REG - Westminster Group - Final Results <Origin Href="QuoteRef">WSG.L</Origin> - Part 2
05/06/2017 07:05
- Part 2: For the preceding part double click ID:nRSE0858Ha
Notes to the Financial Statements
1. General information and nature of operations
The Company was incorporated on 7 April 2000 and is domiciled and incorporated
in the United Kingdom and quoted on AIM. The Group's financial statements for
the year ended 31 December 2016 consolidate the individual financial
statements of the Company and its subsidiaries. The Group designs, supplies
and provides on-going advanced technology solutions and services to
governmental and non-governmental organisations on a global basis.
2. Accounting Policies
Basis of preparation
The Group's financial statements have been prepared and approved by the
Directors in accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union. The Parent Company (Westminster
Group plc) has elected to prepare its financial statements in accordance with
IFRS.
The financial information is presented in the Group's functional currency,
which is Great British Pounds ('GBP') since that is the currency in which the
majority of the Group's transactions are denominated.
Basis of measurement
The financial statements have been prepared under the historical cost
convention with the exception of certain items which are measured at fair
value as disclosed in the accounting policies below.
Consolidation
(i) Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries for the year ended 31 December 2016.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the
Company has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that presently are exercisable
or convertible are taken into account. Subsidiaries are fully consolidated
using the purchase method of accounting from the date that control commences
until the date that control ceases. Accounting policies of subsidiaries have
been adjusted where necessary to ensure consistency with the policies adopted
by the Group.
(iii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expenses
arising from intragroup transactions are eliminated in preparing the
consolidated financial statements.
(iv) Company financial statements
Investments in subsidiaries are carried at cost less provision for any
impairment. Dividend income is recognised when the right to receive payment
is established.
Going concern
The financial statements are prepared on a going concern basis. In assessing
whether the going concern assumption is appropriate, management have taken
into account all relevant available information about the future. As part of
its assessment, management have taken into account the profit and cash
forecasts, the continued support of the shareholders and bondholders and
Directors and management ability to affect costs and revenues. Management
regularly forecast results, financial position and cash flows for the Group.
The Group has prepared both a Growth Scenario and a Pessimistic (for
contingency planning) for assessing the Group's cash requirements over the
next 12 months from the date of these financial statements.
· Growth Scenario. The Group has several large opportunities such as the
£35m per annum Middle Eastern contract under negotiation. Whilst these
opportunities will have an inherent need for significant additional capital to
mobilise the project, it is envisaged that certain initial costs could be met
from organic resources depending on the timing of the contract closure. The
Directors believe that based on the strong financial dynamics of incremental
Managed Services contracts that they should be able to secure financing and
are already in discussions with various debt and equity providers. Based on
previous experience operational cash flow from these projects can support
capital expenditure within the project plan. This scenario includes a rapid
ramp up in ferry passenger numbers and full achievement of solution sales
targets as well as the usual run rate of product sales.
Pessimistic Scenario. A pessimistic forecast for the 12 months following the
date of these financial statements has been prepared for the purpose of stress
testing the Group's cash flows. This includes revenues from the run rate of
smaller contracts, a much-reduced expectation from sales of solutions in the
technology division, no large new managed services contracts, and the
continuation of major existing contracts such as the West African airport
contract as well as an expected net cash outflow from the Sierra Leone ferry
operation as it builds towards critical mass it is targeted to become cash
flow positive at the end of 2017. Should these cash flows not happen as
expected certain contingency measures have been identified by the board as
part of its routine planning process. These options include cost reductions,
restructuring operations and asset disposals to preserve cash resources,
although additional funding may be required as these measures take effect.
The Group's convertible secured loan notes have a principal value of £2.245m
and a conversion price of 35p mature on 18 June 2018. Whilst not repayable in
the 12 months from the date of these financial statements, the board believes
that the pipeline of potential Managed Services contracts could either give
the Company the capability of repayments from cash flow, or that the
bondholders could covert to equity. As part of a routine planning process the
Board has identified options for resolution or restructuring, with potential
variations to the instrument around conversion price, coupon and term. The
Group has an asset base which could be used to support any changes.
Based upon these projections the Group has adequate working capital for the 12
months following the date of signing these accounts. For this reason they
continue to adopt the going concern basis in preparing the financial
statements
Business combinations
The consideration transferred by the group to obtain control of a subsidiary
is calculated as the sum of the acquisition date fair values of assets
transferred, liabilities incurred and the equity interests issued by the
Group, which includes the fair value of any asset or liability arising from a
contingent consideration arrangement. Acquisition costs are expensed as
incurred.
The Group recognises identifiable assets acquired and liabilities assumed in a
business combination regardless of whether they have been previously
recognised in the acquiree's financial statements prior to the acquisition.
Assets acquired and liabilities assumed are generally measured at their
acquisition date fair values.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction (spot exchange rate). Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the re-measurement of monetary items at year-end exchange rates are recognised
in profit or loss. Non-monetary items measured at historical cost are
translated using the exchange rates at the date of the transaction and not
subsequently retranslated.
Foreign exchange gains and losses are recognised in arriving at profit before
interest and taxation (see Note 6).
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief decision-maker. The chief decision-maker has
been identified as the Executive Board, at which level strategic decisions are
made.
An operating segment is a component of the Group
· That engages in business activities from which it may earn
revenues and incur expenses,
· Whose operating results are regularly reviewed by the entity's
chief operating decisions maker to make decisions about resources to be
allocated to the segment and assess its performance, and
· For which discrete financial information is available.
Revenue
Revenue comprises the fair value of the consideration received or receivable
for the sale of products and services, net of value added tax, rebates and
discounts and after eliminating sales within the Group. Revenue is recognised
as follows:
(i) Supply of products
Revenue in respect of the supply of products is recognised when title
effectively passes to the customer.
(ii) Supply and installation contracts and supply of services
Where the outcome can be estimated reliably in respect of long-term contracts
and contracts for on-going services, revenue represents the value of work done
in the period, including estimates of amounts not invoiced. Revenue in
respect of long-term contracts and contracts for on-going services is
recognised by reference to the stage of completion, where the stage of
completion can be assessed with reasonable accuracy. This is assessed by
reference to the estimated project costs incurred to date compared to the
total estimated project costs. Revenue is calculated to reflect the substance
of the contract, and is reviewed on a contract-by-contract basis, with
revenues and costs at each divisible stage reflecting known inequalities of
profitability. Where a contract is loss making, the full loss is recognised
immediately. Managed Services income is recognised on the basis of the volume
of passengers and freight.
(iii) Maintenance income
Revenues in respect of the supply of maintenance contracts are recognised on a
straight line basis over the life of the contract. The unrecognised portion
of maintenance income is included within trade and other payables as deferred
income.
(iv) Training courses
Revenues in respect of training courses are recognised when the trainees
attend the courses.
Operating expenses
Operating expenses are recognised in profit or loss upon utilisation of the
service or at the date of their origin. Expenditure for warranties is
recognised and charged against the associated provision when the related
revenue is recognised. Certain items have been disclosed as operating
exceptional due to their size and their separate disclosure should enable
better understanding of the financial dynamics.
Interest income and expenses
Interest income and expenses are reported on an accrual basis using the
effective interest method.
Goodwill
Goodwill is stated after separate recognition of identifiable intangible
assets. It is calculated as the excess of the sum of a) fair value of
consideration transferred, and b) the recognised amount of any non-controlling
interest in the acquiree and c) acquisition date fair value of any existing
equity interest in the acquiree, over the acquisition date fair value of
identifiable net assets. If the fair value of identifiable net assets exceed
the sum calculated above, the excess amount (i.e. gain on a bargain purchase)
is recognised in profit or loss immediately. Goodwill is carried at cost less
accumulated impairment losses.
Other intangible assets
Acquired intangibles that are as a result of a business combination are
recorded at fair value and are amortised on a straight line over the expected
useful lives.
Other intangible assets comprise website costs and licences. Website costs
are capitalised and amortised on a straight line basis over 5 years, the
expected economic life of the asset. This amortisation is charged to
administrative expenses.
Property, plant and equipment
Land and buildings held for use are held at their revalued amounts, being the
fair value on the date of revaluation, less any subsequent accumulated
depreciation. Revaluations are performed with sufficient regularity such that
the carrying amount does not differ materially from that which would be
determined using fair values at the balance sheet date.
Any revaluation increase arising on the revaluation of such land and buildings
is recognised in other comprehensive income, except to the extent that it
reverses a revaluation decrease for the same asset previously recognised as an
expense, in which case the increase is credited to the profit or loss to the
extent of the decrease previously charged. A decrease in carrying amount
arising on the revaluation of land and buildings is charged as an expense to
the extent that it exceeds the balance, if any, held in the revaluation
reserve relating to a previous revaluation of that asset.
Depreciation on revalued buildings is charged to the statement of
comprehensive income.
Plant and equipment, office equipment, fixtures and fittings and motor
vehicles are stated at cost less accumulated depreciation and any recognised
impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets to
their residual value over their estimated useful lives, using the
straight-line method, typically at the following rates. Where certain assets
are specific for a long term contract and the customer has an obligation to
purchase the asset at the end of the contract they are depreciated in
accordance with the expected disposal / residual value.
Rate
Freehold buildings 2%
Plant and equipment 7% to 25%
Office equipment, fixtures & fittings 20% to 33%
Ferries Depreciated over 21 years.
Motor vehicles 20%
Leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at
their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding
liability to the lessor is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and
reduction of lease obligation so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are charged directly
against income, unless they are directly attributable to qualifying assets, in
which case they are capitalised.
Rentals payable under operating leases are charged to income on a
straight-line basis over the term of the relevant lease.
Impairment on non-financial assets
At each reporting date, the Group reviews the carrying amounts of its
non-current assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). The recoverable amount is the higher of fair
value less costs to sell and value in use. If the recoverable amount of an
asset is estimated to be less than its carrying amount, the carrying amount of
the asset is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a
revaluation decrease. Where an impairment loss subsequently reverses, the
carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset in prior years.
Financial instruments
Financial assets
The Group's financial assets include cash and cash equivalents and loans and
other receivables. All financial assets are recognised when the Group becomes
party to the contractual provisions of the instrument. All financial assets
are initially recognised at fair value, plus transaction costs. They are
subsequently measured at amortised cost using the effective interest method,
less any impairment losses. Any changes in value are recognised in the
Statement of Comprehensive Income. Interest and other cash flows resulting
from holding financial assets are recognised in the Statement of Comprehensive
Income when received, regardless of how the related carrying amount of
financial assets is measured.
Loans and other receivables are provided against when objective evidence is
received that the Group will not be able to collect all amounts due to it in
accordance with the original terms of the receivables. The amount of the
write-down is determined as the difference between the asset's carrying amount
and the present value of estimated future cash flows.
Cash and cash equivalents comprise cash at bank and deposits and bank
overdrafts. Bank overdrafts are shown within borrowings in current
liabilities unless a legally enforceable right to offset exists.
Financial liabilities
The Group's financial liabilities comprise trade and other payables and
borrowings. All financial liabilities are recognised initially at their fair
value and subsequently measured at amortised cost using the effective interest
method. Financial liabilities are derecognised when they are extinguished,
discharged, cancelled or expire.
Convertible loan notes with an option that leads to a potentially variable
number of shares, have been accounted for as a host debt with an embedded
derivative. The embedded derivative is accounted for at fair value through
profit and loss at each reporting date. The host debt is recognised initially
at fair value, and subsequently measured at amortised cost using the effective
interest method.
Convertible loan notes that can be converted to share capital at the option of
the holder, and where the number of shares to be issued does not vary with
changes in fair value, as they are considered to be a compound instrument.
The liability component of a compound instrument is recognised initially at
the fair value of a similar liability that does not have an equity conversion
option. The equity component is recognised initially at the difference between
the fair value of the compound instrument and fair value of the liability
component. Any directly attributable transaction costs are allocated to the
liability and equity components.
Financial liabilities and equity instruments issued by the Group are
classified according to the substance of the contractual arrangements entered
into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities. The accounting
policies adopted in respect of financial liabilities are set out above and
below.
Other financial liabilities
Other financial liabilities include other payables and bank loans and are
recognised initially at fair value and subsequently measured at amortised
cost, using the effective interest method.
Financial liabilities are recognised when the Group becomes a party to the
contractual agreements of the instrument. All interest related charges are
recognised as an expense in "finance cost" in the Statement of Comprehensive
Income. Trade and other payables are recognised initially at their fair value
and subsequently measured at amortised cost using the effective interest
method.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs
of ordinarily interchangeable items are assigned using the first in, first out
cost formula. Costs principally comprise of materials and bringing them to
their present location.
Net realisable value represents the estimated selling price less all estimated
costs to completion and costs to be incurred in marketing, selling and
distribution.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. Current and deferred tax are recognised as an expense or income in
profit or loss, except in respect of items dealt with through equity, in which
case the tax is also dealt with through equity.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the Statement of Comprehensive
Income 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 by using
tax rates that have been enacted or substantively enacted by the balance sheet
date.
Deferred tax is the tax expected to be payable or recoverable on material
differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation
of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction which affects
neither the tax profit not the accounting profit.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts. Bank overdrafts are offset against
cash balances and a net cash balance is presented.
Equity, reserves and dividend payments
Share capital represents the nominal value of shares that have been issued.
Share premium includes any premiums received on issue of share capital. Any
transaction costs associated with the issuing of shares are deducted from
share premium, net of any related income tax benefits.
Merger relief reserve includes any premiums on issue of share capital as part
or all of the consideration in a business combination.
The share based payment reserve represents equity-settled share-based employee
remuneration until such share options are exercised or lapse.
The revaluation reserve within equity comprises gains and losses due to the
revaluation of property, plant and equipment.
Retained earnings include all current and prior period retained profits and
losses.
Dividend distributions payable to equity shareholders are included in
liabilities when the dividends have been approved in a general meeting prior
to the reporting date.
Defined contribution pension scheme
The Group operates a defined contribution pension scheme for employees in the
UK and is operating under auto enrolment. Local labour in Africa benefit from
a termination payment on leaving employment. The expected value of this is
accrued on a monthly basis.
Shared-based compensation (Employee Based Benefits)
The Group operates an equity-settled share-based compensation plan. The fair
value of the employee services received in exchange for the grant of options
is recognised as an expense over the vesting period, based on the Group's
estimate of awards that will eventually vest, with a corresponding increase in
equity as a share based payment reserve. For plans that include market based
vesting conditions, the fair value at the date of grant reflects these
conditions and are not subsequently revisited.
Fair value is determined using Black-Scholes option pricing models.
Non-market based vesting conditions are included in assumptions about the
number of options that are expected to vest. At each reporting date, the
number of options that are expected to vest is estimated. The impact of any
revision of original estimates, if any, is recognised in profit or loss, with
a corresponding adjustment to equity, over the remaining vesting period.
The proceeds received when vested options are exercised, net of any directly
attributable transaction costs, are credited to share capital (nominal value)
and share premium.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of a past event which it is probable will result in an
outflow of economic benefits that can be reliably estimated.
SIGNIFICANT MANAGEMENT JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The following are significant management judgements in applying the accounting
policies of the Group that have the most significant effect on the financial
statements.
Revenue recognition
Recognition of income is considered appropriate when all significant risks and
rewards of ownership are transferred to third parties. In respect of
long-term contracts and contracts for on-going services, turnover represents
the value of work done in the year, including estimates of amounts not
invoiced. Turnover in respect of long-term contracts and contracts for
on-going services is recognised by reference to the stage of completion, where
the stage of completion can be assessed with reasonable accuracy. In this
process management make significant judgements about milestones, actual work
performed and the estimated costs to complete the work. Revenue is calculated
to reflect the substance of the contract, and is reviewed on a
contract-by-contract basis, with revenues and costs at each divisible stage
reflecting known inequalities of profitability.
Estimation uncertainty
When preparing the financial statements management undertakes a number of
judgements, estimates and assumptions about recognition and measurement of
assets, liabilities, income and expenses. The actual results are likely to
differ from the judgements, estimates and assumptions made by management, and
will seldom equal the estimated results. Information about the significant
judgements, estimates and assumptions that have the most significant effect on
the recognition and measurement of assets, liabilities, income and expenses
are discussed below.
Impairment review of Sierra Leone Ferry Operations
At the balance sheet date the group recorded an asset of approximately £2.7m
relating to the purchase of the Sierra Queen and set up costs of the ferry
operation in West Africa. Of this c£1.1m relates to the vessel purchase, and
the remainder relates to costs incurred before the commencement of service
operations in early December 2016.
- Market Background
Westminster has 19 years remaining of its 21 year contract to operate the
terminals and ferry service concession between the airport and capital. The
airport has in excess 200,000 passengers (annualised) passing through it now,
which is a substantial improvement following the end of the Ebola crisis. A
significant portion of these passengers use ferry services to reach the
mainland and capital more quickly than the road option. The ferry service has
historically been serviced by smaller craft which do not have the ruggedness
and safety characteristics of the Westminster fleet, which is seagoing. The
existing ferry services do not offer our luxury and safely maintained bus
fleet either. Other potential coastal services offer additional revenue
opportunities from serving regional destinations, including non-airport
related traffic passing between the airport and capital city, and new markets
such as a proposed water taxi service around Freetown. Charters and Airport
traffic has grown over the last 12 months and is now broadly back at the
levels of 2013 which was before the onset of Ebola.
- Project Status
Our period of major capital spend on this project is now completed. Noting
that this business is a start-up in 2016 in terms of passenger handling, it is
pleasing that we have already secured 3% of the market share in only three
months. We believe that, given the size of the captive market at 200,000
passengers per annum, the superior quality of our service, our vessel safety
and the numerous local marketing initiatives we are pursuing we will continue
to grow volumes. We expect the ferry operation to become cash positive in the
financial year to 31 December 2017 and continue to grow thereafter.
- Impairment Testing
With the planned infrastructure and ferry operations in place there are
significant operational opportunities for revenue growth, increased margins
and improved cash flows. The Group has conducted a discounted cash flow
exercise which looks at key assumptions including adoption rates and ticket
volumes, ongoing expected costs, available ferry capacity, future airport
passenger levels and the average net revenue per ticket. A discount rate of
10% has been used in this exercise. The scenario indicates that the net
present value of future cash flows is in excess of the current carrying value
of the asset and therefore the Board believes that no impairment is required.
The Company will continue to monitor and review traffic levels monthly against
targets to assess the ongoing financial performance. Should these modest
passenger targets not be achieved and the operation not show a clear path to
adequate cash generation, then the carrying value of this asset could be
subject to a future impairment charge.
Impairment Review Longmoor Goodwill
This asset is carried at approximately £0.4m at the balance sheet date. There
are several opportunities for the delivery of Longmoor's training and
protection services which are aligned with potential large scale opportunities
in managed services. An impairment loss is recognised for the amount by which
an asset's or cash generating unit's carrying amount exceeds its recoverable
amount. To determine the recoverable amount, management estimates expected
future cash flows from each asset or cash-generating unit and determines a
suitable discount rate in order to calculate the present value of those cash
flows. In the process of measuring expected future cash flows management
makes assumptions about future gross profits. These assumptions relate to
future events and circumstances. The actual results may vary, and may cause
significant adjustments to the Group's assets within the next financial year
in most cases, determining the applicable discount rate involves estimating
the appropriate adjustment to market risk and the appropriate adjustment to
asset-specific risk factors.
Revalued freehold property
The freehold property is stated at fair value. A full revaluation exercise
was carried out in May 2017. The fair value is based on market value, being
the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion.
Consolidation of entities in which the Group holds less than 50% of the voting
rights.
Management considers that the Group has de facto control of Westminster Sierra
Leone Limited even though it has less than 50% of the voting rights.
Management does not recognise the non-controlling interest as it does not
consider it to be material for this or other partially owned subsidiaries.
Standards in issue not yet effective
New standards, amendments and interpretations
No new standards, amendments or interpretations effective for the first time
in the financial year beginning on or after January 2016 have had a material
impact on Group or parent Company.
At the date of authorisation of these financial statements, the following
amendments and interpretations to existing accounting standards have been
published but are not yet effective.
· IFRS 9 Financial Instruments (effective date 1 January
2018)
· IFRS 15 Revenue from Contracts with Customers (effective date1
January 2017)
· IFRS 16 Leases (effective date 1 January 2019, but yet to be
endorsed by the EU)
Management anticipate that the above pronouncements will be adopted in the
Group's accounting policies for the first period after the effective date, but
will have no material impact on the Group.
IFRS 9 'Financial instruments' effective for periods beginning on or after
January 1, 2018. The standard removed multiple classification and measurement
models for financial assets requirement by IAS 39 and introduces a model that
has only two classification categories: fair value and amortised cost.
Classification is driven by the business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets.
The accounting and presentation for financial liabilities and for
derecognising financial instruments is relocated from IAS 39 without any
significant changes. IFRS 9 introduces additional changes relating to
financial liabilities. IFRS 9 adds new requirements to address the impairment
of financial assets and hedge accounting.
IFRS 15 'Revenue from contracts with customers'; effective for periods
beginning on or after January 1, 2018. The standard establishes a new
five-step model that will apply to revenue arising from contacts with
customers. Revenue is recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for those goods or
services. This is converged standard on revenue recognition which replaces IAS
18 'Revenue', IAS 11 'Construction contracts' and related interpretations. The
Group is currently assessing the impact of the new standard. The principles in
IFRS 15 provide a more structured approach to measuring and recognising
revenue.
IFRS 16 'Leases'; effective for periods beginning on or after January 1, 2019.
Under IFRS 16, a contract is, or contains a lease if the contact conveys the
right to control the use of an identified asset for a period of time in
exchange for consideration. The new standard eliminates the classification of
leases by lessees as either finance leases or operating leases and instead
introduces an integrated lessee accounting model. Applying this model, lessees
are required to recognise a lease liability reflecting the obligation to make
future lease payments and a 'right-of-use' asset for virtually all lease
contracts.
IFRS 16 includes an optional exemption for certain short-term leases and
leases of low-value assets. The Group is currently assessing the impact of the
new standard.
3. Segment reporting
Operating segments
The Board considers the Group on a Business Unit basis. Reports by Business
Unit are used by the chief decision-maker in the Group. The Business Units
operating during the year are the four operating companies Westminster
Aviation, Westminster International, Sovereign Ferries and Longmoor Security.
This split of business segments is based on the products and services each
offer.
Managed Services Aviation Technology Group and Central Managed Services Sovereign Ferries Managed Services Longmoor Group Total
£'000 £'000 £'000 £'000 £'000 £'000
2016
Supply of products - 1,778 - - - 1,778
Supply and installation contracts - 177 - - 157 334
Maintenance and Services 2,758 160 - - 3 2,921
Training courses 16 - - - - 16
Ferry ticket sales - - - 6 - 6
Intragroup sales - (492) - - (157) (649)
Revenue 2,774 1,623 - 6 3 4,406
Segmental underlying EBITDA 1,280 273 (1,418) (163) 53 25
Share option expense - - (103) - - (103)
Exceptional items (note 4) (492) - - (585) - (1,077)
Depreciation & amortisation (79) (16) (22) (107) (10) (234)
Apportionment of central overheads (1,140) (946) 2,116 - (30) -
Segment operating result (431) (689) 573 (855) 13 (1,389)
Finance cost - - (566) - - (566)
Taxation charge (7) - 53 - - 46
Profit/(Loss) for the financial year (438) (689) 60 (855) 13 (1,909)
Segment assets 1,593 641 1,523 2,618 33 6,408
Segment liabilities 311 448 3,268 85 - 4,112
Capital expenditure 79 42 107 408 - 636
Managed Services Aviation Technology Group and Central Managed Services Sovereign Ferries Managed Services Longmoor Group Total
£'000 £'000 £'000 £'000 £'000 £'000
2015
Supply of products - 795 - - - 795
Supply and installation contracts - 1,546 - - 96 1,642
Maintenance and Services 2,450 168 - - 4 2,622
Training courses 11 1 - - - 12
Intragroup sales (812) (804) - - (96) (1,712)
Revenue 1,649 1,706 - - 4 3,359
Segmental underlying EBITDA 1,264 (140) (1,540) 37 19 (360)
Exceptional items (note 4) (1,120) - 77 - - (1,043)
Depreciation & amortisation (94) (10) (22) (37) (8) (171)
Share option expense - - (76) - - (76)
Apportionment of central overheads (948) (837) 1,878 - (93) -
Segment operating result (898) (987) 317 - (82) (1,650)
Finance cost - - (339) - 1 (338)
Income tax charge (7) - - - - (7)
Loss for the financial year (905) (987) (22) - (81) (1,995)
Segment assets 1,272 149 1,565 2,454 25 5,465
Segment liabilities 343 434 2,962 38 2 3,779
Capital expenditure 186 - 20 2,430 33 2,669
Geographical areas
The Group's international business is conducted on a global scale, with agents
present in all major continents. The following table provides an analysis of
the Group's sales by geographical market, irrespective of the origin of the
goods/services.
2016 2015
£'000 £'000
United Kingdom & Europe 369 439
Africa 3,458 2,341
Middle East 104 204
Rest of the World 475 375
4,406 3,359
Some of the Group's assets are located outside the United Kingdom where they
are being put to operational use on specific contracts. At 31 December 2016
fixed assets with a net book value of £3,591,000 (2015: £2,992,000) were
located in Africa.
Major customers who contributed greater than 10% of total Group revenue
In 2016 no single customer contributed more than 10% of the Group revenue (in
2015 no customers contributed 10% of the Group's revenue). Approximately 60%
of the Group's revenues are derived from the contract with a West African
airport operator.
4. Exceptional Items
2016 2015
£'000 £'000
Loss of margin arising from fall in passenger numbers due to Ebola crisis 272 1,120
Middle East airport pre-contract costs 220 -
Ferry pre-launch costs 585 -
Receipt from vendors of CTAC (dispute on acquisition consideration price) - (77)
1,077 1,043
The ferry pre-launch costs primarily relate to costs of preparing the Sierra
Queen vessel for commercial service.
5. Finance costs
2016 2015
£'000 £'000
Interest payable on bank and other borrowings (30) (1)
Interest expenses on convertible loan notes (CLN 2018) (224) (121)
(254) (122)
Non-cash & amortised finance costs and other charges on convertible loan notes (312) (216)
Total finance costs (566) (338)
6. Loss from operations
The following items have been included in arriving at the loss for the
financial year
2016 2015
£'000 £'000
Staff costs (see Note 8) 2,267 2,236
Depreciation of property, plant and equipment. 227 167
Amortisation of intangible assets 7 4
Operating lease rentals payable
Property 112 101
Plant and machinery 3 3
Other 42 60
Foreign exchange gain (22) (89)
7. Taxation
Analysis of charge in year
2016 2015
£'000 £'000
Current year
UK Corporation tax on profits in the year - -
Potential foreign corporation tax on profits in the year 7 -
7 -
2016 2015
£'000 £'000
Reconciliation of effective tax rate
Loss on ordinary activities before tax (1,955) (1,988)
Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 20.0% (2015: 20.0%) (391) (398)
Effects of:
(Income)/expenses not deductible for tax purposes 88 77
Capital allowances less than depreciation (203) (72)
Other short term timing differences 1 3
Recognised/unrecognised losses carried forward 512 390
Adjustment in respect of prior years (53) -
Potential Charge in Overseas Subsidiary - 7
Total tax (credit) /charge (46) 7
Tax losses available for carry forward (subject to HMRC agreement) were £11m
(2015: £9.5m).
Changes to the UK corporation tax rates were substantively enacted as part of
the Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7
September 2016). These include reductions to the main rate to reduce to 19%
from 1 April 2017 and to 17% from 1 April 2020. Deferred taxes at the balance
sheet date have been measured using these enacted tax rates and reflected in
these financial statements.
8. Employee costs
Employee costs for the Group during the year
2016 2015
£'000 £'000
Wages and salaries 2,007 1,999
Social security costs 157 165
2,164 2,164
Share based payments 103 72
2,267 2,236
The Group operates a stakeholder pension scheme. The Group made pension
contributions totalling £10,000 during the year (2015: £7,000), and pension
contributions totalling £1,000 were outstanding at the year-end (2015:
£1,000).
Average monthly number of people (including Executive Directors) employed
2016 2015
Number Number
By function
Sales 3 3
Production 209 189
Administration 22 20
Management 6 6
240 218
9. Loss per share
Earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year.
For diluted earnings per share the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. Only those outstanding options that have an exercise price below the
average market share price in the year have been included.
The weighted average number of ordinary shares is calculated as follows:
2016 2015
'000 '000
Issued ordinary shares
Start of year 63,455 55,145
Effect of shares issued during the year 14,261 2,029
Weighted average basic and diluted number of shares for year 77,716 57,174
For the year ended 31 December 2016 and 2015 the issue of additional shares on
exercise of outstanding share options, convertible loans and warrants would
decrease the basic loss per share and there is therefore no dilutive effect.
Loss per share was 2.46p (2015: 3.49p).
10. Financial instruments
Categories of financial assets and liabilities
The carrying amounts presented in the Consolidated of Financial Position
relate to the following categories of assets and liabilities:
2016 2015
£'000 £'000
Financial assets
Loans and receivables
Trade and other receivables 814 403
Cash and cash equivalents 152 150
966 553
Financial liabilities
Financial liabilities measured at amortised cost
Borrowings 3,059 2,587
Trade and other payables 951 981
4,010 3,568
See note 2 for a description of the accounting policies for each category of
financial instruments. The fair values are presented in the related notes.
Convertible Loan Notes
The Group had the following convertible loan notes outstanding during the year
the key details of which are set out below:
Secured Convertible Loan Notes ("CLN") Convertible Unsecured Loan Notes ("CULN")
Amount £2.245m £1.2m outstanding 31 December 2016 The £0.75m outstanding at the start of the year and the £0.475m issued in the year were fully converted during the year. The outstanding balance was fully converted by April 2017.
Conversion Price 35p Variable see below
Security Secured fixed and floating subordinate to HSBC Unsecured
Redemption Date 19 June 2018 Conversions allowed within certain market driven parameters
Management Fee £25,000 per annum nil
Coupon 10% paid quarterly in arrears. Listed on the CISX nil
Conversion Detail Company can force conversion if the share price is > 65p for 15 working days after 19 June 2016. Company can make repayment without penalty if the share price is > 42p for 15 working days after 19 June 2016 The conversion price for these loan notes is calculated as the lesser of i) 65 pence and ii) 90% of the arithmetic average of the five lowest daily volume weighted average share price calculations per ordinary share out of the ten trading days prior to conversion.
On initial recognition the conversion option in relation to the convertible
unsecured loan notes (CULN) leads to a potentially variable number of shares,
therefore the CULN is accounted for as a host debt, (recorded initially at
fair value, net of transaction costs and subsequently valued at amortised
cost) with an embedded derivative (recorded at fair value through profit and
loss and fair valued at each reporting date).
2016 2016 2016 2015
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