines and spare parts for diesel engines together with
associated repair work.
2. Akoris Limited ("Akoris"), a subsidiary of BPE, which continued to develop its business in natural resource and
commodities trading though did not generate any revenue during the year.
BPE's business model and strategy (by division):
Sales
Our sales team deal with the distribution of spare parts worldwide, the team are well versed on our wide range of products
and maintain a high level of technical knowledge. We sell and provide replacement parts for Diesel Engines principally in
two key ranges and for generator sets. All our major items are certified by Lloyds Register.
Repair and maintenance
We provide a twenty four hour service worldwide to our customers. Repair and maintenance work is carried out on site and in
house. We carry out Major Engine Overhauls, upgrade and retrofits, as well as routine engine maintenance and service work
for generator sets. Our engineers are highly experienced and able to provide technical support/assistance on site.
Our business model to achieve our strategic objectives is:
1. To meet the highest standards of customer service in some of the most demanding industrial sectors.
2. To continue the training and development of our workforce. We are currently looking at succession planning.
3. To unify standards and procedures. With the high levels of quality, safety and efficiency procedures adhered to
within the company, we continue to adjust and raise our operating standards investing in new production equipment when
justified.
4. To maintain a strong governance framework. The Senior Management team operate within a tight framework of controls,
monitored and directed by our two executive directors under direction of the Board.
Akoris business model and strategy
During the year the strategy of Akoris changed as implied in the interim statement. In the latter half of the year Akoris
looked to acquire a Dutch aluminium trader but after extensive negotiations and due diligence the management of Akoris
failed to conclude a satisfactory deal and the acquisition was abandoned. It is regrettable that a considerable amount of
management time and expense was expended to no avail. Today Akoris is concentrating on developing an aluminium trading
business in the Far East.We hope to start generating revenue streams in the forthcoming trading period. Our business model
shows potential for attractive returns for our shareholders using our in-house expertise and knowhow. While Akoris had not
entered into any trades in this financial period it is the intention to test this model vigorously prior to entering a full
operation. Akoris strategy is to grow organically and generate revenues through the identification of market opportunities,
enabling us to buy and sell commodities and natural resources with a focus on a number of key areas of our expertise whilst
ensuring that our liquidity position is strengthened by generating positive cash flow and maintaining a flexible capital
base in order to support future growth and shareholder returns, whilst keeping a tight rein on expenditure.
ASSOCIATED BRITISH ENGINEERING PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 MARCH 2014
PRINCIPAL RISKS FACING THE BUSINESS
The Group's main operating businesses are its subsidiaries BPE and Akoris.
Business activity in the sector in which BPE primarily operates has in recent years been buoyed by sales to the oil
services business. The past year has demonstrated that this business remains sensitive to economic downturn as orders have
been delayed and deferred. 2014 has seen an increase in revenue compared to the previous year but margins have been
adversely affected by pricing pressure from competitors within the EU while the EU economy remains depressed. We are
actively seeking new areas of operations and we anticipate new trading opportunities overseas which should improve turnover
in 2015.
Akoris is dependent on the volume of supply and demand for aluminium which it trades in, which can fluctuate depending on a
number of external factors beyond its control such as changes in global production capacity, government policies, global
and regional economic conditions and natural disasters. The price of this commodity is dependent on the activities of the
competitors, speculators, exchange rate movements and production costs. All of these factors could have a significant
impact on the Group's revenues and cost base.
The trading outlook for the Group remains unpredictable due to exposure to both volatile pricing and periodic cyclical
swings. A review of the record of the trading results over the last decade amply demonstrates this with both revenue and
operating profit increasing and declining with the oil sector. The Group's income stream fluctuatesthroughout the year as a
result of the nature and size of the orders and order flows. It is therefore difficult to forecast trading and
profitability to any great degree.
The economic climate generally, and in our area of operation specifically, will continue to impact on the income and
performance of the Group. The directors aim to keep abreast of the economic climate and business strategy will be
continually reviewed and updated to deal with changes.
Further consideration of risks and uncertainties in respect of financial instruments that face the Group and Company is
contained in note 19 to the Group financial statements.
KEY PERFORMANCE INDICATORS
The Group uses various indicators to monitor its progress. Sales, service and production are continually monitored against
set monthly budgets to compare and improve upon gross profit and operating profit margins. Budgets are set on a monthly and
annual basis but the directors have not enhanced the disclosures in this regard as one key transaction stalling could have
a significant impact on the feasibility of the budget meaning that such disclosures are not considered useful to users of
the accounts.
The Group reviews the Pension Fund liability, the key assumptions underpinning the actuarial valuation and the minimum
funding requirement on a continual basis. The key assumptions underpinning the actuarial valuation are reviewed and
compared with industry norms; there were no notable variances from the prior year.
CORPORATE GOVERNANCE
Details of corporate governance, which is part of this report for the year to 31 March 2014, are disclosed in the corporate
governance report on page 47.
CORPORATE SOCIAL RESPONSIBILITY
Environment
The Group is committed to the protection of the environment and the development of processes which ensure that any adverse
impact on the environment arising from their trading activities is minimised by encouraging reduction in waste, awareness
of recycling, and encouraging employees to pay regard to environmental issues.
ASSOCIATED BRITISH ENGINEERING PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 MARCH 2014
CORPORATE SOCIAL RESPONSIBILITY (continued)
Employees
The Group currently employs thirty people, including four male non-executive directors and nine senior managers, eight male
and one female. We have a dedicated and loyal workforce, many of whom are long serving employees. Over the next few years
it is our intention to introduce new members of staff to ensure continuity and the passing on of knowledge for the future.
Total no. of officers/employees Number of males % Number of females %
Senior Management 9 89 11
Whole Workforce 30 90 10
By order of the Board
For and on behalf of haysmacintyre Company Secretaries Limited
Company Secretary
7 July 2014
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF
ASSOCIATED BRITISH ENGINEERING PLC
We have audited the financial statements of Associated British Engineering plc for the year ended 31 March 2014 which
comprise the group income statement, the group statement of comprehensive income, the group balance sheet, and the group
cash flow statement, the group statement of changes in equity and the related notes. The financial reporting framework that
has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities Statement set out on page 46, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's)
Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at
www.frc.org.uk/apb/scope/private.cfm.
Auditor commentary
The group consists of the parent company, Associated British Engineering plc, and its two trading subsidiary undertakings,
British Polar Engines Limited and Akoris Limited. In establishing the overall approach to the group audit, we determined
the work that needed to be performed on the operating businesses by us, as the group engagement team. Our audit scope
included a full audit of the group financial statements of the parent company, Associated British Engineering plc, and the
financial information of the two subsidiary undertakings.
We undertook planned site visits to evaluate controls over key financial systems identified as part of our risk assessment,
reviewed the accounts production and consolidation processes and addressed critical accounting matters. We attended the
year end stock count of British Polar Engines, the main operating location of the group, in order to evaluate and test the
controls over inventories. We undertook substantive testing on significant transactions, balances and disclosures, the
extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness
of controls over individual systems and the management of specific risks.
Our audit approach included the use of the work of management's and auditor's experts to assist with the audit. We reviewed
the actuarial report obtained from the group's actuary on the valuation of the defined benefit pension scheme in order to
ascertain the net liabilities of the scheme at the year end. Our actuarial specialists undertook a review of the
assumptions and conclusions formed in this report. We have evaluated the adequacy of the work of these experts in respect
of our audit.
Our application of materiality
We apply the concept of materiality in planning and performing our audit, in evaluating the effect of any identified
misstatements and in forming our opinion. For the purpose of determining whether the financial statements are free from
material misstatement we define materiality as the magnitude of a misstatement or an omission from the financial statements
or related disclosures that would make it probable that the judgement of a reasonable person relying on the information
would have been changed or influenced by the misstatement or omission. For the group audit, we established materiality for
the group financial statements as a whole to be £30,000. For the financial information of the individual subsidiary
undertakings, we set our materiality based on a proportion of group materiality appropriate to the relative scales of each
of the operating businesses.
We determined the threshold at which we communicate misstatements to the Audit Committee to be £1,500. In addition, we
communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF
ASSOCIATED BRITISH ENGINEERING PLC
CONTINUED
Our assessment of risk
Without modifying our opinion, we highlight the following matters that are, in our judgement, likely to be most important
to users' understanding of our audit. Our audit procedures relating to these matters were designed in the context of our
audit of the group financial statements as a whole, and not to express an opinion on individual transactions, account
balances or disclosures.
Measurement of the defined benefit pension liability
The Company has a significant defined benefit pension scheme, which has a deficit of £1,414,000 at the year end. The
pension scheme is accounted for in accordance with IAS 19 'Employee Benefits'. The process to measure the pension
liability, including the determination of the appropriate timing of recognition, involves significant judgement as the
valuation is subject to complex actuarial assumptions. We therefore identified the defined benefit pension scheme as an
area requiring particular audit attention.
Our audit work included, but was not restricted to, reviewing the appropriateness of the IAS 19 valuation methodology;
agreeing underlying data sent to actuaries and agreeing asset values to underlying investment manager statements. We also
involved our actuarial specialists to independently challenge management's assumptions and hold discussions with the
company's actuary.
The group's pension assumptions are set out in detail, together with related IAS 19 disclosures, in the group accounting
policies and note 17 to the group financial statements.
Recognition of revenue
Revenue for British Polar Engines Limited represents 100% of total group revenue. Revenue is a significant material item
in the group income statement. Accordingly the recognition of revenue is therefore identified as a significant risk
requiring special audit consideration.
Our audit work included, but was not restricted to, a review of the group's revenue recognition policy; obtaining an
understanding of the controls over the process, including challenging management's judgement regarding timing and
recoverability of revenue; and for a sample of transactions ensuring that revenue has been recognised in accordance with
the stated policy.
The group's accounting policy on the recognition of revenue are included in the group accounting policies and the
components of that revenue are included in note 1 to the group financial statements.
Inventory valuation and existence
British Polar Engines Limited holds significant amount of inventory which is used for the manufacture and sales of diesel
engines and spare parts as well as associated repair works. Inventory items may be held for long period of time before
utilisation making them vulnerable to obsolescence or theft. This could result in an overstatement of the value of
inventory if the historical cost is higher than the net realisable value through sales. Furthermore, the assessment and
application of inventory provisions are subject to significant management judgement. We have therefore identified inventory
existence and valuation as a reasonably possible risk requiring special audit consideration.
Our audit work included, but was not restricted to, the attendance of the stock count at the year end and the assessment of
the adequacy and quality of controls during the stock take. We also reviewed a sample of stock items to ensure they were
held at the lower of cost and net realisable value, and evaluated the management judgement with regards to the application
of provisions to inventory lines.
The group's accounting policies are included in the group accounting policies and disclosures are included in note 12 to
the group financial statements.
Management override of financial control
Under ISAs (UK & Ireland), for all of our audits we are required to consider the risk of management override of financial
controls. Due to the unpredictable nature of this risk we are required to assess it as a significant risk requiring special
audit consideration.
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF
ASSOCIATED BRITISH ENGINEERING PLC
CONTINUED
Management override of financial control (continued)
Our audit work included, but was not restricted to, specific procedures relating to this risk that are required by ISA 240
' The Auditors Responsibilities relating to Fraud in an Audit of Financial Statements'. This included tests of journal
entries, the evaluation of judgements and assumptions in management's estimates and tests of significant transactions
outside the normal course of business.
In particular, our work on the defined benefit pension scheme and stock provisions addressed key aspects of ISA 240.
Opinion on financial statements
In our opinion the financial statements:
§ give a true and fair view of the state of the group's affairs as at 31 March 2014 and of the group's loss for the year
then ended;
§ have been properly prepared in accordance with IFRSs as adopted by the European Union; and
§ have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
Other reporting responsibilities
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors' Report for the financial year for which the
group financial statements are prepared is consistent with the group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
· materially inconsistent with the information in the audited financial statements; or
· apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
· is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and
whether the annual report appropriately discloses those matters that were communicated to the audit committee which we
consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
§ certain disclosures of directors' remuneration specified by law are not made;
§ we have not received all the information and explanations we require for our audit.
Under the Listing Rules, we are required to review:
§ the directors' statement, set out on page 50, in relation to going concern; and
§ the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the UK
Corporate Governance Code specified for our review.
Other matter
We have reported separately on the parent company financial statements of Associated British Engineering plc for the year
ended 31 March 2014, and on the information in the Directors' Remuneration Report that is described as having been
audited.
Nicholas Watson
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants,
Oxford
7 July 2014
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 MARCH 2014
BASIS OF PREPARATION
The Company is incorporated in the United Kingdom under the Companies Act 2006.
These Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the EU. The policies set out below have been consistently applied to all the years presented.
The consolidated financial statements have been prepared using accounting policies specified by those IFRSs that are in
effect at the end of the reporting period (31 March 2014) or which have been adopted early.
NEWLY ISSUED ACCOUNTING STANDARDS
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:
· IAS 27 Separate Financial Statements (amendment effective 1 January 2014)
· IAS 28 Investments in Associates and Joint Ventures (effective from 1 January 2014)
· IAS 32 Financial Instruments Presentation (amendment effective 1 January 2014)
· IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (amendment effective 1 January 2014)
· IFRS 9 Financial Instruments (effective from 1 January 2018)
· IFRS 10 Consolidated Financial Statements (amendment effective 1 January 2014)
· IFRS 11 Joint Arrangements (effective from 1 January 2014)
· IFRS 12 Disclosure of Interests in Other Entities (amendment effective 1 January 2014)
The directors anticipate that the adoption of the above Standards and Interpretations in future periods will have no
material impact on the financial statements of the Group.
STANDARDS AND INTERPRETATIONS EFFECTIVE FOR THE FIRST TIME
(Effective for annual periods beginning on or after 1 July 2013)
Amendments to IAS 1: Presentation of Financial Statements
The amendments revise the way other comprehensive income is presented (OCI). They require entities to group items presented
in OCI based on whether they are potentially re-classifiable to profit or loss subsequently.
For the purpose of these financial statements, the directors do not believe the amendments have any impact on the financial
statements as the profit or loss and OCI have been presented together as in prior years.
(Effective for annual periods beginning on or after 1 January 2013)
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2014
Amendments to IAS 19: Employee Benefits
The amendments provide revised requirements for pensions and other post-retirement benefits, termination benefits and other
changes.
In the current year, the Group has applied IAS 19 Employee Benefits (as revised in 2011) and the related consequential
amendments for the first time.
IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits. The most significant
change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the
recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence
eliminate the 'corridor approach' permitted under the previous version of IAS 19 and accelerate the recognition of past
service costs. All actuarial gains and losses are recognised immediately through other comprehensive income in order for
the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value
of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous
version of IAS 19 are replaced with a 'net interest' amount under IAS 19 (as revised in 2011), which is calculated by
applying the discount rate to the net defined benefit liability or asset. These changes have had an impact on the amounts
recognised in profit or loss and other comprehensive income in prior years (see the tables below for details). In addition,
IAS 19 (as revised in 2011) introduces certain changes in the presentation of the defined benefit cost including more
extensive disclosure. Specific transitional provisions are applicable to first time application of IAS 19 (as revised in
2011). The Group has applied the relevant transitional provisions and restated the comparative amounts on a retrospective
basis (see the table below for details).
Impact on total comprehensive income for the year of application of IAS 19 (as revised in 2011) 2014£'000 2013£'000
Impact on profit (loss) for the year
Decrease in finance expenses 41 41
Increase in profit for the year 41 41
Impact on other comprehensive income for the year
Increase in defined benefit obligation (41) (41)
Increase in profit for the year attributable to:
Owners of the company 41 41
Non-controlling interests - -
41 41
Increase in total comprehensive income for the year attributable to:
Owners of the company - -
Non-controlling interests - -
- -
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2014
Amendments to IAS 32: Financial Instruments: Presentation
The amendments clarify that income tax on distributions to holders of an equity instrument and transaction costs of an
equity transaction should be accounted for in accordance with IAS 12 Income Taxes.
For the purpose of these financial statements, the directors do not believe the amendments have any impact on the financial
statements as there have been no distributions made to holders of an equity instrument and no equity transactions in the
year ended 31 March 2014.
Amendments to IFRS 1: First-time Adoption of International Financial Reporting Standards
The amendments address how a first-time adopter would account for a government loan with a below-market rate of interest
when transitioning to IFRSs. The amendments mirror the requirements for existing IFRS preparers in relation to the
application of amendments made to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance in
relation to accounting for government loans.
For the purpose of these financial statements, the directors do not believe the amendments have any impact on the financial
statements as they are not first time adopters of the International Financial Reporting Standards.
Amendments to IFRS 7: Financial Instruments
Amends the disclosure requirements in IFRS 7 Financial Instruments: Disclosures to require information about all recognised
financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The amendments also
require disclosure of information about recognised financial instruments subject to enforceable master netting arrangements
and similar agreements even if they are not set off under IAS 32.
For the purpose of these financial statements, the directors do not believe the amendments have any impact on the financial
statements as no financial instruments are held which are set off in accordance with IAS 32 and no financial instruments
are subject to enforceable master netting and similar arrangements.
Amendments to IFRS 13: Fair Value Measurement
The amendment replaces the guidance on fair value measurement in existing IFRS accounting literature with a single
standard. IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value
measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those
measurements). With some exceptions, the standard requires entities to classify these measurements into a 'fair value
hierarchy' based on the nature of the inputs.
For the purpose of these financial statements the directors do not believe the amendments have any impact on the financial
statements as the fair value of the investment assets held by the Company is calculated by reference to the quoted market
price at the year end.
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2014
GOING CONCERN
The financial statements have been prepared on the going concern basis. There have been no changes to accounting policies
in the year. The most notable accounting event has been the recent restructuring of the Company's capital base and the
increase in the pension scheme deficit based on this year's actuarial forecast and referred to in the Chairman's Statement.
The directors have agreed a revised schedule of contributions to eliminate the deficit on the ABE Pension Fund over
thirteen years starting from the year ended 31 March 2010. Based on the Group's budgets and cash forecasts, the Board
considers that the Group has sufficient resources to meet all necessary outgoings and to enable it to continue in
operational existence for the foreseeable future.
BASIS OF CONSOLIDATION
The Group financial statements incorporate the financial statements of Associated British Engineering plc and its
subsidiary undertakings to 31 March each year. All inter-company balances and transactions have been eliminated in full.
The Group financial statements include the results of subsidiaries acquired or disposed of during the year from or to the
effective date of acquisition or disposal.
BUSINESS COMBINATIONS
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as
incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value,
except that:
· deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised
and measured in accordance with IAS 12 and IAS 19 respectively;
· liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in
accordance with IFRS 2 Share-based Payment at the acquisition date; and
· assets that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with the Standard.
Goodwill is measured in the excess of the sum of the consideration transferred, the amount of any non-controlling interests
in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net
of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment,
the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the
consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's
previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain
purchase gain.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the
entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling
interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of
measurement basis is made on a transaction-by-transaction basis.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration receivable by the Group for goods supplied and services
provided, excluding value added tax and trade discounts. Revenue from the sale of spare parts is recognised when the goods
are dispatched or, if under a bill and hold arrangement, when they are available for despatch to a specific customer.
Revenue from the sale of engines is recognised in accordance with the performance of contractual terms and specifically
when the engines have been satisfactorily tested in accordance with contractual terms. Revenue from servicing and repair
work is recognised when the work is completed.
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2014
ACCOUNTING ESTIMATES AND JUDGEMENTS
Management are required, in accordance with IFRS, to exercise judgement and to make estimates and assumptions regarding the
application of accounting policies and the resulting effect on reported amounts of assets, liabilities, income and
expenses. These estimates and assumptions are based on historical experience and a review of current conditions prevailing
at the time but actual results may differ from these estimates. Any such revision is recognised in the financial statements
in the period in which the change in circumstance is detected.
Accounting Judgements
The key areas where management have exercised judgement in the year, and the thought processes undertaken, are as follows:
Deferred tax
Please refer to Taxation Policy below and note 20.
Pension Scheme
The directors are in regular contact with the Trustees of the pension scheme in connection with three keys areas where
judgement is exercised; the assumptions underpinning the actuarial valuation, continued negotiations regarding the pension
scheme and in relation to the payment plan. The directors then assess the relevant estimates and assumptions made to ensure
that where possible, all statutory obligations are met.
In evaluating the assumptions underpinning the actuarial valuation the directors have sought the professional advice of a
firm of actuaries who prepare the valuation according to industry standards and norms. During the year under review an
actuarial loss of £580,000 (2013: £40,000 loss (restated)) was recognised in the Group accounts.
The assumptions underpinning the actuarial valuation are disclosed further in note 17 to the Group financial statements.
Accounting Estimates
The accounting estimate having an impact on carrying amounts of assets and liabilities in the reporting period is as
follows:
Inventories
Inventories held by the Group consist of raw material (mainly components), work in progress (manufactured engine parts) and
finished goods (both purchased and manufactured engine parts). A specific provision is made, on a 100% basis, for all stock
lines that are obsolete or slow moving for periods in excess of four years. A general provision is made of 5%, 12.5%, 25%
and 50% over all stock lines that have not moved for one, two, three and four years respectively. The reasoning/basis for
the general provision is based on past experience of management.
The inventory provision at the year end amounted to £2,219,000 (2013: £2,145,000). The gross value of inventories at the
year end is £3,271,000 (2013: £3,174,000).
The directors review their assumptions and accounting estimates, along with the accounting policies adopted in preparing
these financial statements, on a regular basis and recognise any change in the period in which circumstances vary.
INVENTORIES AND IMPAIRMENT OF INVENTORIES
Inventories of raw materials, work in progress and finished goods are valued at the lower of cost and net realisable value.
Work in progress and finished goods include an appropriate allocation of overheads.
Cost is on a first in, first out basis. Net realisable value is the estimated selling price in the normal course of
business, less estimated costs of completion and provision is made for obsolete, slow moving and defective inventories.
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2014
LEASED ASSETS
Leases of property and plant and equipment, where the Group has substantially all the risks and rewards of ownership, are
classified as finance leases. Assets held under finance leases are capitalised at lease inception at the lower of the
asset's fair value and the present value of the minimum lease payments. Obligations related to finance leases, net of
finance charges in respect of future periods, are included as appropriate within borrowings. The interest element of the
finance cost is charged to the income statement over the life of the lease so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period. The property, plant or equipment is depreciated on the
same basis as owned plant and equipment or over the life of the lease, if shorter.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases.
Operating lease rentals (net of any related lease incentives) are charged against profit on a straight line basis over the
period of the lease.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities in foreign currencies are translated at the exchange rates ruling at the balance sheet date. All
exchange differences are dealt with through the income statement.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and any impairment in value. Freehold land is not
depreciated. Depreciation is calculated to write down the cost of all property, plant and equipment less its residual value
by annual instalments over their expected useful lives on the following bases:
Freehold buildings 5 per cent
Plant and machinery 7½- 33⅓ per cent
These useful lives and residual values are reviewed in each financial period.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or
where shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as income.
The carrying values of property, plant and machinery are reviewed for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed
the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amounts.
TAXATION
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in
the income statement because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. The deferred tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business
combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred tax is
determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
ASSOCIATED BRITISH ENGINEERING PLC
GROUP ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2014
TAXATION (continued)
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to
state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group's
obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised
in full in the period in which they occur. They are recognised outside profit or loss and presented in the Group statement
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