12th Apr 2017 11:00
12 April 2017
EXOVA GROUP PLC
(the "Company")
Annual Report & Accounts 2016 and Notice of 2017 Annual General Meeting
Following release by the Company on 28 February 2017 of its preliminary results for the financial year ended 31 December 2016, the Company announces that it has today posted to shareholders the documents listed below:
· the Annual Report & Accounts for the financial year ended 31 December 2016 (the "2016 Annual Report & Accounts");
· the Notice of the 2017 Annual General Meeting; and
· the Form of Proxy for the 2017 Annual General Meeting.
In accordance with Listing Rule 9.6.1, the Company has submitted copies of these documents to the Financial Conduct Authority via the National Storage Mechanism and they will shortly be available for inspection at www.morningstar.co.uk/uk/nsm. The 2016 Annual Report & Accounts and the Notice of the 2017 Annual General Meeting are now available online at the Company's website, www.exova.com.
Additional information required by Disclosure Guidance and Transparency Rule 6.3.5
The Company's preliminary results announcement on 28 February 2017 contained a management report as well as a condensed set of financial statements which were prepared in accordance with applicable accounting standards. In compliance with DTR 6.3.5R, the following information is extracted from the 2016 Annual Report & Accounts and should be read in conjunction with the Company's preliminary results announcement for the year ended 31 December 2016 issued on 28 February 2017. Both documents are available at www.exova.com and together constitute the material required by DTR 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2016 Annual Report & Accounts in full.
1. Principal risks and uncertainties
A description of the principal risks and uncertainties that the Company faces is extracted in full and unedited from pages 10 to 13 of the 2016 Annual Report & Accounts.
The principal risks and uncertainties that could affect the Group are outlined below
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Operational risks | ||||
Risk | Description | Strategic priorities | Possible impact | Mitigation |
Healthand safety | The Group's work environment presents various potential risks within our laboratories and when operating on customers' premises. | Focusing onthe provisionof technically demanding services.
Managing our laboratories efficiently. | Failure to operate safely could adversely impact the Group's employees or visitors, lead to legal action from regulators, reputational damage or loss of customer confidence. | Health and safety is always thefirst item on Board and Executive Committee agendas. Overall strategy and compliance is monitored by the Group HSE director who reports tothe Group technical director. Clear guidance is given on appropriate procedures and maintenance of equipment, supported by regular training, supervision and compliance audits. Bulletins are issued in response to any significant incidents which might have group-wide implications. |
Reputational damage | The Group relies on its reputation and being awarded and retaining awide range of accreditations and customer specific approvals in order to provide its services. | Focusing onthe provisionof technically demanding services.
Building long-term client relationships.
Generating organic revenue growth. | Loss of existing ornew business.
Loss of ability to service customer requirements where accreditations or customer specific approvals are lost.
Reduced financial performance. | A comprehensive quality management system is in place which is regularly audited both internally and by external accreditation bodies and customer approval teams.
Employee technical competence is maintained through mentoring and training programmes. |
People | The Group provides specialised technical services and is dependent on attractingand retaining appropriately qualified staff. | Focusing onthe provisionof technically demanding services.
Building long-term client relationships. | Inability to meet customer demand.
Failure to innovate and develop customer relationships. | There is a comprehensive recruitment and ongoing evaluation process supported by incentive plans based on personal and financial performance.
A Technical Career Development Programme is in place which is designed to develop and retain technical staff and support succession planning. |
Global economic and market conditions | The strength of our end markets is an important driver for growth. | Generating organic revenue growth.
Extending our service range and the global reach of our business. | A prolonged economic downturn would limit our ability to grow the business in line with our strategic plan. | Our business is well diversified both geographically and by end user markets and our focus on technically demanding services gives ussome resilience.
We engage regularly with our customers to understand theirplans and requirements which are recorded in our group-wide customer relationship management (CRM) system. This provides consolidated visibility of future revenues and allows us to plan capacity efficiently. |
UK withdrawal from the EU | The UK business trades within the EU and assesses whether products meet European standards.
In addition theUK sits on various committees that determine future standards and methods of testing.
The Group operates in 33 countries and is therefore exposed to currency risk. | Buildinglong-term client relationships.
Generating organic revenue growth. | Loss of revenue due to changes in standards or legislation impacting our ability to provide certain services that can only be provided by anEU member.
Additional importand export costs.
Financial performance will be impacted by fluctuations in sterling. | Many of the standards andschemes under which we operateare international or client specificand we anticipate little or no impact in these areas.
We will monitor the impact ontesting regimes and certification programmes and will engage withthe relevant representative bodies and working groups as required.
Since a large portion of the Group's profit is derived from activities outside of the UK and Europe, the weakening of sterling has had a beneficial impact on results, the Group doesnot, at this point in time, envisagea material adverse impact in the future. We will continue to monitor developments. |
Business infrastructure | The business depends onits laboratory network to service customers' needs. | Managing our laboratories efficiently. | Lack of operational capacity could affect our ability to service existing customers and win new business. | Business continuity plans are in place across the Group and our substantial laboratory network often allows work to be transferred to alternative sites. |
IT systems | The business depends onthe effective operation of global IT systems for its key business processes.
Major IT systems integrity issueor data security breach due to either internal or external factors. | Managingour laboratories efficiently.
Buildinglong-term client relationships. | Lack of timely information could affect our ability to service customer requirements and make good business decisions.
Reputational damage from loss of systemsor data.
Potential legal implications associated with potential loss of sensitive data. | A global Information Security policyis in place.
Regular system maintenance and back-ups are taken.
Disaster recovery plans in place across the network which are tested and improved regularly.
We continually review and improve our cyber defences. |
Acquisitions | The processof identifying, acquiring and integrating new businesses is fundamentalto our overall growth plan. | Extending our service range and the global reach of our business.
Managing our laboratories efficiently. | Failure to deliver expected results due to poor acquisition selection.
Unforeseen liabilities arising from failure to understand business risks fully during due diligence.
Reduced financial performance arising from poor integration of acquired businesses. | We have a well-developed screening process to ensure that potential acquisitions meet the criteria in our strategic plans for market penetration and geographical expansion andour target returns on investment.
Thorough due diligence is carriedout by our in-house experts supplemented by the use of specialist advisers. Customary legal protection is included in the purchase contract.
Detailed integration plans are approved prior to completion andare closely monitored in line withan agreed timetable. |
Legal and regulatory risks | ||||
Risk | Description | Strategic priorities | Possible impact | Mitigation |
Litigation | The Group's operations are subject to wide-ranging lawsand regulations including business conduct, employment, environmental and health and safety legislation. There is also exposure to contractual risk. | Building long-term client relationships. Managing our laboratories efficiently. | Reputational damage leading to customer loss and brand damage. Diversion of managementtime away fromthe operation ofthe business. Penalties for breaching contracts, laws or regulations. | We have a process for monitoring compliance with laws and regulations and internal Group procedures and reporting any significant deviations to the Board. We also monitor changesin regulations and communicate these as appropriate. We have a clear delegation of authority for business decisions and detailed training is provided on key areas of risk e.g. contract negotiation. We carry insurance cover against certain losses. |
Business integrityand ethics | The activities of the business are governed by various ethical requirements including anti-corruption and bribery laws, competitionlaws, and trade sanctions and export laws. | Building long-term client relationships. Generating organic revenue growth. Extending our service range and the global reach of our business. | Reputational damage leading to customer loss and brand damage. Diversion of management time away from the operation of the business. Penalties for breaching lawsor regulations. | Our business activities are conducted in multiple jurisdictions and are exposed to a wide range of business practices. We have a strong Group culture of integrity and ethical behaviour to ensure a consistent approach regardless of local custom. We have group-wide policies covering ethical conduct and regular training is provided, backed up by external legal and professional support where required. We encourage reporting of any concerns about wrongdoing or impropriety and have a whistleblowing service managed by a third party. |
Financial risks | ||||
Risk | Description | Strategic priorities | Possible impact | Mitigation |
Financial irregularity | The Group could suffer financialloss either through misappropriation of assets or the misrepresentation of financial results. | Managing our laboratories efficiently. | Significant financial irregularity could lead to loss of confidence by key stakeholders and reputational damage to the business. This might impact our financial position and ability to raise funds and could affect the share price. | The Group has a well established system of operational and financial controls including documented procedures and delegation of authorities supported by aninternal audit function. |
Treasury | The Group is exposed to currency, liquidity and credit risks. | Generating organicrevenue growth. Managing our laboratories efficiently. | Volatile financial performance arising from translation of overseas results. Financial penalties and reputational damage arising from breach of banking covenants. Financial loss from inappropriate use of financial instruments or failure to collect amounts owed. | Borrowings are maintained in appropriate currencies to partially hedge foreign exchange risk on overseas earnings. We are exposedto limited transactional risk as most costs and revenues are matched in the same currencies. Forecast cash flows are regularly reviewed to ensure that sufficient committed borrowing facilitiesare in place. Credit risk is actively monitored and is mitigated by the wide spread of our customer base. |
Viability Statement
The Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the next three years to December 2019. The Directors' assessment has been made with reference to the resilience of the Group and its strong financial position, the Group's strategy, the Board's risk appetite and the Group's principal risks and how these are managed, as described in this Strategic Report.
The Group has a broad spread of customers across different geographical areas and market sectors and a high level of customer retention and repeat business. The Group is also supported by strong operational cash flows.
The assessment period of three years has been chosen as it is consistent with the Board's annual review of the Group's three year rolling strategic plan. This review covers the prospects for each business, assumptions regarding entry into new markets and geographies, future growth rates and performance of the business. A robust financial model of the Group has been built and the metrics for the Group's KPIs have been reviewed for the assessment period. These metrics are also subject to sensitivity analysis which includes flexing a number of these assumptions, namely, future organic revenue growth, operating margins and operational cash flow. This is supplemented by an overlay of assumptions on the future level of inorganic growth from acquisitions. The results of flexing these assumptions, both individually and in aggregate, are used to determine whether additional bank facilities will be required during this period.
This review and analysis also considers the principal risks and uncertainties facing the Group, as described on pages 10 to 13 and the potential impact these risks would have on the Group's business model, future performance, solvency and liquidity over the assessment period. The Board considers that the diverse nature of the market sectors and geographies in which the Group operates acts significantly to mitigate the impact any of these risks might have on the Group.
2. Related party transactions
The following statements regarding related party transactions are set out on pages 144 to 145 of the 2016 Annual Report & Accounts. The following is extracted in full and unedited form from the 2016 Annual Report & Accounts.
During the year the Group entered into certain transactions with related parties. Details of these transactions are as follows:
Income statement
Company | ||
2016 | 2015 | |
£m | £m | |
Dividend received from subsidiary undertaking | - | 120.0 |
Balances at 31 December
Assets | Notes | Group | Company | ||
2016 £m | 2015 £m | 2016 £m | 2015 £m | ||
Amounts due from subsidiary undertakings | 16 | - | - | 122.5 | 122.0 |
Liabilities | |||||
Termination of consultancy agreement fee to private equity investor | - | 1.0 | - | 1.0 | |
Amounts due to subsidiary undertakings | 17 | - | - | 24.2 | 14.3 |
Key management compensation
Group | Company | |||
2016 £m | 2015 £m | 2016 £m | 2015 £m | |
Salaries and short-term benefits | 3.8 | 3.3 | 0.9 | 0.9 |
Post employment benefits | 0.2 | 0.3 | 0.1 | 0.1 |
Termination benefits | 0.5 | 0.1 | - | - |
Share-based payments | 0.9 | 0.2 | 0.1 | 0.1 |
5.4 | 3.9 | 1.1 | 1.1 | |
Key management comprises members of the executive team. The executive team is responsible for the day to day running of the Group, and comprises the CEO, CFO, managing directors and group functional directors.
The Group holds equity interests of less than 51% in the following companies where it exercises control:
% shareholding | |
Exova (Qatar) LLC | 24.5% |
Al Futtaim Exova LLC | 49.0% |
Exova Warringtonfire Middle East LLC | 49.0% |
Exova (Saudi Arabia) Limited | 50.0% |
Exova Warringtonfire LLC | 49.0% |
Exova (Qatar) LLC approved and paid a dividend of £0.8m (QAR 4,000,000) (2015: £1.1m QAR: 6,000,000) to its shareholders.
The Group is exposed, or has rights, to variable returns from its involvement with the equity interests and has the ability to affect those returns through its power over the equity interests. Based on this, the Directors have determined that the Group has control over these equity interests and therefore consolidates them within the financial statements.
The Group has interests in joint venture arrangements in the following companies:
Name | Principal place of business | Group ownership interest | Held by |
BM TRADA (HK) Limited | Hong Kong | 70% | BM TRADA Overseas Limited |
BM TRADA RKCA Certifications Private Limited | India | 50% | BM TRADA Overseas Limited |
FIRA - CMA Testing Services Limited | Hong Kong | 50% | BM TRADA Overseas Limited |
BM TRADA Cyprus Limited | Cyprus | 50% | BM TRADA Overseas Limited |
Standardt BM TRADA Belgelendirme AS | Turkey | 50% | BM TRADA Overseas Limited |
BM TRADA Latvija | Latvia | 50% | BM TRADA Overseas Limited |
BM TRADA RKCA Lanka Certifications (Private) Limited | Sri Lanka | 50% | BM TRADA RKCA Certifications Private Limited |
BM TRADA Suomi OY | Finland | 50% | BM TRADA Latvija |
BM TRADA Eesti Ou | Estonia | 50% | BM TRADA Latvija |
BM TRADA Deutschland GmbH | Germany | 50% | BM TRADA Latvija |
BM TRADA Lietuva | Lithuania | 50% | BM TRADA Latvija |
Tianjin C-Kai BM TRADA Certification Company Limited | China | 40% | BM TRADA Certification Limited |
3. Directors statement of responsibilities
The following statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from page 87 of the 2016 Annual Report & Accounts and is signed on behalf of the Board of Directors by Ian El-Mokadem, Chief Executive Officer and Philip Marshall, Chief Financial Officer. Responsibility is for the full 2016 Annual Report & Accounts and not the extracted information presented in this announcement or the full year results announcement.
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the Group and Company financial statements for each financial year in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
Under Company law the Directors must not approve the Group and Company financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the Group and Company financial statements the Directors are required to:
· present fairly the financial position, financial performance and cash flows of the Group and Company;
· select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· make judgements that are reasonable;
· provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance; and
· state whether the Group and Company financial statements have been prepared in accordance with IFRS as adopted by the European Union.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Directors' Report, the Directors' Remuneration Report, Strategic Report and the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.
The Directors confirm that they have complied with the above requirements in preparing the financial statements.
Directors' responsibility statement
Each of the Directors, as at the date of this report, confirms to the best of their knowledge that:
· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group; and
· the Strategic Report and the Report of Directors include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
We consider the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
The Strategic Report contains certain forward-looking statements providing additional information to shareholders to assess the potential for the Group strategies to succeed. Such statements are made by the Directors in good faith, based on the information available to them up to the date of their approval of this report, and should be treated with caution due to the inherent uncertainties underlying forward-looking information.
Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report & Accounts except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Section 90A and Schedule 10A of the Financial Services and Markets Act 2000.
4. Substantial shareholding
As at 31 March 2017, being the latest practicable date prior to release of this announcement, the Company had been notified, in accordance with DTR 5, of the following major shareholdings in the ordinary share capital of the Company:
Name
| Ordinary share holdings at 31 March 2017 | % of Capital
|
Tabasco B.V. | 135,045,958 | 53.91 |
Fidelity Management & Research Company (US) | 13,146,904 | 5.25 |
Mubadala Development Company PJSC | 12,284,488 | 4.90 |
T. Rowe Price | 9,653,694 | 3.85 |
First Pacific Advisors | 8,805,519 | 3.52 |
Aberdeen Asset Management Limited | 7,585,901 | 3.03 |
5. Directors' shareholding and share interests
A statement of Directors' shareholding and share interests as at 31 December 2016 is set out on page 77 of the 2016 Annual Report & Accounts. In compliance with Listing Rule 9.8.6R(1), no changes in the interests of each director (including interests of connected persons) have occurred between 31 December 2016 and the date of posting to shareholders the Notice of the 2017 Annual General Meeting and the 2016 Annual Report & Accounts.
For further information please contact:
Neil MacLennan
General Counsel & Company Secretary
Exova Group plc
Telephone: +44 (0) 131 333 8053
Exova
Exova is one of the world's leading laboratory-based testing groups, trusted by organisations to test and advise on the safety, quality and performance of their products and operations. Headquartered in Edinburgh, UK, Exova operates 136 laboratories and offices in 33 countries and employs around 4,200 people throughout Europe, the Americas, the Middle East, Asia/Asia Pacific and Africa.
Exova's capabilities help to extend asset life, bring predictability to applications, and shorten the time to market for customers' products, processes and materials. With over 90 years' experience, Exova specialises in testing across a number of key sectors ranging from Aerospace to Fire & Building Products; Oil & Gas and Industrials; Infrastructure & Environment; Transportation; and Health Sciences.
Exova Group plc is registered in England and Wales (registration number 08907086). Its legal entity identifier ('LEI') number is 213800BFE317FGSYMZ19.
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