REG - Melrose Industries - Notification of transfer to a Premium Listing <Origin Href="QuoteRef">MRON.L</Origin> - Part 2
24/03/2017 14:35
- Part 2: For the preceding part double click ID:nRSX5026Aa
transferred to the buyer the significant risks and rewards of ownership of the goods;
- the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Group; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Transfers of risks and rewards vary depending on the nature of the products sold and the individual terms of the contract
of sale. Sales made under internationally accepted trade terms are recognised as revenue when the Group has completed the
primary duties required to transfer risks as stipulated in those terms. Sales made outside of such terms are generally
recognised on delivery to the customer. No revenue is recognised where recovery of the consideration is not probable or
there are significant uncertainties regarding associated costs or the possible return of goods.
Provision of services
As noted above, because revenue from the rendering of services is usually not significant in relation to the total contract
value and is generally provided on a short-term or one-off basis, revenue is usually recognised when the service is
complete.
Construction contracts
Revenue from significant contracts, without discrete elements, is recognised in proportion to the stage of completion of
the contract by reference to the specific contract terms and the costs incurred on the contract at the Balance Sheet date
in comparison to the total forecast costs of the contract. This is normally measured by the proportion that contract costs
incurred for work performed to date bear to the estimated total contract costs, except where this would not be
representative of the stage of completion.
Variations in contract work, claims and incentive payments are included in revenue from construction contracts when the
amount can be measured reliably and its receipt is considered probable. Variations are included when the customer has
agreed to the variation or acknowledged liability for the variation in principle. Claims are included when negotiations
with the customer have reached an advanced stage such that it is probable that the customer will accept the claim.
Incentive payments are included when a contract is sufficiently advanced that it is probable that the performance standards
triggering the incentive will be achieved.
2. Summary of significant accounting policies (continued)
Profit attributable to contract activity is recognised if the final outcome of such contracts can be reliably assessed.
Where this is not the case contract revenue is recognised to the extent of contract costs incurred where it is probable
they will be recovered. When it is probable that total contract costs will exceed total contract revenue, the expected loss
is recognised as an expense immediately.
Interest income
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of
revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and
the effective interest rate applicable.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of
those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets
is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the Income Statement in the period in which they are incurred.
Issue costs of loans
The finance cost recognised in the Income Statement in respect of the issue costs of borrowings is allocated to periods
over the terms of the instrument using the effective interest rate method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value.
The initial cost of an asset comprises its purchase price or construction cost, and any costs directly attributable to
bring the asset into operation. The purchase price or construction cost is the aggregate amount paid and the fair value of
any other consideration given to acquire the asset.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Freehold land nil
Freehold buildings and long leasehold property over expected economic life not exceeding 50 years
Short leasehold property over the term of the lease
Plant and equipment 3-12 years
The estimated useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in
useful lives are accounted for prospectively.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. If any such indication exists an impairment review is performed
and, where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable
amount. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that
does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to
which the asset belongs.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds or costs and the carrying amount of the item) is included in the Income
Statement in the year that the item is derecognised.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses.
On acquisition of businesses, separately identifiable intangible assets are initially recorded at their fair value at the
acquisition date.
Access to the use of brands and intellectual property are valued using a "relief from royalty" method which determines the
net present value of future additional cash flows arising from the use of the intangible asset.
Customer relationships are valued on the basis of the net present value of the future additional cash flows arising from
customer relationships with appropriate allowance for attrition of customers.
2. Summary of significant accounting policies (continued)
Technology assets are valued using a replacement cost approach.
Amortisation of intangible assets is recorded in administration expenses in the Income Statement and is calculated on a
straight-line basis over the estimated useful lives of the asset as follows:
Customer relationships 20 years or less
Brands and intellectual property 20 years or less
Technology 5 years or less
Order backlog 1 year or less
Computer software 5 years or less
Development costs 5 years or less
Computer software is initially recorded at cost. Where these assets have been acquired through a business combination,
this will be the fair value allocated in the acquisition accounting. Where these have been acquired other than through a
business combination, the initial cost is the aggregate amount paid and the fair value of any other consideration given to
acquire the asset.
Intangible assets are tested for impairment annually or more frequently whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Impairment losses are measured on a similar basis to property,
plant and equipment. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a
prospective basis.
Research and development costs
Research costs are expensed as incurred.
Costs relating to clearly defined and identifiable development projects are capitalised when there is a technical degree of
exploitation, adequacy of resources and a potential market or development possibility in the undertaking that are
recognisable; and where it is the intention to produce, market or execute the project. A correlation must also exist
between the costs incurred and future benefits and those costs can be measured reliably. Capitalised costs are expensed on
a straight-line basis over their useful lives of five years or less. Costs not meeting such criteria are expensed as
incurred.
Inventories
Inventories are valued at the lower of cost and net realisable value and measured using a first in, first out basis. Cost
includes all direct expenditure and appropriate production overhead expenditure incurred in bringing goods to their current
state under normal operating conditions. Net realisable value is based on estimated selling price less costs expected to be
incurred to completion and disposal. Provisions are made for obsolescence or other expected losses where necessary.
Trade and other receivables
Trade receivables and other receivables are measured and carried at amortised cost using the effective interest method,
less any impairment. The carrying amount of other receivables is reduced by the impairment loss directly and a charge is
recorded in the Income Statement. For trade receivables, the carrying amount is reduced through the use of an allowance
account. Subsequent recoveries of amounts previously written off are credited against the allowance account and changes in
the carrying amount of the allowance account are recognised in the Income Statement.
Trade receivables that are assessed not to be impaired individually are also assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting
receipts, an increase in the number of delayed receipts in the portfolio past the average credit period, as well as
observable changes in national or local economic conditions that correlate with default on receivables.
Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet comprise cash in hand, current balances with banks and similar institutions
and short-term deposits which are readily convertible to cash which are subject to insignificant risks of changes in
value.
For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as
defined above, net of outstanding bank overdrafts.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value of the consideration received net of issue costs associated
with the borrowings.
2. Summary of significant accounting policies (continued)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or
premium on settlement.
Gains and losses are recognised in the Income Statement when the liabilities are derecognised or impaired, as well as
through the amortisation process.
Leases
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at the fair value of the lease or, if lower, at the present value of
the minimum lease payments. The corresponding liability to the lessor is included in the Balance Sheet as a finance lease
obligation. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term.
Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an
effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant periods. The effective interest rate is the rate that discounts
estimated future cash payments throughout the expected life of the financial liability, or, where appropriate, a shorter
period to the net carrying amount on initial recognition. The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or they expire.
Derivative financial instruments and hedging
The Group uses derivative financial instruments to manage its exposure to interest rate, foreign exchange rate and
commodity risks, arising from operating and financing activities. The Group does not hold or issue derivative financial
instruments for trading purposes. Details of derivative financial instruments are disclosed in note 24 of the financial
statements.
Derivative financial instruments are recognised and stated at fair value. Their fair value is recalculated at each
reporting date. The accounting treatment for the resulting gain or loss will depend on whether the derivative meets the
criteria to qualify for hedge accounting.
Where derivatives do not meet the criteria to qualify for hedge accounting, any gains or losses on the revaluation to fair
value at the period end are recognised immediately in the Income Statement. Where derivatives do meet the criteria to
qualify for hedge accounting, recognition of any resulting gain or loss on revaluation depends on the nature of the hedge
relationship and the item being hedged.
Derivative financial instruments with maturity dates of less than one year from the period end date are classified as
current in the Balance Sheet.
Hedge accounting
In order to qualify for hedge accounting, the Group is required to document from inception the relationship between the
item being hedged and the hedging instrument and to show that the hedge will be highly effective on an ongoing basis. This
effectiveness testing is performed at each period end to ensure that the hedge remains highly effective.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedge instrument expires or is sold,
terminated, exercised, or no longer qualifies for hedge accounting.
The Group designates certain hedging instruments as either fair value hedges, cash flow hedges or hedges of net investments
in foreign operations.
Fair value hedge
Derivative financial instruments are classified as fair value hedges when they hedge the Group's exposure to changes in the
fair value of a recognised asset or liability. Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in the Income Statement immediately, together with any changes in the fair value of the
hedged item that is attributable to the hedged risk.
2. Summary of significant accounting policies (continued)
Cash flow hedge
Derivative financial instruments are classified as cash flow hedges when they hedge the Group's exposure to the variability
in cash flows that are either attributable to a particular risk associated with a recognised asset or liability, or a
highly probable forecasted cash flow.
The effective portion of any gain or loss from revaluing the derivative financial instrument is recognised in the Statement
of Comprehensive Income and accumulated in equity. The gain or loss relating to the ineffective portion is recognised
immediately in the Income Statement.
Amounts previously recognised in the Statement of Comprehensive Income and accumulated in equity are recycled to the Income
Statement in the periods when the hedged item is recognised in the Income Statement or when the forecast transaction is no
longer expected to occur. However, when the forecast transaction that is hedged results in the recognition of a
non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from
equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedges of net investments in foreign operations
Derivative financial instruments are classified as net investment hedges when they hedge the Group's net investment in
foreign operations. The effective element of any foreign exchange gain or loss from revaluing the derivative at a
reporting period end is recognised in the Statement of Comprehensive Income. Any ineffective element is recognised
immediately in the Income Statement.
Gains and losses accumulated in equity are recognised immediately in the Income Statement when the foreign operation is
disposed of or when the hedge is no longer expected to occur.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a rate that reflects the current market
assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is
used, the increase in the provision due to the passage of time is recognised as a finance cost.
Restructuring
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has
raised a valid expectation in those affected that it will carry out the restructuring by either starting to implement the
plan or by announcing its main features to those affected by it. The measurement of a restructuring provision includes only
the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the
restructuring and not associated with the ongoing activities of the entity.
Warranties
Provisions for the expected cost of warranty obligations under local sale of goods legislation are recognised at the date
of sale of the relevant products, using the Directors' best estimate of the expenditure required to settle the Group's
obligation.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received under it.
Environmental liabilities
Liabilities for environmental costs are recognised when environmental assessments or clean-ups are probable and the
associated costs can be reasonably estimated. Generally, the timing of these provisions coincides with the commitment to a
formal plan of action. The amount recognised is the best estimate of the expenditure required. Where the liability will
not be settled for a number of years, the amount recognised is the present value of the estimated future expenditure.
Employee related
Liabilities for health and workers compensation expenses are provided for based on the total liabilities that are able to
be estimated and are probable as of the balance sheet date.
Product liability
Provisions are recorded for product and general liability claims which are probable and for which the cost can be reliably
estimated.
2. Summary of significant accounting policies (continued)
Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at fair value at the acquisition date. As
the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be
recognised in accordance with IAS 37 and the amount initially recognised less cumulative amortisation recognised in
accordance with IAS 18.
Pensions and other retirement benefits
The Group operates defined benefit pension plans and defined contribution plans, some of which require contributions to be
made to administered funds separate from the Group.
For the defined benefit pension and retirement benefit plans, plan assets are measured at fair value and plan liabilities
are measured on an actuarial basis and discounted at an interest rate equivalent to the current rate of return on a high
quality corporate bond of equivalent currency and term to the plan liabilities. Any assets resulting from this calculation
are limited to past service cost plus the present value of available refunds and reductions in future contributions to the
plan. The present value of the defined benefit obligation, and the related current service cost and past service cost, are
measured using the projected unit credit method.
The service cost of providing pension and other retirement benefits to employees for the period is charged to the Income
Statement.
Net interest expense on net defined benefit obligations is determined by applying discount rates used to measure defined
benefit obligations at the beginning of the year to net defined benefit obligations at the beginning of the year. Net
interest expense is recognised within finance costs.
Remeasurement gains and losses comprise actuarial gains and losses, the effect of the asset ceiling (if applicable) and the
return on plan assets (excluding interest). Remeasurement gains and losses, and taxation thereon, are recognised in full in
the Statement of Comprehensive Income in the period in which they occur and are not subsequently recycled.
Actuarial gains and losses may result from differences between the actuarial assumptions underlying the plan obligations
and actual experience during the period or changes in the actuarial assumptions used in the valuation of the plan
obligations.
For defined contribution plans, contributions payable are charged to the Income Statement as an operating expense when
employees have rendered services entitling them to the contributions.
Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and
financial position of each Group company are expressed in pounds Sterling, which is the functional currency of the Company,
and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions.
At each Balance Sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at
the rates prevailing on the Balance Sheet date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included
in the Income Statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at
fair value are included in the Income Statement for the period except for differences arising on the retranslation of
non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any
exchange component of that gain or loss is also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign
operations are translated at exchange rates prevailing on the Balance Sheet date. Income and expense items are translated
at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which
case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in the
Statement of Comprehensive Income and accumulated in equity (attributed to non-controlling interests as appropriate). Such
translation differences are recognised as income or as expenses in the period in which the related operation is disposed
of. Any exchange differences that have previously been attributed to non-controlling interests are derecognised but they
are not reclassified to the Income Statement.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the rate prevailing at the Balance Sheet date.
2. Summary of significant accounting policies (continued)
Taxation
The tax expense is based on the taxable profits for the period and represents the sum of the tax paid or currently payable
and deferred tax.
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 and tax laws that have been enacted or substantively
enacted by the Balance Sheet date.
Deferred tax is provided, using the liability method, on all temporary differences at the Balance Sheet date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences except:
- where the deferred tax liability arises on the initial recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
- where the timing of the reversal of the temporary differences associated with investments in subsidiaries and interests
in joint ventures can be controlled and it is probable that the temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and carry-forward of unused tax assets and unused tax losses can be utilised except:
- where the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
and
- in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint
ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be
utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at
the relevant Balance Sheet date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
Tax relating to items recognised directly in other comprehensive income is recognised in the Statement of Comprehensive
Income and not in the Income Statement.
Revenues, expenses and assets are recognised net of the amount of sales tax except:
- where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in
which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as
applicable; and
- where receivables and payables are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or
payables in the Balance Sheet.
Share-based payments
The Group has applied the requirements of IFRS 2: "Share-based payment". The Group issues equity-settled share-based
payments to certain employees. Equity-settled share-based payments are measured at fair value of the equity instrument
excluding the effect of non-market based vesting conditions at the date of grant. The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.
2. Summary of significant accounting policies (continued)
Fair value is measured by use of the Black Scholes pricing model. The expected life used in the model has been adjusted,
based on the Directors' best estimate, for the effects of non-transferability, exercise restrictions, and behavioural
considerations.
Non-current assets and businesses held for sale
Non-current assets and businesses classified as held for sale are measured at the lower of carrying amount and fair value
less costs to sell.
Non-current assets and businesses are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as having been met only when the
sale is highly probable and the asset or business is available for immediate sale in its present condition. Management must
be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the
date of classification.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in note 2, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experiences and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and
future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below.
Impairment of non-current assets
Goodwill and intangible assets are tested for impairment whenever events or circumstances indicate that their carrying
amounts might be impaired and at least annually. Such events and circumstances include the effects of restructuring
initiated by management.
Determining whether goodwill and intangible assets are impaired requires an estimation of the value in use of the
cash-generating units to which goodwill and intangible assets have been allocated. The value in use calculation requires
the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate
in order to calculate present value. Management draw upon experience as well as external resources in making these
estimates.
The carrying amount of goodwill and other intangible assets (not including computer software and development costs) at the
Balance Sheet date was £2,656.1 million (31 December 2015: £271.8 million). At 31 December 2016 and 2015, the Group
recognised no impairment loss in respect of these assets. Further detail, which includes sensitivity analysis, is shown in
note 12.
Brush China
The Group's assets in Brush China remained mothballed at the year end as production was reduced during 2016. The value in
use calculation prepared by management to estimate the recoverable amount of the Brush China business supported the
carrying amount of the Brush China assets which were £37.0 million as at 31 December 2016. However, significant uncertainty
remains and the determination as to whether these assets were impaired at 31 December 2016 involved management judgement on
highly uncertain matters, particularly with respect to the level of demand for generators in the Chinese market, the
successful resolution of current customer discussions, and therefore the timing and quantity of forecast unit sales, as
well as long-term growth rates and discount factors.
Should the resolution of customer discussions or the level of demand for generators not be realised in line with current
expectations and should the China plant continue to remain mothballed there is a worst case risk that a full impairment
could potentially be required which would reduce the value of the Brush China assets to a net realisable value of
approximately £9 million.
3. Critical accounting judgements and key sources of estimation uncertainty (continued)
Assumptions used to determine the carrying amount of the Group's defined benefit obligation
The Group's defined benefit obligation is discounted at a rate set by reference to market yields at the end of the
reporting period on high quality corporate bonds. Significant judgement is required when setting the criteria for bonds to
be included in the population from which the yield curve is derived. The most significant criteria considered for the
selection of bonds include the issue size of the corporate bonds, quality of the bonds and the identification of outliers
which are excluded. In addition judgement is made in determining mortality rate assumptions to be used when valuing the
Group's defined benefit obligations. At 31 December 2016, the Group's retirement benefit obligation deficit was £33.4
million (31 December 2015: £17.2 million). A sensitivity analysis on the principal assumptions used to determine the
Group's defined benefit obligations is shown in note 23.
Taxation
The Group is subject to income tax in most of the jurisdictions in which it operates. Management is required to exercise
judgement in determining the Group's provision for income taxes. Management's judgement is required in estimating tax
provisions where management believe it is probable that additional current tax will become payable in the future following
the audit by the tax authorities of previously filed tax returns. Such provisions are measured based on management's best
estimates of the amounts payable. Management's judgement is also required as to whether a deferred tax asset should be
recognised based on the availability of future taxable profits and the expected timing of future disposals. While the Group
aims to ensure that the estimates recorded are accurate, the actual amounts could be different from those expected. Further
details are provided in note 21.
Provisions
The quantification of certain liabilities within provisions (environmental remediation obligations and future costs and
settlements in relation to certain legal claims) have been estimated using the best information available. However, such
liabilities depend on the actions of third parties and on the specific circumstances pertaining to each obligation, neither
of which is controlled by the Group. Although provisions are reviewed on a regular basis and adjusted for management's
best current estimates, the judgemental nature of these items means that future amounts settled may be different from those
provided. Further details are set out in note 20.
4. Revenue
An analysis of the Group's revenue, as defined by IAS 18: "Revenue", is as follows:
Notes Year ended31 December 2016£m Year ended31 December 2015£m
Continuing operations
Revenue from the sale of goods 807.8 212.0
Revenue recognised on long-term contracts 3.0 5.9
Revenue from the provision of services 78.5 43.2
Revenue 5 889.3 261.1
Finance income 7 1.8 10.1
Total revenue from continuing operations as defined by IAS 18 891.1 271.2
Discontinued operations
Revenue from the sale of goods - 1,056.4
Revenue recognised on long-term contracts - 0.6
Revenue from the provision of services - 52.8
Revenue 5,9 - 1,109.8
Finance income - 0.6
Total revenue from discontinued operations as defined by IAS 18 - 1,110.4
Total revenue as defined by IAS 18 891.1 1,381.6
5. Segment information
Segment information is presented in accordance with IFRS 8: "Operating segments" which requires operating segments to be
identified on the basis of internal reports about components of the Group that are regularly reported to the Group's Board
in order to allocate resources to the segments and assess their performance. The Group's reportable operating segments
under IFRS 8 are as follows:
Energy - includes the Brush business, a specialist supplier of energy industrial products to the global market.
Air Management - includes the Air Quality & Home Solutions business ("AQH"), a leading manufacturer of ventilation products
for the professional remodelling and replacement markets, residential new construction market, and do-it-yourself market.
This division also includes the Heating, Ventilation & Air Conditioning business ("HVAC") which manufactures and sells
split-system and packaged air conditioners, heat pumps, furnaces, air handlers and parts for the residential replacement
and new construction markets, along with custom-designed and engineered HVAC products and systems for non-residential
applications.
Security & Smart Technology - includes the Security & Control business ("SCS") along with the Core Brands and GTO Access
Systems businesses. These businesses are manufacturers and distributors of products designed to provide convenience and
security primarily for residential applications and audio visual equipment for the residential audio video and professional
video market.
Ergonomics - includes the Ergotron business, a manufacturer and distributor of innovative products designed with ergonomic
features including wall mounts, carts, arms, desk mounts, workstations and stands that attach to or support a variety of
display devices such as notebook computers, computer monitors and flat panel displays.
In addition, there are central cost centres which are also separately reported to the Board. The central corporate cost
centre which contains the Melrose Group head office costs along with charges related to the divisional management long-term
incentive plans and the remaining Nortek central cost centre.
The discontinued segment in 2015 comprises the Elster disposal group and the Prelok business. The Elster disposal group
included the Gas, Electricity and Water segments and their related central costs. The Elster group also contained the
Elster divisional long-term incentive plans, the FKI UK defined benefit pension plan and the McKechnie UK defined benefit
pension plan.
Transfer prices between business units are set on an arm's length basis in a manner similar to transactions with third
parties.
No single customer contributed 10% or more to the Group's revenue in 2016. In 2015, revenues of approximately £67.0
million arose from the Group's largest customer in that year.
The Group's geographical segments are determined by the location of the Group's non-current assets and, for revenue, the
location of external customers. Inter-segment sales are not material and have not been disclosed.
Segment revenues and results
The following tables present the revenue, results and certain asset and liability information regarding the Group's
operating segments and central cost centres for the year ended 31 December 2016 and the comparative year.
Segment revenue from external customers
Notes Year ended 31 December 2016£m Year ended 31 December 2015£m
Continuing operations
Energy 246.4 261.1
Air Management 416.5 -
Security & Smart Technology 130.4 -
Ergonomics 96.0 -
Nortek total 642.9 -
Total continuing operations 4 889.3 261.1
Discontinued operations 4,9 - 1,109.8
Total revenue 889.3 1,370.9
5. Segment information (continued)
Segment results
Notes Year ended 31 December 2016£m Year ended 31 December 2015£m
Continuing operations
Energy 32.0 38.5
Air Management 46.8 -
Security & Smart Technology 17.1 -
Ergonomics 24.4 -
Nortek central (2.0) -
Nortek total 86.3 -
Central - corporate (1) (14.2) (13.7)
Underlying operating profit 6 104.1 24.8
Items not affecting underlying operating profit 6 (165.7) (20.0)
Operating (loss)/profit 6 (61.6) 4.8
Finance costs 7 (9.5) (45.6)
Finance income 7 1.8 10.1
Loss before tax (69.3) (30.7)
Tax 8 30.3 14.4
Profit for the year from discontinued operations 9 - 1,424.3
(Loss)/profit for the year (39.0) 1,408.0
(1) Includes £nil (2015: £1.0 million) of costs relating to divisional Long Term Incentive Plans.
Total assets Total liabilities
31 December 31 December 31 December 31 December
2016£m 2015£m 2016£m 2015£m
Continuing operations
Energy 549.2 496.9 97.8 103.7
Air Management 1,630.0 - 558.2 -
Security & Smart Technology 690.0 - 158.5 -
Ergonomics 756.5 - 144.6 -
Nortek central 5.3 - (31.0) (1) -
Nortek total 3,081.8 - 830.3 -
Central - corporate 76.6 2,491.9 616.7 39.7
Total continuing operations 3,707.6 2,988.8 1,544.8 143.4
Discontinued operations - - - -
Total 3,707.6 2,988.8 1,544.8 143.4
(1) IAS 12 requires the set off of deferred tax assets and liabilities in the same tax jurisdiction. The £31.0 million
negative balance within Nortek central liabilities represents £85.5 million of Nortek central deferred tax assets which
have been treated as negative liabilities to represent the required offset, and £54.5 million of other Nortek central
liabilities.
Capital expenditure(1) Depreciation(1)
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016£m 2015£m 2016£m 2015£m
Continuing operations
Energy 3.6 16.8 9.0 7.5
Air Management 10.3 - 6.4 -
Security & Smart Technology 1.8 - 1.0 -
Ergonomics 1.1 - 1.0 -
Nortek Central 0.1 - 0.5 -
Nortek total 13.3 - 8.9 -
Central - corporate - - 0.2 0.6
Total continuing operations 16.9 16.8 18.1 8.1
Discontinued operations - 39.9 - 11.9
Total 16.9 56.7 18.1 20.0
(1) Including computer software and development costs.
5. Segment information (continued)
Geographical information
The Group operates in various geographical areas around the world. The Group's country of domicile is the UK and the
Group's revenues and non-current assets in Europe and North America are also considered to be material.
The Group's revenue from external customers and information about its segment assets (non-current assets excluding
interests in joint ventures, deferred tax assets, derivative financial assets and non-current trade and other receivables)
by geographical location are detailed below:
Revenue(1) from external customers Non-current assets
Year ended Year ended 31 December 31 December
31 December 31 December 2016£m 2015£m
2016£m 2015£m
Continuing operations
UK 88.9 83.2 183.3 189.3
Europe 82.3 66.3 181.4 146.9
North America 638.8 57.4 2,537.8 23.6
Other 79.3 54.2 36.4 26.1
Total continuing operations 889.3 261.1 2,938.9 385.9
Discontinued operations - 1,109.8 - -
Total 889.3 1,370.9 2,938.9 385.9
(1) Revenue is presented by destination.
6. Reconciliation between profit and underlying profit
As described in note 2, underlying profit/(loss) is the alternative performance measure used by the Board to monitor the
underlying trading performance of the Group. A reconciliation between the statutory (loss)/profit and underlying profit for
2015 and 2016 is shown below:
Continuing operations Notes Year ended31 December 2016£m Year ended31 December 2015£m
Operating (loss)/profit (61.6) 4.8
Restructuring costs a 51.4 7.6
Acquisition and disposal costs b 38.7 0.3
Amortisation of intangible assets c 36.3 8.1
Removal of one-off uplift in value of inventory d 18.2 -
Melrose equity-settled compensation scheme e 22.8 4.0
Release of fair value provision f (1.7) -
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