Final Results

This announcement contains information which, prior to its disclosure, was considered inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR).

Stadium Group plc

("Stadium" or the "Group" or the "Company")

Final results for the year ended 31 December 2016

Stadium Group plc (AIM: SDM), a leading supplier of wireless solutions, power supplies, interface displays and electronic assemblies, announces its results for the year ended 31 December 2016.

Headlines

· Statutory reported profit before tax up 29% to £2.2m (2015: £1.7m)

· Year end order book up 36% to £25.8m (2015: £19.0m) underpinned by Technology Products growth

Financial highlights

· Revenues of £53.1m (2015: £53.9m)

§ Technology Products sales up 18.1% to £31.9m (2015: £27.0m), now 60.1% of Group sales

§ Electronic Assemblies sales down 21.1% to £21.2m (2015: £26.9m)

· Normalised gross profit margin increased to 25.1% (2015: 23.2%)

· Normalised profit before tax* up 5.2% to £4.2m (2015: £4.0m)

· Net debt improved to £3.3m (2015: £4.7m), with cash in the bank of £4.6m

· Adjusted earnings per share* of 9.1p (2015: 9.9p)

· Statutory earnings per share of 4.9p (2015: 4.2p)

· Final dividend proposed of 1.95p per share (2015: 1.8p)

· Total dividends up 7.4% to 2.9p per share (2015: 2.7p)

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration - see notes 2 and 12 for further information.

Other highlights

· Order intake increased by 11% up to £59.8m

· Regional design centre fully established in Stockholm to become hub of growing wireless business

· Stontronics, acquired in August 2015, now fully integrated and performing well

· Key appointments have significantly strengthened leadership team and design engineering capability

· Further optimisation of global operational footprint

§ Consolidated four UK manufacturing sites into two at Hartlepool and Southampton

§ Established two new regional fulfilment centres in Reading for Europe & Hong Kong for APAC region

Post-period end highlights

· Acquisition of the assets of Cable Power Ltd strengthens integrated technology offering

· Investment in Stadium Group Inc. to further develop our North American sales activity

Commenting on outlook, Chairman Nick Brayshaw OBE said:

"We are very excited about the prospects for the Group and believe that our operating model focused around strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres will allow us to deliver accelerated growth in 2017. Our order book at the year-end was at record levels, up 36% on the previous year end at £25.8m. Our offering of complementary electronic technologies and design-focused engineering expertise is proving very attractive to current, previous and new customers, and this growing demand gives us confidence in the outlook for 2017, which has started positively."

For further information please contact:

The annual report will be made available on the Company's website (www.stadiuminvestors.com)  on or around 14 March 2017 and will be sent to all shareholders shortly.

This announcement will also be available on the Company's website.

Investor Teach in

Stadium will be holding a teach-in for investors at the London Capital Club, 15 Abchurch Lane, London EC4N 7BW at 2.00 pm on 26 April 2017. A presentation will be given by CEO, Charlie Peppiatt and other key members of the senior management team and will provide investors with a greater understanding of its divisions and integrated design-led technology offering. The presentation will last for approximately 60 minutes, and will be followed by a Q&A session. To register for the event, please e-mail [email protected] or telephone Walbrook PR on the number above.

About Stadium Group plc (www.stadiumgroupplc.com)

Stadium Group plc is a leading supplier of wireless solutions, power supplies, interface displays and electronic assemblies with design and manufacturing operations in the UK, Sweden and Asia. The Company consists of two divisions:

1. Technology Products (60% of 2016 revenues)

· Wireless solutions - design, integration and manufacture of machine-to-machine ("M2M") and Internet of Things ("IoT") wireless solutions

· Power supplies (including Stontronics) - custom and standard power product solutions from 1W to 10kW

· Human Machine Interface - intelligent "HMI" integrated solutions

2. Electronic Assemblies (40% of 2016 revenues) - previously known as Electronic Manufacturing Services

· Electronic manufacturing services to global original equipment manufacturers

Chairman's statement

For the year ended 31 December 2016

I am very pleased to report another year of good progress, as we further transition Stadium from an electronic manufacturing services company to a high growth technology-led business. Whilst we are disappointed not to have secured the accelerated sales growth that we had originally anticipated during the year, we are greatly encouraged by a record order book across the Group, the improving sales mix towards Technology Products and improving margins, whilst delivering incremental growth in normalised profit before tax. 

In 2016 we continued to develop the operating model to deliver an attractive, customer-focused, design-led technology proposition supported by strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres to deliver organic growth across the Group. The most recent addition to our regional design centre model, located at the Kista Science City in Stockholm, Sweden, has been particularly successful and has become the cornerstone of our wireless design activity. We are now increasingly recognised by customers as a reliable design-led technology partner, not just in the UK, but also in North America and Europe.

We believe that Stadium is now well placed for future growth and this is reflected in a record order book of £25.8m at the year end. Therefore, we remain confident about the outlook for 2017 and beyond.

Financial Highlights

Overall revenues for the full year were down slightly at £53.1m (2015: £53.9m). Underlying this is a shift in favour of our higher margin Technology Products division, which continues to perform well. Technology Products sales increased 18.1% to £31.9m (2015: £27.0m) and now represent 60% of total sales, compared to 50% in the previous year. Electronic Assemblies sales reduced to £21.2m (2015: £26.9m), reflecting continued reductions in sales volume, further price pressure and our ongoing commitment to strategically review non-core, low margins sales. This is allowing us to better use our Electronic Assemblies capacity to support the activities of our higher margin / higher value added Technology Products division. Pleasingly, several Electronics Assemblies customers are being transitioned into Technology Products customers as they seek new design-led solutions from Stadium.

Because of this more favourable sales mix, normalised gross profit margins improved to 25.1% (2015: 23.2%) Normalised operating profit margins* were 8.6% (2015: 8.5%) with normalised operating profit* at £4.56m (2015: £4.58m). Normalised profit before tax* grew by 5.2% to £4.22m (2015: £4.01m) and adjusted EPS was 9.1p (2015: 9.9p).

 * Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to Financial Review and Note 2 for further information.

Statutory reported profit before tax was up 29.4% to £2.20m (2015: £1.70m), which includes non-recurring items such as reorganisation costs, the release of the deferred consideration relating to the Stontronics acquisition, amortisation of acquired intangible assets and interest charged on the fair value of deferred consideration.

In 2015, we invested significantly to relocate and materially upgrade our facilities in Asia, and in 2016 we addressed our operating model in Europe, through both investment and reorganisation in facilities, equipment, R&D and people. Net debt was £3.3m (2015: £4.7m), with cash (net of overdrafts and invoice discounting) at £4.6m (2015: £3.8m), enabling the Group to maintain the flexibility to invest appropriately.

Dividend

The Board targets a progressive dividend policy, which enables the Group to retain sufficient cash flow to meet its investment needs and support growth. The Board has recommended a final dividend of 1.95 pence per share (2015: 1.80 pence per share) giving a total for the year of 2.90 pence per share (2015: 2.70 pence per share), an increase of 7.4% over the prior year. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 10 May 2017 to shareholders registered at the close of business on 7 April 2017. The ex-dividend date is 6 April 2017.

2016: Establishing a platform for future growth

Over the last two years we have consistently invested across our Technology Products division to drive and support growth over the long-term, and to ensure that our design and manufacturing capabilities are world-class. To complement our existing regional design centres in Shanghai, Southampton and Norwich, we opened a fourth design centre in Stockholm, Sweden, at Kista Science City. Deemed one of the world's leading high-tech clusters and often described as Europe's "Wireless Valley", this enables us to focus on our fast-growing wireless business and will act as the hub for the Group's research and development (R&D) activities.

Following the successful upgrade and relocation to a new facility at our manufacturing centre of excellence in Asia in 2015, we consolidated our European manufacturing footprint from four separate locations into two main manufacturing centres of excellence at Hartlepool and Southampton in the UK. At the same time, we expanded and upgraded the facility in Reading to become the distribution centre for Europe and also completed the successful move to a new distribution and logistics centre in Kowloon, Hong Kong to service the APAC region. During the year we also moved the Group's registered head office from Hartlepool to Reading.

In January 2017, post period-end, we invested in a complementary addition to our technology expertise through the acquisition of the assets of Cable Power Ltd ("Cable Power"), a specialist manufacturer and distributor of bespoke cable and power products and accessories to single board computing providers, for £0.75 million in cash. The combination of Cable Power and Stontronics sees Stadium uniquely positioned to offer a highly compelling, exclusively approved 'one-stop-shop' solution for the rapidly expanding single board computer sector a key component in the growth of the Internet of Things (IoT).

During the period the decision was taken to establish Stadium Group Inc. to increase our ability to support the development of our activities in North America. This is underpinned by a growing number of new business opportunities for our design-led technology solutions, from both existing and new customers in this region. The ability to support this new business with capability located in the USA is seen as critical to develop this channel for the Group.

A more detailed overview of the operational performance of the divisions and business units can be found in the Chief Executive's Operational Review.

Board Changes

In October 2016 Joanne Estell, Chief Financial Officer and Company Secretary, stepped down from the Board to pursue new opportunities outside of the Group, and in January 2017 we announced the appointment of Andrew Tonks as Interim Finance Director with immediate effect. On behalf of the Board and shareholders of Stadium, I would like to thank Joanne for her contribution to the business during a period of major transition and her efforts throughout a series of strategic acquisitions. We are also very grateful to Joanne for making herself available to ensure an orderly handover to Andrew. The process to appoint a permanent Finance Director is continuing and we will update shareholders as appropriate.

Outlook

We are very excited about the prospects for the Group and believe that our operating model, focused around strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres, will allow us to deliver accelerated growth in 2017. Our capability has been further enhanced by the establishment of Stadium Group Inc. which has strengthened our presence in North America. Our record year end order book at £25.8m, up 36% on the previous year end, continues to rise. Our offering of complementary electronic technologies and specialist design-focused engineering expertise is proving very attractive to current, previous and new customers, and this growing demand gives us confidence in the outlook for 2017 and beyond.

Nick Brayshaw OBE

Chairman

14 March 2017

Chief Executive's Review

Operational Overview

Stadium Group has now been successfully realigned into two distinct divisions: Technology Products, comprising of Wireless solutions, Power supplies and Human Machine Interface ("HMI"); and Electronic Assemblies.

The overall contribution from our Technology Products division continued to grow, benefitting from the first full year's contribution from Stontronics, and this helped to mitigate the impact of the loss of a significant wireless customer during the year. Revenues from our Electronic Assemblies division declined faster than expected and we continued to actively manage our exposure to this area where margins are typically lower and the pricing environment remains highly competitive. These factors delayed the accelerated sales growth that we had expected in 2016. However, with a record order book and with a greater number of customers recognising the value of our design-led technology solutions, we are confident of delivering this growth in 2017 and beyond.

Technology Products

The Technology Products division recorded revenue growth of 18.1% over the previous year, contributing £31.9m to overall sales, and now represents 60% of total sales, compared to 50% in 2015 and 34% in 2014. This division contributed 72.8% of normalised operating profits, including Group overhead.

Wireless Solutions

Our Wireless division has quickly become a key cornerstone of the Group's technology offering following the successful integration of Stadium United Wireless, acquired in July 2014. We are confident that we now have in place a very compelling proposition with a highly experienced new divisional leadership team, supported by our regional design centres, that will not only attract existing and new customers, but which will also allow us to address the needs of previous customers seeking a design-led solution.

Vehicle telematics applications continues to be a significant driver of our current business in Wireless and, in March 2016, we announced that we had secured a manufacturing contract worth £5 million with Trak Global Solutions Ltd ("Trak Global"), a leading UK based telematics business. This new contract extends our existing supply partnership whereby Stadium provides Trak Global with their insurance telematics and usage-based insurance units.

Underpinned by the design capability of our engineering team in Stockholm, we are also starting to see an exciting new project pipeline develop in other high growth IoT vertical markets such as Smart Home, mHealth, Wearables, industrial automation, energy management and asset tracking. We maintain the view that the IoT/M2M wireless market is an exciting growth space for Stadium and the latest market intelligence continues to suggest strong growth for the foreseeable future:

"Berg Insight estimates that the global number of cellular M2M subscribers increased by 30% during 2016 to reach 398.1 million at the end of the year - corresponding to around 5% of all mobile subscribers. Until 2021, the number of cellular M2M subscribers is forecasted to grow at a compound annual growth rate (CAGR) of 26.2% to reach 1,274.8 million at the end of the period. During the same period, cellular M2M network revenues are forecasted to grow at a compound annual growth rate (CAGR) of 26.0% from €6.7 billion in 2015 to approximately €21.4 billion in 2021." The Global M2M/IoT Communications Market - 2015 Report Berg Insight.

Power Products

The Power business delivered good growth mainly benefitting from the first full year contribution of Stontronics, which was acquired in August 2015. Stontronics has performed well for the business and the Power division remains focused on offering customised power solutions, enhanced by the technical skills of the teams at regional design centres in Norwich and China.

In March 2016, we announced the appointment of Stontronics as the only approved external power supply manufacturer for the new Raspberry Pi 3, a credit-card-sized single board computer ("SBC"). We believe that the SBC market offers significant opportunities for new business. According to a February 2017 report from GM Insights, the global market size for the SBC market "grew to over USD 440 million in 2015 with 12.5% CAGR estimation from 2016 to 2024".

Following the year end, we strengthened our position in the SBC market further through the acquisition of the assets of Cable Power Ltd ("Cable Power"), a specialist manufacturer and distributor of bespoke cable and power products and accessories to SBC providers, for £0.75 million in cash. Cable Power's customers include a number of blue chip OEMs, global distributors and Raspberry Pi, with whom it has exclusivity for several accessories, including HDMI cables, power connectors and other accessory bundles. Bringing together the expertise of Cable Power and Stontronics places Stadium in a unique position to offer a highly compelling, exclusively approved 'one-stop-shop' solution for the growing SBC sector.

Human Machine Interface (HMI) 

Our HMI business delivered growth ahead of plan. As expected the second half benefitted from a number of new orders, including instrumentation and lighting systems for the aerospace industry as well as a control system for use in military vehicles and other automotive related contracts.

Electronic Assemblies

The Electronic Assemblies business remains a key element of our integrated sales strategy, supplying directly to OEM customers, as well as taking on an increasing role as a vertically integrated supplier to the rest of the Group. Electronic Assemblies sales reduced significantly during the period, and at a faster rate than expected, to £21.2m (2015: £26.9m). This was a result of a slowdown in UK demand during the second and third quarters of the year, further reductions in the sales volumes of some legacy products, relentless price pressure and our ongoing commitment to strategically review non-core, low margin sales. This is allowing us to better use our Electronic Assemblies capacity to support the Technology Products division. In addition, a number of historic Electronic Assemblies customers have been converted into Technology Products clients, taking advantage of our design-led offering, particularly with Wireless connectivity solutions and energy efficient Power products designs.

Ongoing strategy

Our strategy remains unchanged as we continue to build the business through a combination of design-led organic growth, leveraging our global manufacturing capability and our network of regional design centres, and in a targeted way, to acquire technologies and capabilities that will generate long-term value and improve the quality of earnings.

In 2016 we set ourselves the following 'Vital Few' strategic objectives, and I set out below our progress:

· Drive further sales growth and leverage global partnerships

· Enhance our global operations and develop our technology roadmap

· Leverage manufacturing capacity to support growth

· Identify complementary acquisitions

Drive further sales growth and leverage global partnerships

Having invested in our technical sales capability in 2015 and 2016 we have been keen to maximise opportunities for further sales growth from existing and new customers, as well as targeting previous clients that can be attracted back with our enhanced design-led offering.

In terms of existing customers we are seeing two patterns emerging: a number of existing OEM customers that have used our electronic manufacturing services are being transitioned to our custom-designed products, or those with existing custom-designed products are looking to use Stadium for new design programmes or second generation products. It is also pleasing to see that an increasing number of our customers are now requesting a combination of our technology offerings. As well as targeting new customers with our integrated technology products offering we have also had some initial success in winning back some lost customers who have recognised and welcomed the step-change in our design capability.

In terms of global expansion, we have been particularly successful in moving our business away from a traditionally UK centric customer base to a wider mix of UK, North American and European customers. North America accounted for 11% of Group sales in 2016 and interest is increasing significantly from the region, which currently represents more than 20% of the pipeline going forward. To support existing customers, new customer wins and further potential sales growth in North America we have established Stadium Group Inc. and will invest circa £0.5 million in 2017 in technical sales and regional fulfilment capability in the region.

Enhance our global operations and develop our technology roadmap

Having already made significant investment in our new Asia facility and significantly upgrading our technical capabilities through the establishment of three Regional Design Centres, in 2016 we focused on reviewing our European manufacturing and distribution footprint. During the year we consolidated four separate locations into two main manufacturing centres of excellence in the UK at Hartlepool and Southampton, as well as expanding and upgrading our facility in Reading to become our distribution centre for Europe. Our UK site rationalisation is now complete.

In May 2016, we opened a fourth design and R&D centre for customer-focused wireless connectivity solutions in Kista, near Stockholm, Sweden. Kista Science City is the largest Information and Communication Technology (ICT) cluster in Europe often described as 'Wireless Valley' and the third largest ICT cluster in the world, housing more than 1,000 technology companies. Kista is Stadium Group's hub for wireless technology development, working alongside the Group's additional design centres in Shanghai China, Norwich UK and Southampton UK.

This new design centre is led by a high calibre team whose expertise in Wireless Connectivity and IoT technology is world class, specialising in the development of wireless solutions that support data transfer between devices encompassing connectivity in all the different current and next generation global technology platforms.

During the year, Kjell Karlsson was appointed as Managing Director of Stadium's Wireless division and our new Swedish entity (SGW Sweden AB). Kjell has over 18 years' experience in the wireless electronics sector and was formerly Managing Director EU & USA for Sunway Communications, a high-tech enterprise focusing on the R&D and manufacture of the mobile terminal antennae and connectors with high electromagnetic compatibility. Prior to that he was Engineering Director for Laird Technologies' Mobile Antenna Systems division, overseeing a global network of design centres. As well as Kjell's appointment we have expanded the team with highly experienced wireless, RF, hardware and software engineers and experienced technical sales capability. Our customers see this capacity as a strong differentiator for Stadium.

This year we further strengthened our management team with the appointment of Martin Brabham as Managing Director for our global power supplies business, comprising Stadium Power and Stontronics Ltd, integrated under the banner of Stadium Stontronics. Martin joined Stadium from XP Power where he held a senior commercial position, and has over 25 years' experience in the power products and electronics industry. He has a detailed knowledge of the sales and marketing of electronic sub‐systems and components to OEMs in the defence, healthcare, communications and industrial sectors.

Leverage manufacturing capacity to support growth

The shift to provide a greater proportion of our Technology Products from our manufacturing centres of excellence continued as the three manufacturing sites in Hartlepool, Southampton and Asia act as vertically integrated suppliers to the different business units. All three sites, following investment and upgrades, are now well placed to produce more technically challenging Technology Products. 

Interestingly, during 2016 the level of vertically integrated activity in our Electronic Assemblies plants for the Technology Products division increased to greater than 25%. This is expected to double to more than 50% of activity levels in 2017.

Identify complementary acquisitions

As previously mentioned, since the year end we strengthened our position in the SBC market by acquiring the assets of Cable Power, a specialist manufacturer and distributor of bespoke cables, power products and accessories.

We believe that there is an opportunity to acquire further complementary technology businesses to strengthen our market position in this sector. We remain committed to acquiring companies that bring a clear value proposition for the Group, and we continue to seek potential targets that increase our exposure to high growth markets, increase our global reach and complement our existing technologies.

Outlook

The key focus for our team this year has been to ensure that we have in place the correct operating model that puts 'the customer at the centre of our business' through strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres. This will allow us to deliver the accelerated growth trajectory in 2017 that we had hoped to achieve in 2016. The best indicator of our successful execution of this plan is the £59.8m order intake in 2016, up 11% on the prior year, with a record year end order book for the Group of £25.8m which has continued to grow since the year end.

Our enhanced offering of integrated technology products within wireless, power and interface displays, supported by a quality team of talented design engineers, is proving to be very attractive to our customer base and we remain confident that 2017 will be a year characterised by strong sales growth.

Finally, I would like to thank all employees across the whole Group for their commitment, positive contribution, enthusiasm and hard work, which I am sure will all combine to deliver the accelerated growth trajectory anticipated for 2017.

Charlie Peppiatt

Chief Executive Officer

14 March 2017

FINANCIAL REVIEW

Revenue

Revenues for the year were £53.1m (2015: £53.9m).

In-line with the strategy to be a design-led organisation, the Technology Products division increased revenues year on year by 18.1% to £31.9m (2015: £27.0m), contributing 60.1% of Group revenues. This increase was driven by the growth in power products following the Stontronics acquisition. Underlying growth elsewhere in the Technology Products division largely offset the loss of a major wireless customer in the year. Revenues from the Electronic Assemblies division were £21.2m (2015: £26.9m), declining year-on-year by 21.1%. This reflects the decision to exit low margin non-core accounts and the migration of some Electronic Assemblies customers towards the services supplied by the Technology Products division.

Profit

Gross margin on a normalised basis improved by 190 basis points to 25.1% (2015: 23.2%) due to the progressive increase in sales from the higher margin Technology Products division and the benefits arising from the recent investment in the operating structure. Acquisitions have also been gross margin accretive. 

Operating expenses, excluding non-recurring expenses, increased year on year by £0.7m after the impact of acquisitions and investing £0.5m in the regional design centres. 

The above results translated into a normalised profit before tax* (PBT) of £4.2m (2015: £4.0m) and an improvement in return on sales to 8.0% (2015: 7.5%).

*Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to table below and note 2 for further information.

Normalised adjustments relating to continuing activities excluded from normalised profit before tax are detailed below:

Statutory reported profit before taxation of £2.2m (2015: £1.7m) was 29% higher than the prior year. This includes the reversal of £0.5m of deferred consideration provided in 2016; as a result of the non-achievement of part of the Stontronics acquisition earnout.

Interest and other financing costs

Finance costs in the consolidated income statement were £712k (2015: £783k) analysed as follows:

· interest payable on debt (net of interest earned on cash deposits) of £189k (2015: £231k);

· net interest on the net defined benefit pension scheme liability of £386k (2015: £395k);

· interest on finance leases of £12k (2015: £23k); 

· interest of £125k (2015: £134k) relating to the charge on the fair value of deferred consideration, which is excluded from normalised profit before tax.

Taxation

On a reported profit basis, the charge for taxation was £363k (2015: £321k), an effective rate of taxation of 16.5% (2015: 18.8%).

Earnings per share

On a statutory basis, earnings per share from continuing operations was 4.9p (2015: 4.2p) an increase of 16.7%. Basic adjusted earnings* per share from continuing operations was 9.1p (2015: 9.9p).

*Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to note 12 for reconciliation.

Dividends

During the year, the Company paid a final dividend for 2015 of 1.80p per share, and a 2016 interim dividend of 0.95p per share. Total cash outflow in respect of dividends paid was £1.0m (2015: £0.8m).

The Board proposes a final dividend of 1.95p per share (2015: 1.80p per share), giving a total dividend for the year of 2.90p per share (2015: 2.70p per share), an increase of 7% and a total cash cost of £1.1m (2015: £1.0m). This final dividend is expected to be paid on 10 May 2017 to shareholders on the register on 7 April 2017 with an ex-dividend date of 6 April 2017.

Balance sheet

Shareholders' funds

Shareholders' funds increased to £18.9m (2015: £18.2m). Movements of note include the following: net debt reduced by £1.4m, trade payables increased by £1.2m and accruals and deferred income increased by £0.6m, offset by an increase in the Group's legacy net pension liabilities of £1.4m.

Goodwill and intangibles

As previously reported under IFRS, goodwill is no longer amortised but is instead subject to an annual impairment review. There were no impairments identified in the year. Goodwill on the balance sheet is valued at £15.4m (2015: £15.4m). There were no acquisitions in the year. 

Intangible assets arising from business combinations are assessed at the time of acquisition in accordance with IFRS 3 and are amortised over their expected useful life.

Other intangible assets comprise development costs, which are capitalised as intangible assets (as required by IFRS), acquisition related customer intangible assets and software costs. Investment in capitalised research and development increased by £0.3m in the year to £0.7m (2015: £0.4m) to support the growth in the Technology Products revenues.

The software costs capitalised relate to £0.4m (2015: £nil) of costs associated with the development of a new business system prior to implementation at the first Group location in 2017. Whilst the software purchased is an established ERP software package, as is normal, there is a level of configuration required to ensure the software implemented is optimised for the current and future requirements of the Group and the costs capitalised relate to this work.

Tangible assets

The Group has property, plant and equipment totalling £4.4m (2015: £4.4m). Capital expenditure in the year was £0.4m (2015: £1.5m). The investment in 2015 included £1.2m relating to the Asia factory relocation project, which was successfully completed on time and to budget.

Pension schemes

The Stadium Group plc 1974 Pension Scheme and the Southern & Redfern Limited Scheme are final salary pension plans, which are closed to new entrants and future accruals. 

The net pension liabilities at the end of 2016 (net of the related deferred tax asset) have increased to £5.6m (2015: £4.2m). The increase in the IAS 19 deficit is predominantly due to a decrease in the discount rate applied from 3.60% in 2015 to 2.60% in 2016. 

At the year end, the value of plan assets as a percentage of the defined benefit obligation is as follows: The Stadium Group plc 1974 plan funding status is 82.1% (2015: 84.5%) and the Southern & Redfern Limited Scheme is 107.7% (2015: 111.2%).

The Stadium Group plc 1974 Pension Scheme underwent its triennial valuation in early 2015. Given the Group's increasing financial strength and recent developments in pension legislation, a reduction in deficit funding was agreed with the pension Trustees. Going forward, the Company will contribute £0.5m annually to this legacy pension scheme; this was previously agreed at £1.0m. The change was implemented under a plan for the Company to eliminate the pension plan deficit by 31 March 2019. During 2016, the Company made pension contributions of £0.5m (2015: £0.5m).

Cash generation and net debt

After payment of the pension deficit contributions and tax amounting to £1.2m (2015: £0.7m), net cash inflow from operating activities was £4.2m (2015: £2.9m), an increase of 47%. This was largely driven by an improvement in working capital management, a continuing area of management focus. Free cash flow was £2.1m (2015: £0.4m). Free cash flow is stated after interest, tax and pensions financing, but before acquisitions, financing activities and dividends, as shown in the table below.

At 31 December 2016, net debt including finance leases was £3.3m (2015: £4.7m).

Bank facilities

The Group has agreed debt facilities with HSBC, totalling £11.7m at the balance sheet date. £5.0m of this is a revolving credit facility, which was used to fund the acquisition of Stadium United Wireless in 2014. This is repayable in July 2019 with no repayment schedule prior to that date. The remaining balance is a term loan and, to support short-term liquidity, the Group has access to a £0.6m overdraft facility of which £nil (2015: £nil) was utilised. The term loan balance was £2.4m (2015: £2.9m). This loan is repayable in increasing instalments across the period to October 2019. The Group also has access to an invoice discounting and factoring arrangement of £3.7m is available for draw down, which was not being utilised at 31 December 2016 (2015: £2.4m utilised) as the Group had sufficient funds due to strong cash management.

All Group companies have complied with all the financial covenants relating to these facilities.

Treasury and risk management

Foreign currency effects

The Group has limited exposure to transactional currency effects, as the currency of revenue and cost streams are largely matched by region. Most sales originating from UK operations are denominated in Sterling, so are largely matched with the underlying costs. Similarly, sales made from Asia are normally denominated in US dollars and the cost streams are in US Dollars or local currencies. To the extent that the Group suffers a transactional currency effect, some of the impact has been passed on to customers through price increases.

There is a translation effect on consolidation of trading activities from our Asian operations into Sterling for reporting purposes. This effect only becomes realised upon remittance. The strengthening of the average Hong Kong dollar rate against Sterling (compared to the previous year) increased revenues by approximately £2.3m and operating profit by approximately £0.3m.

Post balance sheet events

Acquisition

The Group announced on 11 January 2017 the acquisition of the assets of Cable Power Ltd, a specialist manufacturer and distributor of bespoke cables, power products and accessories to the single board computing market. The consideration paid was £0.75m in cash. Further details of this acquisition are shown in Note 21 to the accounts.

Stadium Inc.

On the 8 February 2017 Stadium incorporated a new legal entity in the state of Delaware, namely Stadium Group Inc. This is currently a non-trading entity and a wholly owned subsidiary of Stadium Group plc.

Capital reduction

A special resolution to apply to the Courts for a capital reduction was approved by the shareholders of the Company at the General Meeting held on 19 January 2017. This resolution, which was subsequently approved by the Court on 15 February 2017, has enabled the Company to increase its distributable reserves by £5.3m. These additional distributable reserves provide the Company with greater flexibility with the payment of future dividends and we would like to thank the shareholders, creditors and others for their support in approving this resolution.

Andrew Tonks

Interim Finance Director

14 March 2017

Consolidated income statement

for the year ended 31 December 2016

Consolidated statement of comprehensive income

for the year ended 31 December 2016

Consolidated statement of financial position

at 31 December 2016

Company number: 00236394

*Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. A third balance sheet to restate 2014 has not been included as the adjustment has no net effect on shareholders' funds.

Consolidated statement of changes in equity

for the year ended 31 December 2016

*Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value.

The following describes the nature and purpose of each reserve within equity:

Consolidated statement of cash flows

for the year ended 31 December 2016

Cash flows from operating activities

Analysis of changes in net debt

Gearing is defined as the ratio of net debt to total equity. 

Statement of accounting policies

for the year ended 31 December 2016

Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 December 2016, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The information in this preliminary statement has been extracted from the financial statements for the year ended 31 December 2016 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with IFRS. The Group's Annual Report for the year ended 31 December 2016 has yet to be delivered to the Registrar of Companies. The auditors have reported on these accounts. Their report was not qualified and did not contain a statement under Section 498 of the Companies Act 2006. The figures for the year ended 31 December 2016 and 31 December 2015 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies.

The report of the auditor was:

i. unqualified,

ii. did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and

iii. did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The preliminary announcement was approved by the Board and authorised for issue on 14 March 2016.

Accounting developments and changes

The Group's IFRS accounting policies, have been consistently applied to all the periods presented. The accounting policies have been applied consistently by Group entities.

The following standards or interpretations are effective for the first time for periods beginning on or after 1 January 2016:-

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11): 1 January 2016

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38): 1 January 2016

Equity Method in Separate Financial Statements (Amendments to IAS 27): 1 January 2016

Annual Improvements to IFRSs (2012-2014 Cycle): 1 January 2016

Disclosure Initiative (Amendments to IAS 1): 1 January 2016

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28): 1 January 2016

None of these amendments to standards have a significant effect on the Group's financial statements.

Basis of consolidation

The consolidated financial statements present the results of the Company and its subsidiaries (the "Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Accounting estimates and judgements

In preparing these consolidated financial statements, management has made estimates, assumptions and judgements that affect the application of the Group's accounting policies and the reported amounts of assets and liabilities. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Assumptions and estimation uncertainties

Key sources of estimation uncertainty are:

Notes to the financial statements

for the year ended 31 December 2016

1. Segmental reporting by operating segment

The Group measures its revenues across two main areas of activity: Electronic Assemblies is the global provision of sub-contract electronic manufacturing services and Technology is the design and manufacture of power supplies, intelligent interface displays and specialist M2M wireless connectivity. Our operating segments are based on the management structure of the Group. Segmental analysis is provided below in respect of these two segments. The Group manages its operations down to operating profit by operating unit and centrally manages its Group taxation and capital structure, including net equity and net debt.

The below is the level of information provided to the board, which is considered to be the Chief Operating Decision Maker (CODM). Inter-segment sales are made on an arms length basis. This policy was applied consistently throughout the current and prior period.

Non-recurring costs of £156,000 were incurred from the restructuring of the Electronic Assemblies segment of the business, £813,000 from the restructuring of the Technology Products segment of the business and £67,000 from making the post year end acquisition of Cable Power Limited as outlined in Note 23.

Non-recurring costs of £156,000 were incurred from the restructuring of the Electronic Assemblies segment of the business, £178,000 from the restructuring of the Technology Products segment of the business, £615,000 from relocating the Asia factory and £201,000 from making the acquisition of Stontronics Limited.

* Including those acquired in a business combination. The financial information provided to the Board of Directors in respect of total assets and liabilities is measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

Segmental reporting by geographical location

Sales to the Group's largest single customer of £5,878,000 represented 11% of Group revenues. These sales are recorded within the Electronic Assemblies and Asia segments. No other customer exceeded more than 10% of Group revenues.

Sales to no single customer exceeded more than 10% of Group revenues.

2. Profit before taxation

Normalised Profit

Normalised results refer to the underlying performance of the Group and exclude items that are considered to be non-recurring and amortisation of acquired intangibles and interest charged on the fair value of consideration.

Normalised adjustments:

3. Employees

Directors' remuneration

Details of the highest paid director are shown in the Report of the Remuneration Committee. The directors are considered to be the key management personnel.

4. Dividends

The Board proposes to pay a 2016 final dividend of 1.95p per share (2015: 1.80p) on 10 May 2017 to shareholders on the register on 7 April 2017, amounting to £727,000 (2015: £671,000).

5. Goodwill

Goodwill acquired through business combinations has been allocated at acquisition to the cash generating units (CGUs) that are expected to benefit from that business combination. The Group's identifiable CGUs are assessed as the core business strategies pursued by the Group and combine entities delivering the same core products. These CGUs are then combined as noted below to create the two recognised operating segments as defined in IFRS 8. Goodwill, however, is still assessed at an individual CGU level. The carrying amount of goodwill has been allocated as per the table below:

*Goodwill in relation to Stadium Zirkon Limited is assessed as part of the Wireless CGU.

Goodwill arises on the consolidation of subsidiary undertakings. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP net book value subject to being tested for impairment at that date.

In accordance with the requirements of IAS36, Impairment of Assets, goodwill is allocated to the Group's CGUs which are identified by the way that goodwill is monitored for impairment. The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.

As part of the annual impairment test review, the carrying value of goodwill has been assessed with reference to value in use over a projected period of five years together with a terminal value. This reflects the projected cash flows of each CGI based on the actual operating results, the most recent Board-approved budget, strategic plans and management projections. Given that Stadium is a technology-led business and the established nature of the subsidiary investments and with regard to the expected longevity of clients, management considers this approach to be appropriate.

The key assumptions to the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to sales and overheads during the period. Management uses discount rates of 11% post-tax which reflect the current market assessment of the time value of money and the risks specific to the UK.

The growth rates are based on industry growth forecasts and the corporate strategy.

The Technology sector offers the opportunity for significantly higher growth than electronics industry averages. Therefore, nominal growth rates for the first five years were used of 20% for Wireless; 5% for Interface and Displays; 3.1% for Power, and thereafter 1.5%. For Electronic Assemblies, a nominal growth rate of 0% was used throughout the years.

The growth rate assumed in the terminal value calculations is 1.5%.

The following specific individual sensitivities of reasonably possible change have been considered for each CGU in relation to the value-in-use calculations, resulting in the carrying amount not exceeding the recoverable amount:

• if the long-term growth rate assumption was reduced to 0% and a 2 percentage point increase in the discount rate applied, there would still be sufficient headroom for no impairment to be required.

Given the level of headroom indicated by the impairment review no assumption is considered to be sufficiently sensitive to impact the conclusion of the review.

6. Property, plant and equipment

There were no outstanding commitments in respect of Group capital expenditure. The net book value (NBV) of property, plant and equipment includes £632,000 (2015: £755,000) in relation to plant and machinery held under finance leases. Freehold land and buildings includes assets with an NBV of £899,000 (2015: £935,000) which are the subject of the fixed charges referred to in Note 9.

7. Other intangible assets

Amortisation of development costs is recognised in cost of sales as inventory is sold over periods of up to five years consistent with the revenue generation profile of the product. Customer relationships are amortised over a period of between three and five years from acquisition and customer order books over twelve months from acquisition. The intangible assets in respect of customer relationships and order books are acquired in business combinations and are only recognised on consolidation. Software costs are amortised over periods of between three to ten years. The main additions to software costs in the year were under development at the year end and were yet to be implemented, hence the minimal amortisation charge in the year.

8. Current payables

9. Non-current payables

The net bank borrowings, including overdrafts and invoice securitisation, of Group companies are secured by fixed and floating charges over the assets of the Group. There is a guarantee relating to indebtedness of all Stadium Group companies to HSBC Bank plc, which is secured by a fixed and floating charge over the assets of all Group companies.

The Group has two structured loans bearing interest at an annual rate equal to LIBOR plus 1.9% to 2.3%, based on total net leverage ratio. The first is repayable in increasing instalments across the period to July 2019. At the year-end £2,350,000 (2015: £2,875,000) remained repayable. The second loan of £5,000,000 is repayable in July 2019 and has no formal repayment schedule prior to that date.

The Group has additional flexible credit for working capital from invoice securitisation in the form of invoice discounting with the Group's bankers, HSBC. These facilities allow the Group to draw money against its sales invoices before the customer has actually paid. Any borrowings are secured by a fixed charge over those sales invoices borrowed against and a floating charge over remaining Group assets. At the year end the Group had undrawn invoice discounting facilities of £3,726,000.

10. Financial instruments

Set out below are the narrative and numerical disclosures which the Directors consider to be material and required by International Financial Reporting Standard (IFRS) 7 Financial Instruments.

Financial instruments

The Group's financial instruments comprise borrowings, some cash and liquid resources and various items such as trade receivables, trade payables, etc. that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group's operations. It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers and cash balances.

Exposure to credit risk arises on trade receivables on sales to customers and other non-trade receivables totalling £13,358,000. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are carried out on all significant prospective customers and all existing customers requiring credit beyond a certain threshold. Varying approval levels are set on the extension of credit depending upon the value of the sale.

Where credit risk is deemed to have risen to an unacceptable level, remedial actions, including the variation of terms of trade, are implemented under the guidance of senior management until the level of credit risk has been normalised.

Trade receivables at 31 December 2016 comprised:

The movement in the provision for doubtful debts is as follows:

The Group allows an average debtor's payment period of between 45 and 75 days from invoice date. Trade receivables that are neither impaired nor past due are made up of approximately 200 balances. The largest individual balance was 21% of the total balance and the three largest balances combined represented 39% of the total balance. Historically, these debtors have always paid balances when due, unless the balance or the quality of goods delivered is disputed. The average age of these debtors is 60 days.

The Group held cash of £4,601,000 at 31 December 2016 (2015: £8,489,000). The cash is held around the world with HSBC Bank plc and its subsidiaries. It is rated as AA- by Fitch, A1 by Moody's and A by Standard & Poor's.

Interest rate risk

The Group finances its operations through a mixture of equity, retained earnings and bank borrowings. The Group holds cash and borrows in Sterling, US Dollars and Hong Kong Dollars at floating rates of interest and does not undertake any hedging activity in this area. (Fixed rate finance leases are also used, denominated in Hong Kong Dollars and Euros).

The Group's exposure to interest rate risk all relates to the floating rates at which it borrows and lends. This exposure is monitored continually to ensure that the Group remains able to meet its financing commitments from operational cash flows.

The Group's financial liabilities are denominated in Sterling, US Dollars, Hong Kong Dollars and Euros, and have fixed and floating interest rates. The financial liabilities with floating interest rates comprise:

• bank borrowings in Hong Kong Dollars that bear interest on a floating rate of LIBOR plus 2.0%;

• loans in Sterling that bear interest at rates based on a floating rate of LIBOR plus 1.9%-2.3%;

• an overdraft in Sterling that bears interest on a floating rate of LIBOR plus 2.0%-2.3% after offset of Sterling deposits; and

• invoice securitisation that bears interest on a floating rate of LIBOR plus 1.65%.

The interest rate profile of the Group's financial assets and liabilities at 31 December was as follows:

The financial liabilities comprise bank loans and overdrafts bearing interest rates set by reference to the relevant LIBOR rate and finance leases bearing interest at a fixed rate. The financial assets comprise the deferred consideration on the sale of surplus property bearing interest set by the relevant base rate.

The maturity profile of the Group's loans and overdrafts and undrawn facilities at 31 December was as follows:

The maturity profile of the Group's finance leases is included in Note 22.

It is estimated that a 1% change in relevant LIBOR rates would have an annual impact of £65,000 (2015: £79,000) on interest costs.

Liquidity risk

The Group's exposure to liquidity risk reflects its ability to readily access the funds to support its operations. The Group's policy is to maintain undrawn overdraft borrowing facilities in order to provide the flexibility required in the management of the Group's liquidity. The Group's liquidity requirements are continually reviewed and additional facilities put in place as appropriate.

At the year end the Group had overdraft facilities under a cash pooling arrangement across all Group companies of £565,000 (2015: £506,000) of which £Nil (2015: £Nil) was being utilised. Invoice discounting and factoring facilities offered £3,726,000 (2015: £5,138,000) of which £Nil (2015: £2,399,000) was being utilised.

Foreign currency risk

The Group's exposure to currency risk arises from transactions which are not in the functional currency of the operating unit and from the retranslation of the operating unit's results into Sterling, being the Group's presentational currency.

The Group manages its exposure to currency risk by matching the currency of payments and receipts in order to minimise exposure and buys currency when the liability falls due. The Directors do not believe that the Group has significant foreign currency exposure on transactions.

The Group foreign currency risk exposure from recognised assets and liabilities arises primarily from its investment in Stadium Asia Limited denominated in Hong Kong Dollars (Notes 1 and 9).

There is no significant impact on the income statement from foreign currency movements associated with these assets and liabilities as the effective portion of foreign currency gains and losses arising is recorded through the translation reserve.

At 31 December 2016 the Group had net borrowings denominated in US Dollars of £Nil (2015: £159,000), in Hong Kong Dollars of £33,000 (2015: £82,000) and in Euros of £495,000 (2015: £522,000).

It is estimated that a 1% movement in the exchange rate would have an impact of £16,000 (2015: £6,000) on the Group's operating profit and £112,000 (2015: £83,000) on the Group's net assets.

Fair values of financial assets and liabilities

Set out below is a comparison by category of book values and fair values of the Group's financial assets and liabilities as at 31 December 2016: