Final Results

Stadium Group plc

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

 Final results for the year ended 31 December 2017

Stadium Group plc (AIM: SDM), a leading supplier of design-led technologies including connectivity solutions, power supplies, human-machine interface and electronic assemblies, announces its results for the year ended 31 December 2017.

Financial highlights

· Revenues up 15% to £61.1m (2016: £53.1m)

§ Technology Products sales up 21% to £38.5m (2016: £31.9m), now 63% of Group sales

§ Electronic Assemblies sales up 6% to £22.6m (2016: £21.2m)

· Normalised gross profit margin* of 20.7% (2016: 25.1%)

· Normalised profit before tax* up 8.5% to £4.6m (2016: £4.2m)

· Reported profit before tax up 81% to £4.0m (2016: £2.2m)

· Normalised earnings per share* of 10.0p (2016: 9.1p)

· Statutory earnings per share of 9.2p (2016: 4.9p)

· Net debt of £11.9m (2016: £3.3m)

· Net pension liabilities (IAS 19) reduced to £3.2m (2016: £5.6m)

* Adjusted for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration.

Other highlights

· Order intake increased by 11.4% to £66.6m (2016: £59.8m)

· Year end order book up 21.3% to £31.3m (2016: £25.8m) underpinned by Technology Products growth driven by the Group design hub in Kista, Sweden

· Acquisitions of Cable Power (Jan 2017) and PowerPax UK Ltd (Sept 2017) successfully integrated

· Board changes:

§ Winston North appointed as Group Finance Director

§ Jonathan Flint appointed as Non-Executive Director

Post-period end recommended cash offer by TT Electronics plc

On 15 February 2018, the Company announced that it had reached agreement on the terms of a recommended cash offer for Stadium by TT Electronics plc, valuing the entire issued share capital of Stadium at approximately £45.8 million. In addition, the Company has declared a special dividend of 2.1p which is conditional on completion of the offer transaction, in lieu of any final dividend for the financial year ended 31 December 2017. On payment, including the interim dividend for 2017, this would take total dividends paid to 3.1p per share (2016: 2.9p).

Commenting on outlook, Chairman Nick Brayshaw OBE said:

"Our strategy in transitioning the Company to a design-led technology business with a focus on wireless connectivity, power and interface and displays has been successful and is borne out in these results. We are now entering the next phase of growth following the offer from TT Electronics, an offer which we believe represents an attractive and certain value in cash today for Stadium shareholders, reflecting the high quality of the business, its people and future prospects. The strategic fit with TT is strong and the Stadium Board believes that the combined business provides considerable scope for accelerating the development of Stadium's strategy, whilst continuing to broaden the opportunities for our people, our customers and our products."

For further information please contact:

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 (63% of 2017 revenues)

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

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

· Human Machine Interface (HMI) - intelligent interface and display solutions

2. Electronic Assemblies (37% of 2017 revenues)

· Electronic manufacturing services to global original equipment manufacturers

Chairman's statement

For the year ended 31 December 2017

2017 has seen further significant progress in our strategy to transition Stadium from an electronic manufacturing services company to a high growth technology-led business. This is borne out in the financial results which show overall revenues up by 15% year-on-year, and an increasing contribution from our Technology Products division. We were also pleased to see further growth in normalised profit before tax, albeit at levels below our original expectations due to the impact of customer delays for certain higher margin Technology Products projects that we had expected to ship before the year end.

Our offering of complementary electronics technologies and specialist design-focused engineering expertise remains attractive to our customers, as can be seen from the continued growth in our forward order book, which ended the year up £5.5m at £31.3m.

Financial Highlights

Group revenues for the full year increased by 15% to £61.1m (2016: £53.1m). The majority of this growth was driven by our higher margin Technology Products division, where sales increased by 21% to £38.5m (2016: £31.9m) and now represent 63% of our total sales. Electronic Assemblies saw a small improvement on the previous year with sales up 6% to £22.6m (2016: £21.2m).

Despite the increasing contribution of Technology Products, normalised gross profit margins declined to 20.7% (2016: 25.1%) due primarily to market-driven price increases in purchased components, as a result of the previously notified industry-wide shortage in electronic components, and 2016 benefitted from £0.2m of income from written-down stock. Normalised profit before tax* grew by 8.5% to £4.6m (2016: £4.2m) and adjusted EPS was 10.0p (2016: 9.1p).

* Adjusted for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration.

Reported profit before tax was £4.0m (2016: £2.2m) after non-recurring items such as acquisition and integration costs, the reversal of deferred consideration no longer payable, and amortisation of acquired intangible assets.

Net debt at year end increased to £11.9m (2016: £3.3m) due to the delayed Technology Product sales, increased inventory to mitigate for the global shortage of certain electronic components, particularly memory, integrated circuitry and passive components, and debt financing of £3.3m to fund the acquisitions of Cable Power and PowerPax. Cash (excluding overdrafts and invoice discounting) stood at £1.7m (2016: £4.6m) at the year end.

Board Changes

Winston North, ACMA, joined the Company as Group Finance Director and Company Secretary on 15 May 2017, joining us from FTSE 250 engineering group IMI plc, where he was Finance & IT Director at its Hydronic Engineering Division based in Geneva. In addition, on 1 December 2017 Jonathan Flint joined the Board as a Non-Executive Director bringing with him 30 years of international executive experience within high technology products companies and from managing technical experts in the areas of defence, telecommunications, aerospace, nanotechnology and electronics.

Post-period end recommended cash offer by TT Electronics plc

Following the year end, the Company announced in February that it had reached agreement on the terms of a recommended cash offer for Stadium by TT Electronics plc valuing the entire issued share capital of Stadium at approximately £45.8 million. The offer of 120 pence per share represents a 43.7% premium to the closing price of 83.5p on 14 February 2018, being the latest practicable date before the date of the offer announcement.

The offer from TT Electronics plc will be effected by means of a Court-sanctioned scheme of arrangement between Stadium and the Stadium shareholders under Part 26 of the Companies Act 2006 and a Scheme of Arrangement document will be sent to shareholders shortly and a further announcement will be made in that regard.

Dividend

Alongside the recommended offer from TT Electronics, the Company has declared a special dividend of 2.1p in lieu of any final dividend for the financial year ended 31 December 2017. Payment is conditional on completion of the acquisition and in lieu of any final dividend for the financial year ended 31 December 2017. Including the 2017 interim dividend, this would take total dividends paid to 3.1p per share, up 6.9% on the previous year (2016: 2.9p). Further details of the special dividend payment, including the associated record and payment dates, will be provided in the circular to shareholders relating to the offer.

Summary

Our strategy in transitioning the Company to a design-led technology business with a focus on wireless connectivity, power and interface and displays has been successful and is now entering the next phase of growth. We believe that the offer from TT represents an attractive and certain value in cash today for Stadium Shareholders, reflecting the high quality of the business, its people and future prospects. The strategic fit with TT is strong and the Stadium Board believes that the combined business provides considerable scope for accelerating the development of Stadium's strategy, whilst continuing to broaden the opportunities for our people, our customers and our products. We remain grateful for the support that has been provided by our shareholders over the years.

Nick Brayshaw OBE

Chairman

12 March 2018

Chief Executive's Review

Operational Overview

Stadium has successfully established a business with two distinct but interconnected divisions. The Technology Products division, comprising of Connectivity solutions, Power supplies and Human Machine Interface (HMI), which is now the main growth driver, and our Electronic Assemblies division. 

Technology Products

The Technology Products division recorded revenue growth of 20.9% over the previous year, contributing £38.5m to overall sales, and now represents 63% of total sales. The underlying organic growth rate was 14.6%, mainly driven by strong performances from Connectivity and Power, with £2.0m due to contributions from acquisitions. Our HMI business performed marginally below 2016 levels, and contributed 14.9% of normalised operating profits, including Group overhead.

Connectivity Solutions

Now firmly established as the key cornerstone of the Group's technology offering, our Connectivity division continues to win customers and add projects to our design pipeline from our Connectivity hub in Kista, near Stockholm, Sweden. Kista Science City is the largest information and communication technology (ICT) cluster in Europe and with our newly expanded design centre fully operational we have secured several new OEM business design wins in Europe and the US, which we expect to see ramp up into volume production in 2018. We continue to see record levels in our secured forward order book and our design pipeline continues to grow, driven by strong transportation, security and smart-home project pipelines.

As we announced in November, whilst the development of our forward order book was in line with expectations for the year under review, our overall performance was impacted by customer delays into 2018 for certain higher margin Technology Products projects, mainly in the area of Connectivity, which we had originally expected to ship before the year end.

Power Products

Our Power business is now well established with the business unit's headquarters in Reading, and last year was further enhanced through the addition of Cable Power in January and PowerPax in September. The acquisitions have been fully integrated and are making a growing contribution.

During the year we invested in our Reading facility to create an onsite manufacturing capability for low to medium volume products, testing and prototyping, as well as investment in our warehouse and distribution capabilities.

Our pipeline of custom designed power products continues to grow and during the year we signed a number of agreements with distributors such as RS Components, Mouser and Allied Electronics & Automation. We have seen continued growth on RS Pro branded products, with in excess of 200 new product lines added in 2017. There remains strong demand for our Single Board Computing solutions and we maintain an attractive position as a "one-stop shop" design, production and fulfilment partner in this area, being adaptable to both low and high-volume customer requirements. Our relationship with the Raspberry Pi Foundation remains strong having been recently approved to produce the new Raspberry Pi3 Single AC Head Power Supply.

Human Machine Interface (HMI) 

Our HMI business delivered sales broadly in line with 2016. This business continues to specialise in aircraft interiors, including instrumentation and lighting systems, defence control systems and applications for the luxury automotive industry, where the team is focused on accelerating growth in these areas. HMI recorded a number of new OEM design wins from the UK, but also new wins outside of its traditional UK market into mainland Europe and the US and we expect to see orders ramp up from these wins in 2018 and beyond.

Electronic Assemblies

The Electronic Assemblies division remains a key element of our integrated sales strategy, not only supplying directly to OEM customers, but also as a vertically integrated supplier to the rest of the Group, with our Hartlepool and Dongguan manufacturing facilities now dedicating over 50% of activity to service our growing Technology Products division. We have significant available capacity in both facilities to service future growth.

Electronic Assemblies revenues improved by 7% to £22.6m (2016: £21.2m), which was mainly driven by organic sales in the industrial and security sectors. In particular, we have seen Electronic Assemblies benefit from the ramp up of Raspberry Pi3 production.

This division remains subject to continued price pressure due to competition and component availability in the marketplace, however the team has worked hard to execute the highest standards of supply chain management and operational excellence to offset these issues. We continue to significantly invest to maintain the highest quality of our output including upgraded surface mount technology, X-ray and test equipment. In terms of our processes we have implemented a new Manufacturing Execution System to provide improved and automated product and component traceability, an increasing requirement to meet global market accreditations, and a new ERP system was implemented in Stadium Asia.

Outlook

Much of our analysis of the outlook for our business will be overshadowed by the post-period end recommended cash offer by TT Electronics plc for the Company. We are confident that our strategy of becoming a high-growth design-led technology business is valid, and we believe it is the delivery of this clear strategy to date that has attracted interest from TT Electronics.

As we enter our next phase of growth, it is only fitting that I should acknowledge and thank all of our employees for their continued commitment, positive contribution, enthusiasm and hard work.

Charlie Peppiatt

Chief Executive Officer

12 March 2018

Financial review

Revenue

Group revenue increased by 15.2% from £53.1m to £61.1m in 2017.

The revenue increase was due to growth in the Technology Products division, assisted by the two asset purchase deals for Cable Power Limited and PowerPax UK Limited ("PowerPax"). Technology Products sales grew by £6.6m (20.9%), of which £2.0m was due to acquisitions. The under-lying organic growth of 14.4% was driven by Connectivity and Power products. Revenue in the HMI business was broadly in line with 2016.

Electronic Assemblies sales grew by 6.6%, from £21.2m to £22.6m.

Profit

In this section, reference is made to both statutory and normalised figures. The normalised results are after removing items which are of a size and nature that will not be ongoing in the ordinary course of trading. These are items which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence for the trading statements to give a true and fair view. Note 2 to the financial statements gives a more detailed explanation for each adjusted item. The table below summarises these items and provides an explanation for each beneath it.

In 2017, the statutory gross profit margin was 20.7% (2016: 24.4%). On a normalised basis the 2017 gross margin was unchanged, as compared with 2016, which was marginally higher at 25.1%, resulting from the removal of one-time restructuring costs.

The reduction in the normalised gross profit margin from 25.1% in 2016 to 20.7% in 2017 reflected the price pressure in the market place due to the industry-wide shortages in electronic components and additionally, 2016 benefitted from income from written-down stock of £0.2m.

Operating expenses, after adjusting for non-recurring costs, were £8.2m (2016: £9.6m). The reduction in costs is explained by the cost savings achieved due to the closure of the Warrington and Diss facilities.

The impact on the gross margin from rising material costs was most heavily felt in the Electronic Assemblies division where operating margins, before Group charges, were 7.5% (2016: 9.5%). This reflected the increased difficulty of passing on cost increases to the Electronic Assemblies customers. The Technology Products operating margin, before Group charges, was unchanged from 2016 at 12.4%.

The statutory profit before tax was £4.0m (2016: £2.2m).

Normalised profit before tax was £4.6m (2016: £4.2m). This is stated after the normalising adjustments detailed in the table below.

The reversal of £1.3m deferred consideration, resulted from the performance of the United Wireless business post acquisition which, whilst strong, did not trigger the stretch hurdles required for the payment of the additional consideration. This business continues to perform in line with budgeted expectations. 

The fiscal taxation provision of £0.2m relating to Asia is our current best estimate, including advisory fees, for a periodic transactional taxes review.

Reorganisation and severance costs were incurred due to the completion of the restructuring of the UK businesses including the relocation of the Warrington Wireless business into the Hartlepool facility and the Diss business into the Reading facility. Additionally, following the relocation of the Head Office from Hartlepool to Reading, costs were incurred to relocate and upgrade both the Group and other subsidiaries finance functions. These costs included recruitment fees and double running costs.

The statutory reported profit before taxation of £4.0m (2016: £2.2m) was 81.0% higher than the prior year. Profit before tax in 2017 benefitted from the reversal of the deferred consideration (£1.3m) in respect of the United Wireless Limited acquisition, which was completed in 2015.

Interest and other financing costs

Finance costs in the consolidated income statement were £717k (2016: £712k), analysed as follows:

· interest payable on debt (net of interest earned on cash deposits) of £297k (2016: £189k);

· net interest on the net defined benefit pension scheme liability of £395k (2016: £386k);

· interest on finance leases of £6k (2016: £12k); 

· interest of £19k (2016: £125k) 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 £455k (2016: £363k), an effective rate of taxation of 11.4% (2016: 16.5%). The underlying normalised tax rate was 16.3% (2016: 19.6%).

Earnings per share

On a statutory basis, the basic earnings per share were 9.2p (2016: 4.9p), an increase of 87.8%. Basic normalised earnings per share before amortisation of acquired intangibles from continuing operations were 10.0p (2016: 9.1p). The improvement in the statutory earnings per share was due to the improved underlying trading performance and the one-time benefit resulting from the reversal of the deferred consideration relating to the United Wireless acquisition.

Dividends

In 2017, the Company paid a final dividend for 2016 of 1.95p per share, and a 2017 interim dividend of 1.00p per share. The total cash outflow in respect of dividends paid was £1.1m (2016: £1.0m).

The Board proposes to pay a special dividend of 2.10p per share (2016: final 1.95p per share), which is conditional on completion of the acquisition by TT Electronics plc, giving a total dividend for the year of 3.10p per share (2016: 2.90p per share), an increase of 7% and at a total cash cost of £1.2m (2016: £1.1m).

Balance sheet

Shareholders' funds

Shareholders' funds increased to £22.5m (2016: £18.9m). The reconciliation is set-out in the Group statement of changes in equity.

A special resolution for a capital reduction was approved by shareholders at a General Meeting on the 19 January and then by the Court on 15 February 2017. This resolution allowed the Company to increase its distributable reserves by £5.3m and provides the Company with greater flexibility with the payment of future dividends. Note 23 to the 2016 Annual Report and Accounts, provides more detail on the capital reduction.

Goodwill and intangibles

Under IFRS, goodwill is subject to an annual impairment review. There were no impairments identified in the year. Goodwill on the balance sheet is valued at £17.0m (2016: £15.4m). The increase in 2017 is explained by the acquisitions of the net assets of Cable Power and PowerPax.

Other Intangible assets include intangibles arising from business combinations, development costs and software costs. Acquired intangibles are assessed at the time of acquisition in accordance with IFRS 3 and are amortised over their expected useful life. This amortisation is excluded from normalised profits. As a result of the acquisitions of the net assets of Cable Power and Powerpax, additions to acquired intangible assets of £1.3m were recognised in the year (2016: £nil)

The investment in development costs was £1.3m (2016: £0.7m). The increased investment in 2017 reflects the first full year's contribution from the new product development centre in Kista, Sweden.

The software costs capitalised were £0.3m (2016: £0.4m). This investment relates to the development of a new Group-wide ERP system. The first site in the Group went live at the China factory, in Dongguan, at the end of December 2017. The capitalised costs associated with the China element of the ERP system being amortised from 2018. The ERP roll-out will continue across the Group in 2018 and 2019.

Tangible assets

As at 31 December 2017, the Group has property, plant and equipment totalling £4.6m (2016: £4.4m). Capital expenditure in the year was £1.2m (2016: £0.4m).

Pension schemes

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

The pension deficit, after the related deferred tax asset, as at 31 December 2017 was £3.2m (2016: £5.6m deficit). The reduction in the deficit is the result of incorporating revised, updated, membership data (as part of the triennial valuation) of £0.6m, gains resulting from revised assumptions around inflation and life expectancy (£1.2m), a higher than projected return from assets invested (£0.7m), payments under the deficit reduction plan (£0.5m), off-set by reduced deferred tax assets resulting from the lower deficit (£0.5m).

The triennial valuations for both schemes continue and will be finalised later this year.

At the year end, the value of plan assets as a percentage of the defined benefit obligation is as follows: Stadium Group plc 1974 plan funding status is 88.9% (2016: 82.1%) and the Southern & Redfern Limited Scheme is 117.0% (2016: 107.7%).

Acquisitions

On the 11 January 2017, the Group acquired the assets of Cable Power Limited, a specialist manufacturer and distributor of bespoke cable and power products and accessories to single board computing providers for £0.7m in cash. There was no contingent consideration. Net assets of £0.4m and goodwill of £0.3m were identified.

For the year ended 31 December 2016, Cable Power recorded sales of circa £0.7m and profit before interest and tax of circa £0.1m.

On 1 September 2017, the Group acquired the net assets of PowerPax UK Limited, a well-recognised company serving the industrial power supply market, for a total consideration of £2.7m in cash. £2.5m was paid on completion, with a further £0.1m six weeks later, on presentation of the completion accounts. The final £0.1m is payable one year after acquisition. The Group has identified net assets of £1.3m and goodwill of £1.3m. Goodwill recognised is attributable mainly to the skills and technical talent of the acquired businesses work force and the synergies expected to be achieved from integrating the businesses into the Stadium Group.

For the year ended 31 August 2016, PowerPax recorded sales of £3.3m and a profit before interest and tax of £0.4m.

Cash generation and net debt

Free cash outflow in 2017 was £3.4m (2016: inflow £2.1m). This was after the payment of pension deficit contributions, taxation and interest charges amounting to £1.5m (2016: £1.8m). The main reason for the decrease from 2016 is working capital, which increased in the year by £4.1m (2016: decrease of £0.8m).

The working capital increase is explained by a shift in the sales phasing towards the back end of the year, some extended credit terms on specific contracts and the impact of higher stocks to counter the global impact of the shortage of electronic components.

The reduction in deferred consideration relates to the reversal of the United Wireless reserve of £1.3m and the payment of the final deferred payment relating to the Stontronics acquisition of £0.5m.

Free cash flow is stated after interest, tax and pensions financing, but before acquisitions, financing activities and dividends.

At 31 December 2017, net debt, including finance leases, was £11.9m (2016: £3.3m). The increase in net debt resulted from the free cash outflow tabled above of £3.4m, debt financed acquisitions of £3.3m, loan and finance lease repayments of £0.9m and dividends of £1.1m.

Bank facilities

The Group is funded by loans from HSBC Bank, which include a revolving credit facility of £7.8m, term loans of £2.6m and hire purchase financing of £0.4m. The revolving credit facility is repayable in 2020, with a two-year extension option. The revolving credit facility loans are repayable by August 2020. The term loans are repayable progressively by 2019.

During 2017, Stadium agreed an increase to its revolving credit facility, with HSBC, from £5m to £15m, in order to provide facilities for growth.

Short-term funding is provided by a confidential invoice discounting facility with HSBC of £8.0m plus overdraft facilities of £0.5m. At 31 December 2017, £2.8m of the invoice discounting facility had been utilised (2016: nil). None of the overdraft facilities had been utilised at 31 December 2017 (2016: nil).

The Group complied with its banking covenants throughout the year and at the 31 December 2017.

In the event of a change of control, HSBC may declare all outstanding loans immediately due and repayable.

Foreign currency effects

The Group seeks to limit its exposure to transactional foreign exchange by naturally hedging. This mainly relates to the US$. In 2017, the Group's US$ payments exceeded receipts by US$ 1.0m.

In addition to transactional foreign exchange exposure, the Group has translational exposure on its profits made in Hong Kong, which are reported locally in Hong Kong dollars. In 2017, the impact of this on the Group consolidation was £0.1m (2016: £0.2m).

Post balance sheet events

On the 15 February 2018, the Stadium Directors announced that they had reached agreement on the terms of a recommended cash offer for Stadium Group plc by TT Electronics plc of 120p per share.

Winston North

Group Finance Director

12 March 2018

Consolidated income statement

for the year ended 31 December 2017

The remeasurement of retirement benefit obligations is shown net of a deferred tax credit of £486,000 (2016: debit £163,000)

Consolidated statement of financial position

at 31 December 2017

Consolidated statement of changes in equity

for the year ended 31 December 2017

* on 15 February 2017, the Court granted an order approving the reduction of the Company's share premium account. The purpose of the capital reduction was to create additional distributable reserves.

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

Consolidated statement of cash flows

for the year ended 31 December 2017

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

Statement of accounting policies

for the year ended 31 December 2017

Stadium Group plc (the "Company") is a public limited company, limited by shares, incorporated and domiciled in England and is listed on AIM of the London Stock Exchange. The consolidated financial statements of the Company for the year ended 31 December 2017 comprise the Company and its subsidiaries (together referred to as the "Group"). The address of its registered office is Unit 4, Chancerygate Business Centre, Cradock Road, Reading RG2 0AH.

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 2017, 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 2017 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 2017 has yet to be delivered to the Registrar of Companies. The auditor has 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 2017 and 31 December 2016 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 2016 are not the 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:

1 - unqualified

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

3 - 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 12 March 2018.

Accounting developments and changes

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

a) New standards, interpretations and amendments effective from 1 January 2017

There were no new standards or interpretations effective for the first time for periods beginning on or after 1 January 2017 that had a significant effect on the Group's financial statements.

b) New standards, interpretations and amendments not yet effective

There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these are:

- IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers (both mandatorily effective for periods beginning on or after 1 January 2018); and

- IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019).

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments was issued in July 2014 and replaces IAS 39 Financial Instruments Recognition and Measurement. Is is effective for accounting periods beginning on or after 1 January 2018. The Group will apply the standard for the first time in the half year ending 30 June 2018 and the annual report ending 31 December 2018. The new standard is applicable to financial assets and liabilities and covers classification, measurement and derognition. On adoption of IFRS 9, the main areas of change that are relevant for the Group are:

- requirement to use an expected credit loss method for impairment calculation: and

- broadening of hedge accounting application with more focus on risk management.

These areas are not expected to have a significant impact on the Group's net results or net assets. An initial review of expected impairment losses on the current receivable ledger under the new methodology indicates an increase in the provision of less than £0.2m due to the Group's customer profile. The full impact will be subject to further assessment and is dependent on the receivables open at the transition date.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers was issued in May 2014. Is is effective for accounting periods beginning on or after 1 January 2018. The Group will apply the standard for the first time in the half year ending 30 June 2018 and the annual report ending 31 December 2018.

The new standard will replace existing accounting standards used to determine the measurement and timing of revenue recognition, and requires an entity to align the recognition of revenue to the transfer of goods or services at an amount that the entity expects to be entitled to in exchange for those goods and services. The standard also requires enhanced revenue disclosure.

The adoption of IFRS 15 is not expected to have a significant impact on the Group's recognition of revenue as the majority of revenue is obtained from the sale of goods on agreed terms and conditions. Revenue obtained from the sale of services is also not expected to be affected as revenue recognition is clearly alligned to the performance of those services.

Revenue may also be recognised on bill and hold transactions. The criteria for recognising revenue on bill and hold sales are different to those in IAS 18 Revenue but an initial review does not suggest that revenue will be recognised later than is currently the case.

IFRS 16 Leases

IFRS 16 Leases was issued on 1 January 2016 and will replace IAS 17 Leases. It is effective for accounting periods beginning on or after 1 January 2019, with the Group applying the standard for the first time in the half year ending 30 June 2019 and the annual report ending 31 December 2019.

The new standard will introduce a single lessee accounting model eliminating the previous classification of leases as either operating or finance. All leases will require recognition of an asset and a related liability unless the lease term is 12 months or less or the underlying asset value is low.

The Group has conducted an initial review of lease contracts and does not expect a material change to net assets at the date of transition. In the years after transition, there would be an impact on the Group's income statement when the fixed rental expense is replaced by a depreciation charge and an interest expense. This will lead to an increase in operating profit as a result of removing the operating lease expense net of the new leases asset depreciation charge. The overall impact of the Group's reported profit after tax is expected to be immaterial with a small net decrease in the initial years after transition which will reverse in later years as the leases in existence at transition come closer to ending.

Other

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.

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:

Judgements

Key judgements relate to:

Notes to the financial statements

for the year ended 31 December 2017

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 Products 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 summary 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 arm's length basis. This policy was applied consistently throughout the current and prior period.

Non-recurring costs of £577,000 incurred in the year comprise: business acquisition costs of £268,000, reorganisation and severance costs of £585,000, fiscal tax provision in Asia of £243,000 less a credit of £1,294,000 for the release of a deferred consideration - see Note 2.

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 - see Note 2.

* Including those acquired in business combinations. 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 £6,626,000 represented 10.8% of Group revenues. These sales are recorded within the Electronic Assemblies segment. No other customer exceeded more than 10% of Group revenues. Included in the North America region, are revenues to the United States of America of £7.4m.

Sales to the Group's largest single customer of £5,878,000 represented 11.1% of Group revenues. These sales are recorded within the Electronic Assemblies segment No other 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, amortisation of acquired intangibles or interest charged on the fair value of consideration.

3. Employees

In addition to the above there were also severance costs of £49,000 (2016: £279,000) within the reorganisation costs disclosed in Note 2.

4. Dividends

The Board proposes to pay a special dividend of 2.1p per share in lieu of any final dividend (2016: final 1.95p). It is conditional on completion of the acquisition of the Company by TT Electronics plc as set out in the Directors' Report. The special dividend would total £802,000 (2016: final £744,000).

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 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 CGU 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, growth rates for the first five years were used of 20.0% for Wireless; 5.0% 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% for all sectors.

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% 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. Other intangible assets

Customer order books relate to access to new order streams obtained from new customers acquired through business combinations and are amortised over twelve months from acquisition.

Customer relationships relate to access to new customers arising from business acquisitions and are amortised over a period of between three and five years from acquisition.

Development costs relate to costs incurred in developing new products for sale and are amortised over a period up to five years, consistent with the revenue generation profile of the product and is recognised in cost of sales as inventory is sold.

Software costs relate mainly to a new ERP system being developed for use throughout the Group; software is amortised over periods between three and ten years.

7. Property, plant and equipment

At 31 December 2017, there was an outstanding commitment in respect of Group capital expenditure of £40,000 (2016: £nil). The net book value (NBV) of property, plant and equipment includes £450,000 (2016: £632,000) in relation to plant and machinery held under finance leases. Freehold land and buildings includes assets with an NBV of £863,000 (2016: £899,000) which are the subject of the fixed charges referred to in Group Note 14.

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 four structured loans bearing interest at an annual rate equal to LIBOR plus 1.9% (2016: 1.9% to 2.3%), based on total net leverage ratio. Two term loans are repayable in increasing instalments across the period to July 2019. There are two term loans totalling £7,800,000, repayable in August 2020, with a two year extension option.

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 £5,195,000 (2016: £3,726,000).

During the year, the Company reversed a deferred consideration of £1.3m that was no longer payable relating to the United Wireless acquisition; full details are to be found in the Financial review. The Company also paid out in the year, a deferred consideration of £0.5m relating to the Stontronics Limited acquisition.

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 £16,907,000 (2016: £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 2017 comprised:

Trade receivables are provided for based on estimated irrecoverable amounts determined by reference to past default experience. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

The Group held cash of £1,702,000 at 31 December 2017 (2016: £4,601,000). The cash is held around the world, mainly with HSBC Bank plc and its subsidiaries, and other large local banks. Funds are placed with banks rated BBB- or above 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 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%;

· 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: