REG - Mincon Group Plc - Final Results
Mincon Group plc
("Mincon" or the "Group")
2017 Full Year Financial Results
Mincon Group plc (ESM:MIO AIM:MCON), the Irish engineering group specialising in the design, manufacture, sale and servicing of rock drilling tools and associated products, announces its results for the year ended 31 December 2017.
Pre-Exceptional Items
Percentage
change in
period
2017
2016
Product revenue:
€'000
€'000
Sale of Mincon product
74,965
56,360
33%
Sale of third party product
22,393
19,821
13%
Total revenue
97,358
76,181
28%
Gross profit
37,838
30,561
24%
Operating profit
14,040
10,178
38%
Net profit attributable to shareholders of the parent company
10,445
9,253
13%
Joe Purcell, Chief Executive Officer, commenting on the results, said:
A strong year of organic growth
The year was stronger for the company than the results suggest.
Out of the €97 million of revenue, the €75 million revenue for Mincon manufactured product was nearly the same as the Group total sales in the prior year. While the mix changed as we added more products, still the gross margin was maintained at 39%, just shy of the 40% the previous year. Our sales growth was 28% for the year, 33% for our own manufactured product even with the significant capacity constraints, and 13% for third party manufactured product.
The protection of the gross margin is important to us, and we see pressure there as it begins to reflect the increasing cost of supplies to the Group. Raw materials for manufactured product in the year rose to 25% from 22% of revenue. Some of this is mix change, but some of it is raw material costs being absorbed by the Group. The market is not yet taking sustainable price increases, and while we make good products, some great products, still we do not seek to be a price leader, nor do we need to be. Having said that, we expect to see upward price movement for the product ranges through 2018.
Acquisitions in the year
We acquired PPV, a company in Finland that can bring us into the construction industry and which has given us a new suite of products. We have commenced the process of building this out during the year. This follows on from the extensive training process already undertaken across our owned distribution centres.
We bought in the balance of Rotacan, making a contingent gain in the process, and applied that gain to the write downs on rigs, debtors and inventory. Rotacan has the opportunity to recover with the uptick in the sector, as it suffered very considerably with the set back in the coal industry, and the loss of a very substantial customer in Chile. However the business has weathered this, the recovery of value in Chile was more than expected last year, and all the business is growing again.
We have added the Driconeq Group in March 2018, which will give the Group a run rate of €120 million in revenue in 2018.
We acquired Viqing, a start-up drill pipe manufacturer in Sunne, Sweden, and while the turnover in that business has doubled since the acquisition, we still had maybe another €4 million of group sales to move from competing manufacturers into our own business. With the acquisition of Driconeq we believe that between these two businesses and management teams we have an excellent business with tremendous opportunities for development of customers, margins and profitability. We expect them to be combined seamlessly through H1, 2018.
Product development
We are renewing our product ranges to deliver scheduled improvements to sustain our competitive advantage. This is where the engineering knowledge we have built up continues to protect the market position of the Group. We have built out our distribution model to give us direct access to end customers to ensure that we have good market knowledge, and competent margin management.
In H1, 2018 the Greenhammer in which we have been investing will move into stage 2 of beta testing, going live on a customer rig. The outcomes of the phase 1 testing on our own rig have been positive, within the development process we have been going through, constant iteration and adjustment, finding problems and solutions, and both the customer and we believe that the product is ready to approach commercialisation.
When we can establish just how sustainable the productivity gains are, we can build the commercial model around this. This is an exciting prospect for 2018 and beyond, even if we cannot predict exactly when in the year we expect to derive revenue.
Making profits from investment
In 2018 on current volumes we will have a run rate revenue exceeding €120 million as we have acquired the Driconeq Group with the release of these results. We will have Driconeq for about nine months of the current year. Our organic growth may be constrained to single digits in the first half of 2018 , as we have been running hard in 2017, and the new turnover base is so much higher, but if the demand continues to build, the capacity coming on stream should begin to reduce any order book back log.
If we can build sustainable organic growth on top of the acquisition growth, we will deliver another very strong year. We have tightened up on our working capital, actually reducing it before the exceptional write-offs, even while sales rose 28%.
The Group is growing strongly, we have continued to build and invest, and we have made great strides in improving our culture and control. Confidence is high in the Group, in our products, our management and our people, and we have tremendous opportunities in front of us that we have yet to realise in our revenues and returns. We are not under pressure to grow revenue, that is coming naturally from good products and good management teams, our focus will be on bedding down what we have and planning the profitability and cash flow from our existing sales.
We believe the investments we have made through the downturn in footprint, products and people can now be deployed and while we have not made any more profit than we did when we came to market in 2013, that was in retrospect the final year of the last cycle, and this looks very much like the first one of the current upturn. The Group has great funding, good leadership, significant opportunities for organic and acquisition growth, exciting products and a strong, we believe, improving market position."
ENDS
20 MARCH 2018
For further information, please contact:
Mincon Group plc Tel: + 353 (61) 361 099
Joe Purcell, Chief Executive Officer
Peter Lynch, Chief Operating Officer
Davy Corporate Finance (Nominated Adviser and ESM Adviser) Tel: +353 (1) 679 6363
Anthony Farrell
Daragh O'Reilly
Any forward-looking statements made in this press release have been made in good faith based on the information available as of the date of this press release and are not guarantees of future performance. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future and reflect the Group's current expectations and assumptions as to such future events and circumstances that may not prove accurate. Actual results or developments may differ materially from the expectations expressed or implied in these statements, and the Group expressly disclaims any obligation to update any such statements whether as a result of new information, future events, or otherwise. You should not place undue reliance on any forward-looking statements. These forward-looking statements are made as of the date of this announcement.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2017
2017
2016
Notes
Pre-exceptional items
€'000
Exceptional items
(Note 8)
€'000
Total
€'000
€'000
Continuing operations
Revenue
4
97,358
-
97,358
76,181
Cost of sales
6
(59,520)
(2,271)
(61,791)
(45,620)
Gross profit
37,838
(2,271)
35,567
30,561
General, selling and distribution expenses
6
(23,798)
(903)
(24,701)
(20,383)
Operating profit
10
14,040
(3,174)
10,866
10,178
Finance cost
(126)
-
(126)
(140)
Finance income
47
-
47
170
Foreign exchange (loss)/gain
(1,309)
-
(1,309)
1,129
Movement on contingent consideration
21(e)
36
-
36
(4)
Settlement gain
21(e)
-
3,124
3,124
-
Profit before tax
12,688
(50)
12,638
11,333
Income tax expense
11
(2,243)
-
(2,243)
(2,080)
Profit for the period
10,445
(50)
10,395
9,253
Profit attributable to:
- owners of the Parent
10,092
9,234
- non-controlling interests
303
19
Earnings per Ordinary Share
Basic earnings per share, €
19
4.79c
4.39c
Diluted earnings per share, €
19
4.76c
4.38c
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
2017
2016
€'000
€'000
Profit for the year
10,395
9,253
Other comprehensive income/(loss):
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation - foreign operations
(3,975)
2,495
Other comprehensive income/(loss) for the year
(3,975)
2,495
Total comprehensive income for the year
6,420
11,748
Total comprehensive income attributable to:
- owners of the Parent
6,117
11,729
- non-controlling interests
303
19
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
2017
2016
Notes
€'000
€'000
Non-Current Assets
Intangible assets
12
25,094
13,120
Property, plant and equipment
14
22,576
20,052
Deferred tax asset
11
150
529
Other non-current assets
13
100
238
Total Non-Current Assets
47,920
33,939
Current Assets
Inventory
15
31,851
35,310
Trade and other receivables
16a
17,560
16,437
Other current assets
16b
4,709
996
Current tax asset
842
954
Cash and cash equivalents
21
28,215
36,836
Total Current Assets
83,177
90,533
Total Assets
131,097
124,472
Equity
Ordinary share capital
18
2,105
2,105
Share premium
18
67,647
67,647
Undenominated capital
39
39
Merger reserve
(17,393)
(17,393)
Share based payment reserve
20
512
89
Foreign currency translation reserve
(2,940)
1,035
Retained earnings
57,391
51,509
Equity attributable to owners of Mincon Group plc
107,361
105,031
Non-controlling interests
787
484
Total Equity
108,148
105,515
Non-Current Liabilities
Loans and borrowings
12
1,405
1,142
Deferred tax liability
11
318
714
Deferred contingent consideration
21
6,931
5,669
Other liabilities
368
595
Total Non-Current Liabilities
9,022
8,120
Current Liabilities
Loans and borrowings
17
668
734
Trade and other payables
7,721
6,561
Accrued and other liabilities
4,403
2,823
Current tax liability
1,135
719
Total Current Liabilities
13,927
10,837
Total Liabilities
22,949
18,957
Total Equity and Liabilities
131,097
124,472
The accompanying notes are an integral part of these financial statements.
On behalf of the Board:
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
2017
2016
€'000
€'000
Operating activities:
Profit for the period
10,395
9,253
Adjustments to reconcile profit to net cash provided by operating activities:
Depreciation
3,014
2,332
Fair value movement on deferred contingent consideration
(3,160)
4
Finance cost
126
140
Finance income
(47)
(170)
Income tax expense
2,243
2,080
Other non-cash movements
2,548
(3,356)
15,119
10,283
Changes in trade and other receivables
(3,488)
(1,708)
Changes in prepayments and other assets
(3,776)
669
Changes in inventory
1,339
281
Changes in trade and other payables
1,517
(394)
Cash provided by operations
10,711
9,131
Interest received
47
170
Interest paid
(126)
(140)
Income taxes paid
(1,723)
(1,943)
Net cash provided by operating activities
8,909
7,218
Investing activities
Purchase of property, plant and equipment
(5,639)
(5,246)
Acquisitions, net of cash acquired
(5,200)
(979)
Payment of deferred contingent consideration
(2,024)
(682)
Short term deposit
-
30,781
Proceeds from former joint venture investments
109
116
Net cash used in/generated by investing activities
(12,754)
23,990
Financing activities
Dividends paid
(4,210)
(4,210)
Repayment of loans and finance leases
(253)
(1,052)
Net cash provided by/(used in) financing activities
(4,463)
(5,262)
Effect of foreign exchange rate changes on cash
(313)
246
Net increase/(decrease) in cash and cash equivalents
(8,621)
26,192
Cash and cash equivalents at the beginning of the year
36,836
10,644
Cash and cash equivalents at the end of the year
28,215
36,836
The accompanying notes are an integral part of these financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Share
capital
Share premium
Merger reserve
Un-denominated
capital
Share based payment reserve
Foreign
currency translation reserve
Retained earnings
Total
Non-controlling interests
Total
equity
€'000
€'000
€'000
€'000
€'000
€'000
€'000
€'000
€'000
€'000
Balances at 1 January 2016
2,105
67,647
(17,393)
39
16
(1,460)
46,485
97,439
465
97,904
Comprehensive income:
Profit for the year
-
-
-
-
-
-
9,234
9,234
19
9,253
Other comprehensive income/(loss):
Foreign currency translation
-
-
-
-
-
2,495
-
2,495
-
2,495
Total comprehensive income
2,495
9,234
11,729
19
11,748
Transactions with Shareholders:
Share based payments
-
-
-
-
73
-
-
73
-
73
Dividends
-
-
-
-
-
-
(4,210)
(4,210)
-
(4,210)
Balances at 31 December 2016
2,105
67,647
(17,393)
39
89
1,035
51,509
105,031
484
105,515
Comprehensive income:
Profit for the year
-
-
-
-
-
-
10,092
10,092
303
10,395
Other comprehensive income/(loss):
Foreign currency translation
-
-
-
-
-
(3,975)
-
(3,975)
-
(3,975)
Total comprehensive income
(3,975)
10,092
6,117
303
6,420
Transactions with Shareholders:
Share-based payments
-
-
-
-
423
-
-
423
-
423
Dividends
-
-
-
-
-
-
(4,210)
(4,210)
-
(4,210)
Balances at 31 December 2017
2,105
67,647
(17,393)
39
512
(2,940)
57,391
107,361
787
108,148
The accompanying notes are an integral part of these financial statements.
Notes to the Consolidated Financial Statements
1. Description of business
The consolidated financial statements of Mincon Group Plc (also referred to as "Mincon" or "the Company") comprises the Company and its subsidiaries (together referred to as "the Group"). The companies registered address is Smithstown Industrial Estate, Smithstown, Shannon, Co. Clare, Ireland.
The Group is an Irish engineering group, specialising in the design, manufacturing, sale and servicing of rock drilling tools and associated products. Mincon Group Plc is domiciled in Shannon, Ireland.
On 26 November 2013, Mincon Group plc was admitted to trading on the Enterprise Securities Market (ESM) of the Irish Stock Exchange and the Alternative Investment Market (AIM) of the London Stock Exchange.
2. Basis of preparation
This consolidated preliminary financial information has been prepared in accordance with the International Financial report standards and interpretations approved by the International Accounting Standards Board (IASB).
The accounting policies set out in note 3 have been applied consistently in preparing the preliminary financial information for the years ended 31 December 2017 and 31 December 2016.
The Group preliminary financial information are presented in euro, which is the functional currency of the Company and also the presentation currency for the Group's financial reporting. Unless otherwise indicated, the amounts are presented in thousands of euro. This preliminary financial information are prepared on the historical cost basis.
The preparation of the consolidated preliminary financial information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The judgements, estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates. The areas involving a high degree of judgement and the areas where estimates and assumptions are critical to the consolidated preliminary financial information are discussed in Note 3.
The directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to continue to prepare our consolidated preliminary financial information on a going concern basis.
3. Significant accounting principles, accounting estimates and judgements
The accounting principles as set out in the following paragraphs have, unless otherwise stated, been consistently applied to all periods presented in the consolidated financial statements and for all entities included in the consolidated financial statements.
The following new and amended standards and interpretations are effective for the Group for the first time for the financial year beginning 1 January 2017:
• Disclosure initiative (Amendments to IAS 7)
• Recognition of deferred tax assets for unrealised losses (Amendments to IAS 12)
• Annual improvements to IFRSs 2014 - 2016 Cycle - various standards (Amendments to IFRS 12)
The aforementioned did not have a material impact on the Group.
3. Significant accounting principles, accounting estimates and judgements (continued)
A number of new Standards, Amendments to Standards and Interpretations are effective for annual periods beginning after 1 January 2018, and have not been applied in preparing these consolidated financial statements. These are set out as follows:
• IFRS 15: Revenue from contracts with customers*
• IFRS 9: Financial Instruments*
• Amendments to IFRS 2: Classification and measurement of share-based payment transactions*
• Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts*
• Amendments to IAS 40: Transfers of Investment Property*
• Annual Improvements to IFRS 2014-2016 Cycle - various standards (Amendments to IFRS 1 and IAS 28)*
• IFRIC 22: Foreign Currency Transactions and Advance Consideration*
• IFRS 16: Leases**
• IFRIC 23: Uncertainty over Income Tax Treatments**
• IFRS 17: Insurance Contracts***
The aforementioned did not have a material impact on the Group.
IFRSs not yet effective
The following new or amended standards and interpretations that are mandatory for 2018 annual periods (and future years) will be applicable to the Group:
IFRS 9
Financial Instruments
1 January 2018
IFRS 15
Revenue from contracts with customers
1 January 2018
IFRS 16
Leases
1 January 2019
The Group has not adopted any standard, interpretation or amendment that has been issued but is not yet effective. The impact of these new or amended standards and interpretations has been considered as follows:
Estimated impact of the adoption of IFRS 9, IFRS 15 and IFRS 16
The Group is required to adopt IFRS 9 Financial Instruments from 1 January 2018. The Group has assessed the estimated impact that initial application of IFRS 9 will have on the consolation financial statements. IFRS 9 Financial Instruments sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. The standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
Classification of financial assets and financial liabilities
Based on its assessment, the Group concludes that the classification requirements will not have a material impact on any of its accounting balances.
Impairment - Financial assets
IFRS 9 requires the Group to record expected credit losses on all of its trade receivables, either on a 12 month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables. The Group has determined that due to the nature of its receivables, the impact of IFRS 9 will not significantly impact the provision for bad debts.
Estimated impact of the adoption of IFRS 15
IFRS 15 establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 revenue, IAS 11 Construction contracts and IFRIC 13 Customer Loyalty Programmes.
The Group is involved in the sale and servicing of rock drilling tools and associated products. Revenue from the sale of these goods and services to customers is measured at the fair value of the consideration received or receivable (excluding sales taxes).
The Group has reviewed the requirements of the new standard, considered those requirements in the context of the Group's revenue generating activities and identified the key areas for further detailed assessment. Based on the Group's initial review, the Group concludes that the new standard will not have a material impact on the net profit of the Group.
3. Significant accounting principles, accounting estimates and judgements (continued)
IFRS 16 Leases
IFRS 16 replaced existing leases guidance including IAS 17 leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC-15 Operating leases - Incentives and SIC-27 Evaluation the substance of transactions Involving the legal form of a lease.
The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognised a right of use assets representing its right to use the underlying asset and lease liability representing its obligation to make lease payments. There are recognition exemptions for short term leases and leases of low value items. Lessor accounting remains similar to the current standard (i.e. lessors continue to classify leases as finance or operating leases).
The Group has commenced an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its detailed assessment. It is expected that the Group will recognise right of use assets and related lease liabilities for its operating leases.
* Amendments are effective for annual period commencing after 1 January 2018.
** Amendments are effective for annual period commencing after 1 January 2019.
*** Amendments are effective for annual period commencing after 1 January 2021.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, net of sales taxes, goods returned, and discounts and other similar deductions. Revenue from sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer, which in most cases occurs on delivery. Revenue is recognised when recovery of the consideration is considered probable and the revenue and associated costs can be measured reliably. No revenue is recognised if there are signifi-cant uncertainties regarding the possible return of goods.
Segment reporting
An operating segment is a component of the Group that engages in busi-ness activities from which it may earn revenue and incur expenses, and for which discrete financial information is available. The operating results of all operating segments are reviewed regularly by the Board of Directors, the chief operating decision maker, to make deci-sions about allocation of resources to the segments and also to assess their performance. See note 5 for additional information.
Earnings per share
Basic earnings per share is calculated based on the profit for the year attributable to owners of the Company and the basic weighted average number of shares outstanding. Diluted earnings per share is calcu-lated based on the profit for the year attributable to owners of the Company and the diluted weighted average number of shares outstanding.
Income taxes
Income taxes include both current and deferred taxes in the consolidated financial statements. Income taxes are reported in profit or loss unless the underlying transaction is reported in other comprehensive income or in equity. In those cases, the related income tax is also reported in other comprehensive income or in equity. A current tax liability or asset is recognised for the estimated taxes payable or refundable for the current or prior years.
3. Significant accounting principles, accounting estimates and judgements (continued)
Deferred tax is recognised using the statement of financial position liability method. The calculation of deferred taxes is based on either the differ-ences between the values reported in the statement of financial position and their respective values for taxation, which are referred to as temporary dif-ferences, or the carry forward of unused tax losses and tax credits. Temporary differences related to the following are not provided for: the initial recognition of goodwill, the initial recognition (other than in business combinations) of assets or liabilities that affect neither accounting nor taxable profit, and differences related to investments in subsidiary companies to the extent that they will not reverse in the foreseeable future.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. A deferred tax asset is recognised only to the extent that it is prob-able that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. In the calculation of deferred taxes, enacted or substantively enacted tax rates are used for the individual tax jurisdictions. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabil-ities 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.
Inventories
Inventories are valued at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in, first-out principle and includes the costs of acquiring inventories and bringing them to their existing location and condition. Inventories manufactured by the Group and work in progress include an appropriate share of production overheads based on normal operating capacity. Inventories are reported net of deductions for obsolescence.
Intangible Assets
Goodwill
The Group accounts for acquisitions using the purchase accounting method as outlined in IFRS 3 Business Combinations. Group management has determined that the Group has multiple cash generating units, which are aggregated into one operating segment and therefore all goodwill is tested for impairment at Group level and this is tested for impairment annually.
Intangible assets
Expenditure on research activities is recognised in profit or loss as incurred.
Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
Foreign Currency
Foreign currency transactions
Transactions in foreign currencies (those which are denominated in a currency other than the functional currency) are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the foreign exchange rate at the statement of financial position date. Exchange gains and losses related to trade receivables and payables, other financial assets and payables, and other operating receiv-ables and payables are separately presented on the face of the income statement.
Exchange rate differences on translation to functional currency are reported in profit or loss, except when reported in other compre-hensive income for the translation of intra-group receivables from, or liabilities to, a for-eign operation that in substance is part of the net investment in the foreign operation.
Exchange rates for major currencies used in the various reporting periods are shown in note 21.
3. Significant accounting principles, accounting estimates and judgements (continued)
Translation of accounts of foreign entities
The assets and liabilities of foreign entities, including goodwill and fair value adjustments arising on consolidation, are translated to Euro at the exchange rates ruling at the reporting date. Revenues, expenses, gains, and losses are translated at average exchange rates, when these approximate the exchange rate for the respective transaction. Foreign exchange differences arising on translation of foreign entities are recognised in other comprehensive income and are accumulated in a separate component of equity as a translation reserve. On divestment of foreign entities, the accumulated exchange differences, are recycled through profit or loss, increasing or decreasing the profit or loss on divestments.
Business combinations and consolidation
The consolidated financial statements include the financial statements of the Group and all companies in which Mincon Group plc, directly or indirectly, has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
The consolidated financial statements have been prepared in accordance with the acquisition method. According to this method, business combinations are seen as if the Group directly acquires the assets and assumes the liabilities of the entity acquired. At the acquisition date, i.e. the date on which control is obtained, each identifiable asset acquired and liability assumed is recognised at its acquisition-date fair value.
Consideration transferred is measured at its fair value. It includes the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the previous owners of the acquiree, and equity interests issued by the Group. Deferred contingent consideration is initially measured at its acquisition-date fair value. Any subsequent change in such fair value is recognised in profit or loss, unless the deferred contingent consideration is classified as equity. In that case, there is no remeasurement and the subsequent settlement is accounted for within equity.
Transaction costs that the Group incurs in connection with a business combination, such as legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Goodwill is measured as the excess of the fair value of the consider-ation transferred, the amount of any non-controlling interest in the acquiree, and the fair value of the Group's previously held equity interest in the acquiree (if any) over the net of acquisition-date fair values of the identifiable assets acquired and liabilities assumed. Goodwill is not amortised but tested for impairment at least annually.
Non-controlling interest is initially measured either at fair value or at the non-controlling interest's proportionate share of the fair value of the acquiree's identifiable net assets. This means that goodwill is either recorded in "full" (on the total acquired net assets) or in "part" (only on the Group's share of net assets). The choice of mea-surement basis is made on an acquisition-by-acquisition basis.
Earnings from the acquirees are reported in the consolidated income statement from the date of control.
Intra-group balances and transactions such as income, expenses and dividends are eliminated in preparing the consolidated financial statements. Profits and losses resulting from intra-group transactions that are recognised in assets, such as inventory, are eliminated in full, but losses are only eliminated to the extent that there is no evidence of impairment.
Property, plant and equipment
Items of property, plant and equipment are carried at cost less accu-mulated depreciation and impairment losses. Cost of an item of property, plant and equipment comprises the purchase price, import duties, and any cost directly attributable to bringing the asset to its location and condition for use. The Group capitalises costs on initial recognition and on replacement of significant parts of property, plant and equip-ment, if it is probable that the future economic benefits embodied will flow to the Group and the cost can be measured reliably. All other costs are recognised as an expense in profit or loss when incurred.
Depreciation
Depreciation is calculated based on cost using the straight-line method over the estimated useful life of the asset.
The following useful lives are used for depreciation:
Years
Buildings
20-30
Plant and equipment
3-10
The depreciation methods, useful lives and residual values are reassessed annually. Land is not depreciated.
3. Significant accounting principles, accounting estimates and judgements (continued)
Leased assets
In the consolidated financial statements, leases are classified as either finance leases or operating leases. A finance lease entails the transfer to the lessee of substantially all of the economic risks and benefits associated with ownership. If this is not the case, the lease is accounted for as an operating lease.
For the lessee, a finance lease requires that the asset leased is recognised as an asset in the statement of financial position. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the future minimum lease payments. Initially, a corresponding liability is recorded. Assets under finance leases are depreciated over their estimated useful lives, while the lease pay-ments are reported as interest and amortisation of the lease liability. For operating leases, the lessee does not account for the leased asset in its statement of financial position. In profit or loss, the costs of operating leases are recorded on a straight-line basis over the term of the lease.
Financial Assets and Liabilities
Recognition and derecognition
Financial assets and liabilities are recognised at fair value when the Group becomes a party to the contractual provisions of the instrument. Purchases and sales of financial assets are accounted for at trade date, which is the day when the Group contractually commits to acquire or dispose of the assets. Trade receivables are recognised on delivery of product. Liabilities are recognised when the other party has performed and there is a contractual obligation to pay. Derecognition (fully or partially) of a financial asset occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of own-ership have been removed from the Group. The Group derecognises (fully or partially) a financial liability when the obligation specified in the contract is discharged or otherwise expires. A financial asset and a financial liability are offset and the net amount presented in the statement of financial position when there is a legally enforce-able right to set off the recognised amounts and there is an intention to either settle on a net basis or to realise the asset and settle the liability simultaneously.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant periods. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument, or when appropriate a shorter period, to the net carrying amount of the financial asset or financial liability. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transac-tion costs, and all other premiums or discounts.
Borrowing costs
All borrowing costs are expensed in accordance with the effective interest rate method.
Investments in subsidiaries - Company
Investments in subsidiary undertakings are stated at cost less provision for impairment in the Company's statement of financial position. Loans to subsidiary undertakings are initially recorded at fair value in the Company statement of financial position and subsequently at amortised cost using an effective interest rate methodology.
Impairment of financial assets
Financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
Equity
Shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effect.
Contingent liabilities
A contingent liability is a possible obligation or a present obligation that arises from past events that is not reported as a liability or provision, as it is not probable that an outflow of resources will be required to settle the obligation or that a sufficiently reliable calculation of the amount cannot be made.
Financial instruments carried at fair value: Non-derivative financial liabilities
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
Financial income and expenses
Finance income and expense are included in profit or loss using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less.
3. Significant accounting principles, accounting estimates and judgements (continued)
Provisions
A provision is recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, it is proba-ble that an outflow of economic benefits will be required to settle the obligation, and the outflow can be estimated reliably. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect of the time value of money is material, the provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan and the restructuring has either commenced or been announced publicly. Future operating losses are not provided for.
Exceptional Items
The Group has adopted an Income Statement format which seeks to highlight significant items within the Group results for the year. Such items may include restructuring, profit or loss on disposal or termination of operations, litigation costs and settlements, profit or loss on disposal of investments, profit or loss on disposal of property, plant and equipment, acquisition costs, adjustment to contingent consideration (arising on business combinations from 1 April 2010) and impairment of assets. Judgement is used by the Group in assessing particular items, which by virtue of their scale and nature, should be presented in the Income Statements and disclosed in the related notes as exceptional items.
Defined contribution plans
A defined contribution pension plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when employees provide services entitling them to the contributions.
Share-based payment transactions
The Group operates a long term incentive plan which allows the Company to grant Restricted Share Awards ("RSAs") to executive directors and senior management. All schemes are equity settled arrangements under IFRS 2 Share-based Payment.
The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
Critical accounting estimates and judgements
The preparation of financial statements requires management's judgement and the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and associated assumptions are based on his-torical experience and various other factors that are believed to be rea-sonable under the prevailing circumstances. Actual results may differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which they are revised and in any future periods affected.
Following are the estimates and judgements which, in the opinion of management, are significant to the underlying amounts included in the financial reports and for which there is a significant risk that future events or new information could entail a change in those estimates or judgements.
Deferred contingent consideration
The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios. The fair value of deferred contingent consideration is primarily dependent on the future performance of the acquired businesses against predetermined targets and on management's current expectations thereof.
3. Significant accounting principles, accounting estimates and judgements (continued)
Trade and other receivables
The Group estimates the risk that receivables will not be paid and pro-vides for doubtful accounts based on specific provisions for known cases and collective provisions for losses based on historical profit levels.
Total trade and other receivables as of 31 December 2017 amounted to €20.6 million (2016: €18.1 million) with a corresponding total allowance for estimated losses of €3 million (2016: €1.6 million).
4. Revenue
2017
2016
€'000
€'000
Product revenue:
Sale of Mincon product
74,965
56,360
Sale of third party product
22,393
19,821
Total revenue
97,358
76,181
5. Operating Segment
Results are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). Our CODM has been identified as the Board of Directors.
The Group has determined that it has one reportable segment. The Group is managed as a single business unit that sells drilling equipment, primarily manufactured by Mincon manufacturing sites.
The CODM assesses operating segment performance based on a measure of operating profit. Segment revenue for the year ended 31 December 2017 of €97.4 million (2016: €76.2 million) is wholly derived from sales to external customers.
Entity-wide disclosures
The business is managed on a worldwide basis but operates manufacturing facilities and sales offices in Ireland, Sweden, South Africa, UK, Western Australia, the United States and Canada and sales offices in eleven other locations including Eastern & Western Australia, South Africa, UK, Finland, Spain, Namibia, Tanzania, Sweden, Chile and Peru. In presenting information on geography, revenue is based on the geographical location of customers and non-current assets based on the location of these assets.
Revenue by region (by location of customers):
2017
2016
€'000
€'000
Region:
Ireland
661
669
Americas
25,407
23,389
Australasia
22,206
19,101
Europe, Middle East, Africa
49,084
33,022
Total revenue from continuing operations
97,358
76,181
Non-current assets by region (location of assets):
2017
2016
€'000
€'000
Region:
Ireland
10,381
6,752
Americas
14,796
14,423
Australasia
5,241
7,237
Europe, Middle East, Africa
17,352
4,998
Total non-current assets(1)
47,770
33,410
(1) Non-current assets exclude deferred tax assets.
6. Cost of Sales and operating expenses
Included within cost of sales, selling and distribution expenses and general and administrative expenses were the following major components:
Cost of sales
2017
2016
€'000
€'000
Raw materials
24,517
16,473
Third party product purchases
17,580
15,562
Employee costs
9,588
7,162
Depreciation
2,404
1,752
Impairment of capital inventory (note 8)
1,741
-
Impairment of finished goods inventory (note 8)
530
-
Other
5,431
4,671
Total cost of sales
61,791
45,620
The Group invested approximately €1.7 million on research and development projects in 2017 (2016: €0.9 million)., of this €0.6 million has been expensed in the period with the balance of €1.1 million capitalised (note 12).
General, selling and distribution expenses
2017
2016
€'000
€'000
Employee costs (including director emoluments)
13,845
12,026
Depreciation
610
580
Acquisition and related costs (note 8)
303
-
Impairment of trade receivable (note 8)
600
-
Other
9,343
7,777
Total other operating costs
24,701
20,383
7. Employee information
2017
2016
€'000
€'000
Wages and salaries - excluding directors
19,448
16,507
Wages, salaries, fees and pensions - directors
658
510
Termination payments
380
349
Social security costs
1,591
1,317
Pension costs of defined contribution plans
1,045
732
Share based payment expense (note 20)
411
73
Total employee costs
23,533
19,388
The Group capitalised payroll costs of €0.1 million in 2017 (2016: €0.2 million) in relation to research and development.
The average number of employees was as follows:
2017
2016
Number
Number
Sales and distribution
86
76
General and administration
49
58
Manufacturing, service and development
189
164
Average number of persons employed
324
298
Pension and Other Employee Benefit Plans
The Group operates various defined contribution pension plans. During the year ended 31 December 2017, the Group recorded €1.1 million (2016: €0.8 million) of expense in connection with these plans.
8. Exceptional Items
Total
€'000
Cost of sales
Impairment of capital equipment inventory
(1,741)
Impairment of finished goods inventory
(530)
Total cost of sales
(2,271)
General, selling and distribution expenses
Impairment of trade receivable
(600)
Acquisition and related costs
(303)
Total general, selling and distribution expenses
(903)
Fair value movement on contingent consideration
3,124
Total exceptional items
(50)
The write down in the year ended 31 December 2017 on the Group's capital equipment inventory is €1.7 million (2016: €nil).
The level of finished goods inventory write down recognised as an exceptional item within the cost of sales amounted to €0.5 million (2016: €nil). This write down in inventory in the year ended 31 December 2017 arose on various non-Mincon manufactured product that became obsolete due to the availability of more advanced products that have now become available on the market.
The Group provides for all receivables where there is objective evidence, including historical loss experience, that amounts are irrecoverable. The Group now considers that a receivable of €0.6 million from a South American distributor is no longer recoverable.
The Group considers acquisition and related costs as significant items. During the course of acquiring PPV and Viqing the Group incurred costs of €0.3 million.
In August 2014 the Group acquired a 65% majority shareholding in Rotacan. In June 2017 the Group acquired the 35% minority interest in this business for cash consideration of €2 million which was settled in July 2017. The acquisition of the minority shareholding in Rotacan resulted in a credit to the income statement as the amount paid to settle the contingent consideration was less than the director's estimate of its fair value at 31 December 2016.
9. Acquisitions
In 2017, the Group increased its product portfolio and further extended its distribution network through the acquisition of PPV (Pirkanmaan Poraveikot OY) and Viqing Drilling Equipment AB.
In April, 2017, Mincon acquired 100% shareholding in Pirkanmaan Poraveikot OY, PPV, this is a Finnish based business that specialises in the design and sale of specialised consumable equipment for drilling where ground disruption must be minimised.
In July 2017, Mincon acquired 100% shareholding in Viqing Drilling Equipment AB. This company specialises in the manufacture and distribution of drill pipe, adapters/subs and other drilling accessories for drilling in mining, geothermal, water well and construction industries.
A. Consideration transferred
The following table summarises the acquisition date fair value of each major class of consideration transferred.
PPV
Viqing
Total
€'000
€'000
€'000
Cash
2,000
3,200
5,200
Deferred consideration
2,000
4,700
6,700
Total consideration transferred
4,000
7,900
11,900
B. Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets and liabilities assumed at the date of acquisition.
Total
€'000
Property, plant and equipment
1,152
Inventories
337
Trade receivables
656
Other assets
35
Trade and other payables
(553)
Other liabilities
(1,251)
Fair value of identifiable net assets acquired
376
The carrying amount of trade receivables equates to the fair value and the gross contractual amounts. The best estimate of the amount not to be collected is €nil.
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets acquired were as follows.
Assets acquired
Valuation Technique
Property, plant and equipment
Market comparison technique and cost technique: The valuation model considers quoted market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.
Inventories
Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
If the information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisitions, then the accounting for the acquisition will be revised.
Goodwill
Goodwill arising from the acquisition has been recognised as follows.
Total
Consideration transferred
11,900
Fair value of identifiable net assets
(376)
Goodwill
11,524
The goodwill created in the acquisition in the period is primarily related to the synergies expected to be achieved from integrating these companies into the Group's existing structure. PPV product will be sold through the Group's current sales offices and Viqing product will continue to sell through existing channels and also through Mincon's sales offices.
10. Statutory and other required disclosures
Operating profit is stated after charging the following amounts:
2017
2016
€'000
€'000
Directors' remuneration
Fees
129
85
Wages and salaries
469
400
Other emoluments
-
-
Pension contributions
60
25
Total directors' remuneration
658
510
Auditor's remuneration:
2017
2016
€'000
€'000
Auditor's remuneration - Fees payable to lead audit firm
Audit of the Group financial statements
131
127
Audit of the Company financial statements
14
12
Other assurance services
10
10
Tax advisory services (a)
24
46
Other non-audit services
4
2
183
197
Auditor's remuneration - Fees payable to other firms in lead audit firm's network
Audit services
61
47
Other assurance services
12
10
Tax advisory services
10
8
Total auditor's remuneration
266
262
(a) Includes tax compliance work on behalf of Group companies.
11. Income tax
Tax recognised in income statement:
2017
2016
Current tax expense
€'000
€'000
Current year
2,226
1,971
Adjustment for prior years
-
-
Total current tax expense
2,226
1,971
Deferred tax expense
Origination and reversal of temporary differences
17
109
Total deferred tax (credit)/expense
17
109
Total income tax expense
2,243
2,080
A reconciliation of the expected income tax expense for continuing operations is computed by applying the standard Irish tax rate to the profit before tax and the reconciliation to the actual income tax expense is as follows:
2017
2016
€'000
€'000
Profit before tax from continuing operations
12,638
11,333
Irish standard tax rate (12.5%)
12.5%
12.5%
Taxes at the Irish standard rate
1,580
1,417
Foreign income at rates other than the Irish standard rate
116
436
Losses creating no income tax benefit
226
274
Other
321
(47)
Total income tax expense
2,243
2,080
The Group's net deferred taxation liability was as follows:
2017
2016
€'000
€'000
Deferred taxation assets:
Reserves, provisions and tax credits
69
377
Tax losses and unrealised FX gains
81
152
Total deferred taxation asset
150
529
Deferred taxation liabilities:
Property, plant and equipment
(194)
(523)
Accrued income
(30)
-
Profit not yet taxable
(94)
(191)
Total deferred taxation liabilities
(318)
(714)
Net deferred taxation liability
(168)
(185)
11. Income tax (continued)
The movement in temporary differences during the year were as follows:
Balance
Recognised in
Balance
1 January
Profit or Loss
31 December
1 January 2016 - 31 December 2016
€'000
€'000
€'000
Deferred taxation assets:
Reserves, provisions and tax credits
98
279
377
Tax losses
382
(230)
152
Total deferred taxation asset
480
49
529
Deferred taxation liabilities:
Property, plant and equipment
(459)
(64)
(523)
Accrued income and other
-
-
-
Profit not yet taxable
(97)
(94)
(191)
Total deferred taxation liabilities
(556)
(158)
(714)
Net deferred taxation liability
(76)
(109)
(185)
Balance
Recognised in
Balance
1 January
Profit or Loss
31 December
1 January 2017 - 31 December 2017
€'000
€'000
€'000
Deferred taxation assets:
Reserves, provisions and tax credits
377
(308)
69
Tax losses
152
(71)
81
Total deferred taxation asset
529
(379)
150
Deferred taxation liabilities:
Property, plant and equipment
(523)
329
(194)
Accrued income
-
(30)
(30)
Profit not yet taxable
(191)
97
(94)
Total deferred taxation liabilities
(714)
396
(318)
Net deferred taxation liability
(185)
17
(168)
Deferred taxation assets have not been recognised in respect of the following items:
2017
2016
€'000
€'000
Tax losses
3,286
2,631
Total
3,286
2,631
12. Intangible assets
Product development
Goodwill
Total
€'000
€'000
€'000
Balance at 1 January 2016
-
11,459
11,459
Investments
499
-
499
Acquisitions
-
279
279
Translation differences
-
883
883
Balance at 31 December 2016
499
12,621
13,120
Investments
1,163
-
1,163
Acquisitions (note 9)
-
11,524
11,524
Translation differences
-
(713)
(713)
Balance at 31 December 2017
1,662
23,432
25,094
Goodwill relates to the acquisition of the remaining 60% of DDS-SA Pty Limited in November 2009, the 60% acquisition of Omina Supplies in August 2014 and the 65% acquisition of Rotacan and ABC products in August 2014, the acquisition of Ozmine in January 2015, the acquisition of Mincon Chile and Mincon Tanzania in March 2015, the acquisition of Premier and Rockdrill Engineering in November 2016 and the acquisition of PPV and Viqing in 2017 being the dates that the Group obtained control of these businesses. The Group accounts for acquisitions using the purchase accounting method as outlined in IFRS 3 Business Combinations.
The businesses acquired were integrated with other Group operations soon after acquisition. Impairment testing (including sensitivity analyses) is performed at each period end. Group management has determined that the Group has multiple cash generating units, which are aggregated into one operating segment and therefore all goodwill is tested for impairment at Group level.
The recoverable amount of goodwill has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash flows using forecasts covering a five-year period and terminal value (based on three year plans prepared annually). The most significant assumptions are revenues, operating profits, working capital and capital expenditure. A growth rate of 3% was applied for all periods after the three years budgeted. The discount rate in 2017 was assumed to amount to 13% (2016: 13%) after tax (approximately 13% before tax) and has been used in discounting the cash flows to determine the recoverable amounts. Goodwill impairment testing did not indicate any impairment during any of the periods being reported. Sensitivity in all calculations implies that the goodwill would not be impaired even if the discount rate increased substantially or the long-term growth was lowered to zero.
13. Other non-current assets
Total
€'000
Loan to former joint venture partner (1):
At 1 January 2016 (1)
342
Repayment of loan from joint venture partner
(116)
FX movement on loan from joint venture partner
12
At 31 December 2016
238
Repayment of loan from joint venture partner
(109)
FX movement on loan from joint venture partner
(29)
At 31 December 2017
100
(1) In September 2008, the Group invested in TJM, a drilling equipment and supplies company based in Pennsylvania, USA. The Group disposed of its investment in March 2012. The consideration for sale of the Group's shareholding was a US$700,000 interest bearing loan note repayable over 6 years. As at 31 December 2017, an amount of US$120,000 (2016: US$251,000) was outstanding on this loan.
14. Property, plant and equipment
Land &
Plant &
Buildings
Equipment
Total
€'000
€'000
€'000
Cost:
At 1 January 2016
9,157
22,478
31,635
Acquisitions
-
68
68
Additions
316
4,930
5,246
Disposals
(288)
(683)
(971)
Foreign exchange differences
81
614
695
At 31 December 2016
9,266
27,407
36,673
Acquisitions
244
908
1,152
Additions
1,865
3,774
5,639
Disposals
-
(986)
(986)
Foreign exchange differences
(529)
(1,444)
(1,973)
At 31 December 2017
10,846
29,659
40,505
Accumulated depreciation:
At 1 January 2016
(1,994)
(12,364)
(14,358)
Charged in year
(247)
(2,085)
(2,332)
Disposals
31
453
484
Foreign exchange differences
(28)
(387)
(415)
At 31 December 2016
(2,238)
(14,383)
(16,621)
Charged in year
(264)
(2,750)
(3,014)
Disposals
-
796
796
Foreign exchange differences
83
827
910
At 31 December 2017
(2,419)
(15,510)
(17,929)
Carrying amount: 31 December 2017
8,427
14,149
22,576
Carrying amount: 31 December 2016
7,028
13,024
20,052
Carrying amount: 1 January 2016
7,163
10,114
17,277
The depreciation charge for property, plant and equipment is recognised in the following line items in the income statement:
2017
2016
€'000
€'000
Cost of sales
2,404
1,752
General, selling and distribution expenses
610
580
Total depreciation charge for property, plant and equipment
3,014
2,332
15. Inventory
2017
2016
€'000
€'000
Finished goods and work-in-progress
23,336
25,603
Capital equipment
2,612
4,473
Raw materials
5,903
5,234
Total inventory
31,851
35,310
The company recorded write-downs of €2.3 million against inventory to net realisable value (see note 8) during the year ended 31 December 2017 (2016: €0.2 million). Write-downs are included in cost of sales, please refer to note 8 for further details. Included in capital equipment inventory are third party rigs held for resale in Southern Africa.
16. Trade and other receivables and the current assets
a) Trade and other receivables
2017
2016
€'000
€'000
Gross receivable
20,603
18,068
Provision for impairment
(3,043)
(1,631)
Net trade and other receivables
17,560
16,437
2017
2016
€'000
€'000
Less than 60 days
13,333
11,148
61 to 90 days
3,005
1,844
Greater than 90 days
1,222
3,445
Net trade and other receivables
17,560
16,437
At 31 December 2017, €3.9 million (22%) of trade receivables balance was past due but not impaired (2016: €3.4 million (21%)).
b) Other current assets
Total
€'000
Balance at 1 January 2017
996
Plant and machinery prepaid
3,143
Other
570
Balance at 31 December 2017
4,709
17. Loans and borrowings
2017
2016
Maturity
€'000
€'000
Bank loans
2018-2021
1,825
1,183
Finance leases
2018-2020
248
693
Total loans and borrowings
2,073
1,876
Current
668
734
Non-current
1,405
1,142
The Group has a number of bank loans and finance leases in the United States and Australia with a mixture of variable and fixed interest rates. The Group has not been in default on any of these debt agreements during any of the periods presented. None of the debt agreements carry restrictive financial covenants.
In July 2017, Mincon Nordic OY a subsidiary of Group plc acquired 100% of Viqing Drilling Equipment AB. This acquisition included variable rate loans on the books of Viqing and its subsidiaries of €1.2 million. The loans are secured against land & buildings and plant & machinery.
18. Share capital and reserves
At 31 December 2016 and 2017
Authorised Share Capital
Number
€000
Ordinary Shares of €0.01 each
500,000,000
5,000
Allotted, called-up and fully paid up shares
Number
€000
Ordinary Shares of €0.01 each
210,541,102
2,105
Share issuances
On 26 November 2013, Mincon Group plc was admitted to trading on the Enterprise Securities Market (ESM) of the Irish Stock Exchange and the Alternative Investment Market (AIM) of the London Stock Exchange.
Voting rights
The holders of Ordinary Shares have the right to receive notice of and attend and vote at all general meetings of the Company and they are entitled, on a poll or a show of hands, to one vote for every Ordinary Share they hold. Votes at general meetings may be given either personally or by proxy. Subject to the Companies Act and any special rights or restrictions as to voting attached to any shares, on a show of hands every member who (being an individual) is present in person and every proxy and every member (being a corporation) who is present by a representative duly authorised, shall have one vote, so, however, that no individual shall have more than one vote for every share carrying voting rights and on a poll every member present in person or by proxy shall have one vote for every share of which he is the holder.
Dividends
In September 2017, Mincon Group plc paid an interim dividend for 2017 of €0.01 (1 cent) per ordinary share. In June 2017, Mincon Group plc paid a final dividend for 2016 of €0.01 (1 cent) per ordinary share. In September 2016, Mincon Group plc paid an interim dividend for 2016 of €0.01 (1 cent) per ordinary share. The directors are recommending a final dividend of €0.0105 (1.05 cent) per ordinary share for 2017 which will be subject to approval at the company's AGM in April 2018.
Share premium and other reserve
As part of a Group reorganisation the Company, Mincon Group plc, became the ultimate parent entity of the Group. On 30 August 2013, the Company acquired 100% of the issued share capital in Smithstown Holdings and acquired (directly or indirectly) the shareholdings previously held by Smithstown Holdings in each of its subsidiaries.
19. Earnings per share
Basic earnings per share (EPS) is computed by dividing the profit for the period available to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is computed by dividing the profit for the period by the weighted average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares. The following table sets forth the computation for basic and diluted net profit per share for the years ended 31 December:
2017
2016
€'000
€'000
Numerator (amounts in €'000):
Profit attributable to owners of the Parent
10,092
9,234
Earnings per Ordinary Share
Basic earnings per share, €
Diluted earnings per share, €
4.79c
4.76c
4.39c
4.38c
Denominator (Number):
Basic shares outstanding
Diluted weighted average shares outstanding
210,541,102
210,541,102
212,194,947
211,041,102
There were a number of outstanding restricted share awards (RSAs) in issue at 31 December 2016 and 2017.
20. Share based payment
During the year ended 31 December 2017, the Remuneration Committee made a grant of approximately 1,153,845 Restricted Share Awards (RSAs) to members of the senior management team. The vesting conditions of the scheme state that the minimum growth in EPS shall be CPI plus 5% per annum, compounded annually, over the relevant three accounting years up to the share award of 100% of the participants basic salary. Where awards have been granted to a participant in excess of 100% of their basic salary, the performance condition for the element that is in excess of 100% of basic salary is that the minimum growth in EPS shall be CPI plus 10% per annum, compounded annually, over the three accounting years.
During the year ended 31 December 2016, the Remuneration Committee made a grant of approximately 500,000 Restricted Share Awards (RSAs) to members of the senior management team.
21. Financial risk management
The Group is exposed to various financial risks arising in the normal course of business. Its financial risk exposures are predominantly related to changes in foreign currency exchange rates and interest rates, as well as the creditworthiness of our counterparties.
a) Liquidity and capital
The Group defines liquid resources as the total of its cash, cash equivalents and short term deposits. Capital is defined as the Group's shareholders' equity and borrowings.
The Group's objectives when managing its liquid resources are:
• To maintain adequate liquid resources to fund its ongoing operations and safeguard its ability to continue as a going concern, so that it can continue to create value for investors;
• To have available the necessary financial resources to allow it to invest in areas that may create value for shareholders; and
• To maintain sufficient financial resources to mitigate against risks and unforeseen events.
Liquid and capital resources are monitored on the basis of the total amount of such resources available and the Group's anticipated requirements for the foreseeable future. The Group's liquid resources and shareholders' equity at 31 December 2017 were as follows:
2017
2016
€'000
€'000
Cash and cash equivalents
28,215
36,836
Loans and borrowings
2,073
1,876
Shareholders' equity
107,361
105,031
The Group frequently assess its liquidity requirements, together with this requirement and the rate return of long term euro deposits, the Group has decided to keep all cash readily available that is accessible within a month or less. Cash at bank earns interest at floating rates based on daily bank deposits. The fair value of cash and cash equivalents equals the carrying amount.
At year-end, the Group's total cash and cash equivalents were held in the following jurisdictions:
31 December
31 December
2017
2016
€'000
€'000
Ireland
17,148
29,373
Americas
2,087
1,543
Australasia
3,407
1,740
Europe, Middle East, Africa
5,573
4,180
Total cash, cash equivalents and short term deposits
28,215
36,836
There are currently no restrictions that would have a material adverse impact on the Group in relation to the intercompany transfer of cash held by its foreign subsidiaries. The Group continually evaluates its liquidity requirements, capital needs and availability of resources in view of, among other things, alternative uses of capital, the cost of debt and equity capital and estimated future operating cash flow.
21. Financial risk management (continued)
a) Liquidity and capital (continued)
In the normal course of business, the Group may investigate, evaluate, discuss and engage in future company or product acquisitions, capital expenditures, investments and other business opportunities. In the event of any future acquisitions, capital expenditures, investments or other business opportunities, the Group may consider using available cash or raising additional capital, including the issuance of additional debt. The maturity of the contractual undiscounted cash flows (including estimated future interest payments on debt) of the Group's financial liabilities were as follows:
Total
Total
Carrying
Contractual
Less than
More than
Value
Cash Flows
1 Year
1-3 Years
3-5 Years
5 Years
€'000
€'000
€'000
€'000
€'000
€'000
At 31 December 2016:
Deferred contingent consideration
5,669
5,870
-
5,870
-
-
Loans and borrowings
1,183
1,226
345
682
173
26
Finance leases
693
726
418
308
-
-
Trade and other payables
6,561
6,561
6,561
-
-
-
Accrued and other financial liabilities
2,823
2,823
2,823
-
-
-
Total at 31 December 2016
16,929
17,206
10,147
6,860
173
26
At 31 December 2017:
Deferred contingent consideration
6,931
6,931
1,444
5,487
-
-
Loans and borrowings
1,825
2,192
481
751
383
577
Finance leases
248
258
182
76
-
-
Trade and other payables
7,721
7,721
7,721
-
-
-
Accrued and other financial liabilities
4,403
4,403
4,403
-
-
-
Total at 31 December 2017
21,128
21,505
14,231
6,314
383
577
b) Foreign currency risk
The Group is a multinational business operating in a number of countries and the euro is the presentation currency. The Group, however, does have revenues, costs, assets and liabilities denominated in currencies other than euro. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the reporting date and the resulting gains and losses are recognised in the income statement. The Group manages some of its transaction exposure by matching cash inflows and outflows of the same currencies. The Group does not engage in hedging transactions and therefore any movements in the primary transactional currencies will impact profitability. The Group continues to monitor appropriateness of this policy.
The Group's global operations create a translation exposure on the Group's net assets since the financial statements of entities with non-euro functional currencies are translated to euro when preparing the consolidated financial statements. The Group does not use derivative instruments to hedge these net investments.
The principal foreign currency risks to which the Group is exposed relate to movements in the exchange rate of the euro against US dollar, South African rand, Australian dollar and Swedish krona.
The Group has material subsidiaries with a functional currency other than the euro, such as US dollar, Australian dollar, South African rand, Canadian dollar, British pound and Swedish krona.
21. Financial risk management (continued)
b) Foreign currency risk (continued)
The Group's worldwide presence creates currency volatility when compared year on year. In 2017, there were two major movements in Mincon's operational currencies:
· The weakening closing USD rate against the Euro at the end of 2017 (-14% compared with 2016 closing rate) contributed significantly to the FX loss in the Group's Income Statement. This is due to the high monetary net asset exposure the Group has to the USD.
· A strengthening in the Rand average rate against the Euro of 8% compared to 2016 average rate, which resulted in an increase in reported revenue for the year of approximately €1 million. This was offset by the FX impact on the retranslation of underlying Rand costs, as a result, the strengthening Rand average rate against the Euro did not significantly impact reported profit for 2017.
In 2017 44% (2016: 46%) of Mincon's revenue €97 million (2016: €35 million) was generated in ZAR, AUD and SEK, compared to 9% (2016: 15%) of the Group's cost of sales. The majority of the group's manufacturing base has a Euro or US dollar cost base. While Group management makes every effort to reduce the impact of this currency volatility, it is impossible to eliminate or significantly reduce given the fact that the highest grades of our key raw materials are either not available or not denominated in these markets and currencies. Additionally, the ability to increase prices for our products in these jurisdictions is limited by the current market factors.
2017
2016
Euro exchange rates
Closing
Average
Closing
Average
US Dollar
1.20
1.13
1.05
1.11
Australian Dollar
1.53
1.47
1.46
1.49
Great British Pound
0.89
0.88
0.85
0.82
South African Rand
14.80
15.02
14.41
16.27
Swedish Krona
9.83
9.63
9.54
9.46
The table below shows the Group's net monetary asset/(liability) exposure. Such exposure comprises the monetary assets and monetary liabilities that are not denominated in the functional currency of the operating unit involved. These exposures were as follows:
Net Foreign Currency
2017
2016
Monetary Assets/(Liabilities)
€'000
€'000
Euro
(2,625)
(1,001)
US Dollar
15,069
12,016
Australian Dollar
2,172
1,865
South African Rand
11,227
11,979
Other
1,445
368
Total
27,288
25,226
21. Financial risk management (continued)
c) Credit risk
The majority of the Group's customers are third party distributors and end users of drilling tools and equipment. The maximum exposure to credit risk for trade and other receivables at 31 December by geographic region was as follows:
2017
2016
€'000
€'000
Ireland
62
27
Americas
3,325
5,340
Australasia
3,648
3,559
Europe, Middle East, Africa
10,525
7,511
Total amounts owed
17,560
16,437
The Group is also exposed to credit risk on its liquid resources (cash), of which €17.1 million (2016: €27.1 million) was held with Irish financial institutions in Ireland. The Directors actively monitor the credit risk associated with this exposure.
d) Interest rate risk
Interest Rate Risk on financial liabilities
The Group is primarily equity and cash funded and has drawn down small amounts of debt for natural hedging purposes. Movements in interest rates had no significant impact on our financial liabilities or finance cost recognised in either 2016 or 2017.
Interest Rate Risk on cash and cash equivalents
Our exposure to interest rate risk on cash and cash equivalents is actively monitored and managed, the rate risk on cash and cash equivalents is not considered material to the Group.
e) Fair values
Fair value is the amount at which a financial instrument could be exchanged in an arms-length transaction between informed and willing parties, other than in a forced or liquidation sale. The contractual amounts payable less impairment provision of trade receivables, trade payables and other accrued liabilities approximate to their fair values. Under IFRS 7, the disclosure of fair values is not required when the carrying amount is the reasonable approximation of fair value.
There are no material differences between the carrying amounts and fair value of our financial liabilities as at 31 December 2016 or 2017.
21. Financial Risk Management (continued)
e) Fair values (continued)
Financial instruments carried at fair value
The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios.
Movements in the year in respect of Level 3 financial instruments carried at fair value
The movements in respect of the financial assets and liabilities carried at fair value in the year to 31 December 2017 are as follows:
Deferred contingent consideration
€'000
Balance at 1 January 2017
5,669
Arising on acquisition
6,700
Cash payment
(2,024)
Settlement gain
(3,124)
Foreign currency translation adjustment
(254)
Other
(36)
Balance at 31 December 2017
6,931
22. Subsidiary undertakings
At 31 December 2017, the Group had the following subsidiary undertakings:
Company
Group
Share %
Registered Office &
Country of Incorporation
Mincon International Limited
100%
Smithstown, Shannon, Co. Clare, Ireland
Manufacturer of rock drilling equipment
Mincon Rockdrills USA Inc.
100%*
107 Industrial Park, Benton, IL 62812, USA
Manufacturer of rock drilling equipment
Mincon Rockdrills PTY Ltd
100%
8 Fargo Way, Welshpool, WA 6106, Australia
Manufacturer of rock drilling equipment
1676427 Ontario Inc. (Operating as Rotacan)
100%
400B Kirkpatrick Street, North Bay,
Ontario, P1B 8G5, Canada
Manufacturer of rock drilling equipment
Marshalls Carbide Ltd
100%
Windsor St, Sheffield S4 7WB, United Kingdom
Manufacturer of tungsten carbide
Viqing Drilling Equipment AB
100%*
Svarvarevagen 1, SE-686 33 Sunne, Sweden
Manufacturer of drill pipe equipment
Mincon Inc.
100%
603 Centre Avenue, N.W. Roanoke, VA 24016, USA
Sales company
Premier Drilling Equipment Ltd
100%
P.O. Box 30094, Kyalami, 1684, Gauteng, South Africa
Manufacturer of rock drilling equipment
Mincon Sweden AB
100%
Industrivagen 2-4, 61202 Finspang, Sweden
Sales company
Mincon Nordic OY
100%
Hulikanmutka 6, 37570 Lempäälä, Finland
Sales company
DDS-SA (Proprietary) Ltd
100%
1 Northlake, Jetpark 1469, Gauteng, South Africa
Sales company
ABC Products (Rocky) Pty Ltd
95%
2/57 Alexandra Street, North Rockhampton, Queensland, 4701 Australia
Sales company
Mincon West Africa SARL
80%
Villa TF 4635 GRD, Almadies, Dakar B.P. 45534, Senegal
Sales company
Mincon West Africa SL
80%
Calle Adolfo Alonso Fernández, s/n, Parcela P-16, Planta 2, Oficina 23, Zona Franca de Gran Canaria, Puerto de la Luz, Código Postal 35008, Las Palmas de Gran Canari
Sales company
Mincon Poland
100%
ul.Mickiewicza 32, 32-050 Skawina, Poland
Dormant company
22. Subsidiary undertakings (continued)
Company
Group
Share %
Registered Office &
Country of Incorporation
Mincon Rockdrills Ghana Limited
80%
P.O. Box CT5105, Accra,
Ghana
Dormant company
Mincon S.A.C.
100%
Calle La Arboleda 151, Dpto 201, La Planicie, La Molina, Peru
Sales company
Ozmine International Pty Limited
100%
Gidgegannup, WA 6083, Australia
Sales company
Mincon Chile
100%
Av. La Dehesa #1201, Torre Norte, Lo Barnechea, Santiago, Chile
Sales company
Mincon Tanzania
70%(1)
Plot 1/3 Nyakato Road,
Mwanza, Tanzania
Sales company
Mincon Namibia Pty Ltd
60%(1)
Ausspannplatz, Windhoek, Namibia
Sales company
Mincon International UK Ltd
100%
Windsor St, Sheffield S4 7WB, United Kingdom
Sales company
Mincon Mining Equipment Inc
100%*
19789-92a Avenue, Langley, British Columbia V1M3B3, Canada
Sales company
Pirkanmaan Poraveikot OY PPV
100%*
Hulikanmutka 6, 37570 Lempäälä, Finland
Engineering company
Mincon Exports USA Inc.
100%
603 Centre Ave, Roanoke VA 24016, USA
Group finance company
Mincon International Shannon
100%*
Smithstown, Shannon, Co. Clare, Ireland
Dormant company
Smithstown Holdings
100%
Smithstown, Shannon, Co. Clare, Ireland
Holding company
Mincon Canada Drilling Products Inc.
100%
Suite 1800-355 Burrard Street, Vancouver, BC V6C 268, Canada
Holding company
Lotusglade Limited
100%*
Smithstown, Shannon, Co. Clare, Ireland
Holding company
Floralglade Company
100%
Smithstown, Shannon, Co. Clare, Ireland
Holding company
Mincon Microcare Limited
100%*
Smithstown, Shannon, Co. Clare, Ireland
Holding company
22. Subsidiary undertakings (continued)
Company
Group
Share %
Registered Office &
Country of Incorporation
Castle Heat Treatment Limited
100%*
Smithstown, Shannon, Co. Clare, Ireland
Holding company
Cebeko Elast AB
100%*
Svarvarevagen 1, SE-686 33 Sunne, Sweden
Holding company
Gunnarsby Fastighets AB
100%*
Svarvarevagen 1, SE-686 33 Sunne, Sweden
Holding company
* Indirectly held shareholding
23. Leases
Operating leases
The Group leases certain of its facilities and equipment under non-cancellable operating lease agreements. However, annual obligations under these operating leases has not exceeded €100,000 in any of the periods presented, and is not expected to do so in the foreseeable future.
Finance leases
At 31 December 2017, the net book value of assets acquired under finance leases was €0.8 million (2016: €2.3 million), which included €0.5 million (2016: €2.0 million) of accumulated depreciation. The depreciation expense related to assets under finance leases for 2017 was €0.1 million (2016: €0.3 million).
24. Commitments
The following capital commitments for the purchase of property, plant and equipment had been authorised by the directors at 31 December:
31 December
31 December
2017
2016
€'000
€'000
Contracted for
6,258
3,889
Not-contracted for
718
-
Total
6,976
3,889
For information on lease commitments, refer to note 23.
25. Litigation
The Group is not involved in legal proceedings that could have a material adverse effect on its results or financial position.
26. Related parties
As at 31 December 2017, the share capital of Mincon Group plc was 56.84% (2016: 56.84%) owned by Kingbell Company which is ultimately controlled by Patrick Purcell and members of the Purcell family. Patrick Purcell is also a director of the Company. Ballybell Limited, a company controlled by Kevin Barry, holds 5.28% (2016: 7.09%) of the equity of the Company.
In September 2017, the Group paid an interim dividend for 2017 of €0.01 to all shareholders. The total dividend paid to Kingbell Company and Ballybell Limited was €1,196,172 (September 2016: €1,196,712) and €111,178 (September 2016: €149,178) respectively.
In June 2017, the Group paid a final dividend for 2016 of €0.01 to all shareholders. The total dividend paid to Kingbell Company and Ballybell Limited was €1,196,172 (September 2016: €1,196,712) and €149,178 (September 2016: €299,178) respectively.
The Group has a related party relationship with its subsidiary and its joint venture undertakings (see note 22) for a list of these undertakings), directors and officers. All transactions with subsidiaries eliminate on consolidation and are not disclosed.
26. Related parties (continued)
Transactions with Directors
The Group is owed €Nil from directors and shareholders at 31 December 2017 and 2016. The Group has amounts owing to directors of €Nil as at 31 December 2017 and 2016.
Key management compensation
The profit before tax from continuing operations has been arrived at after charging the following key management compensation:
2017
2016
€'000
€'000
Short term employee benefits
1,283
1,346
Bonus and other emoluments
-
100
Post-employment contributions
90
31
Total
1,373
1,477
The key management compensation amounts disclosed above represent compensation to those people having the authority and responsibility for planning, directing and controlling the activities of the Group, which comprises the Board of Directors and executive management (eight in total at year end). Amounts included above are time weighted for the period of the individuals employment.
27. Events after the reporting date
The Board of Mincon Group plc is recommending the payment of a final dividend for the year ended 31 December 2017 in the amount of €0.0105 (1.05 cent) per ordinary share, which will be subject to approval at the Annual General Meeting of the Company in April 2018. This final dividend, when added to the interim dividend of 1 cent paid in September 2017, makes a total distribution for the year of 2.05 cent per share. Subject to Shareholder approval at the Company's annual general meeting, the final dividend will be paid on 22 June 2018 to Shareholders on the register at the close of business on 25 May 2018.
Acquisitions of the Driconeq Group
On 20 March 2018, the Group entered into an agreement to acquire a 100% shareholding in the Driconeq Group, a manufacturer of drill rods based in Sweden for total cash consideration of €8 million.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR EAPDNFLDPEFF
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