Final Results

Stadium Group plc

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

Final results for the year ended 31 December 2015

Stadium Group plc (AIM: SDM), a leading supplier of wireless solutions, power supplies and electronic assemblies, announces its results for the year ended 31 December 2015.

Financial highlights

· Revenues up 29.0% to £53.9m (2014: £41.7m)

§ Technology Products sales up 92.4% to £27.0m (2014: £14.0m), now c.50% of Group sales

§ EMS sales (excluding intra-group sales) down 3.0% to £26.9m (2014: £27.7m)

§ Adjusting for acquisitions, underlying revenues increased 9.1%

· Increased normalised operating profit margin of 8.5% (2014: 7.6%)

· Normalised profit before tax* up 48.2% to £4.0m (2014: £2.7m)

· Reported profit before tax of £1.7m (2014: £1.8m)

· Increased investment in capex and research and development of £1.9m (2014: £0.4m)

· Net debt of £4.7m (2014: £4.9m)

· Adjusted earnings per share* of 9.9p (2014: 7.8p)

· Statutory earnings per share of 4.2p (2014: 4.8p)

· Final dividend proposed of 1.8p per share (2014: 1.4p)

· Total dividends up 28.6% to 2.7p per share (2014: 2.1p)

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

Other highlights

· Strong growth from Technology Products, driven by outstanding performance in Wireless

· Relocation to new high-tech manufacturing facilities in China

· Acquisition of Stontronics power supplies in August 2015; performing ahead of Board expectations

· Placing and Open Offer raised £6.0m gross to fund the acquisition

· Investment in regional design centres to support further growth in Wireless and Power

· Strong growth in order book from Wireless up > 50% year-on-year

Post-period end highlights

· £5m new contract from Trak Global Solutions Ltd for telematics units

· Stontronics confirmed as exclusive supplier of power supply units for Raspberry Pi 3

Commenting on outlook, Chairman Nick Brayshaw OBE said:

"We continue to strengthen our market position as we accelerate the deployment of our strategy as a design-led technologies business and we are now stronger and better positioned for growth with our upgraded technology offering in wireless, power and HMI. Our focus for the year is to continue to grow our business organically by leveraging the offering we have from our complementary electronic technologies, engineering expertise, global manufacturing footprint and skilled people. Furthermore, we are also actively targeting acquisitions that fit our strategy and would further strengthen our value-added offering to customers."

"We are encouraged by the strong order book and pipeline of opportunities across the Group and the early indications are that the strong trading that we experienced in 2015 has continued into 2016."

For further information please contact:

The annual report will be made available on the Company's website (www.stadium-plc.com) on or around 17 March 2016 and will be sent to all shareholders shortly. This announcement will also be available on the Company's website.

About Stadium Group plc (www.stadiumgroupplc.com)

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

1. Technology Products (50.1% of 2015 revenues)

· Wireless solutions - design, integration and manufacture of "machine-to-machine M2M" 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 Manufacturing Services (49.9% of 2015 revenues)

· Electronic Manufacturing Services to global original equipment manufacturers

Chairman's statement

For the year ended 31 December 2015

I am delighted to report another year of significant progress, during which we have continued to deliver on our strategic objective to transition Stadium from an electronic manufacturing services company to a high growth technology-led business, specialising in wireless and power supplies.

The successful execution of this strategy is evident from the increased contribution of our higher value and higher margin Technology Products division, which comprises Wireless solutions, Power supplies and Human Machine Interface ("HMI") sales. This division now accounts for just over half of total revenues, compared to only 21% in the financial year ended 31 December 2013.

The successful growth of our Technology Products division both organically and by acquisition has contributed to the overall improved performance of the Company, with the changed sales mix significantly enhancing operating profit margins and normalised profit before tax. Stadium is now well placed for future growth, operating in the high-growth markets of wireless and power products.

Financial highlights

Total revenues for the full year increased by 29.0% to £53.9m (2014: £41.7m), driven by significant growth in our Technology Products division. Technology Products sales nearly doubled to £27.0m (2014: £14.0m), whereas EMS sales reduced slightly to £26.9m (2014: £27.7m), as expected. The results benefit from a full twelve-month contribution from Stadium United Wireless ("SUW"), which was acquired in July 2014, and also the first contributions from Stontronics Ltd ("Stontronics"), which was acquired in August 2015. On a like-for-like basis, adjusting for the Stontronics and SUW acquisitions, organic sales increased by 9.1%.

As a result of this sales mix, normalised operating profit margins* improved significantly to 8.5% (2014: 7.6%), resulting in a 44.1% increase in normalised operating profit*, at £4.6m (2014: £3.2m). Normalised profit before tax* grew by 48.2%, in line with expectations to £4.0m (2014: £2.7m) and adjusted EPS grew 26.7% to 9.9p (2014: 7.8p).

* Adjusting for non-recurring costs, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to Finance Review - Earnings per share.

Excluding adjustments, which cover non-recurring items such as reorganisation costs, acquisition costs, amortisation of acquired intangible assets and interest charged on the fair value of deferred consideration, reported profit before tax was £1.7m (2014: £1.8m).

In 2015, we invested significantly in the business to relocate and materially upgrade our manufacturing facilities in Asia; £1.9m was invested in capex and research and development (2014: £0.4m). Therefore, cash (excluding overdrafts and invoice discounting) was similar to the prior year at £3.8m (2014: £3.9m) and net debt was £4.7m (2014: £4.9m).

Dividend

The Board continues to maintain a progressive dividend policy, one 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 1.80 pence per share (2014: 1.40 pence per share) giving a total for the year of 2.70 pence per share (2014: 2.10 pence per share), an increase of 28.6% against the prior year.

Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 6 May 2016 to shareholders registered at the close of business on 1 April 2016. The ex-dividend date is 31 March 2016.

2015: A year of investment and growth

2015 has been a year characterised by our commitment to invest consistently over the long-term to drive and support growth across our Technology Products division and to ensure that our manufacturing capabilities remain world-class.

As I reported at the interim results stage, we have invested in the establishment of three new regional design centres (one in China and two in the UK) and have relocated and upgraded our facilities in South China to enhance our manufacturing capability. Both of these strategic initiatives will support the high growth we are seeing from our Technology Products division.

We have seen growth across all parts of our Technology Products division and we are particularly pleased with the performance of our Wireless business, formed through the successful integration of SUW following its acquisition in July 2014.

In August last year we completed the acquisition of Stontronics Ltd, a UK based manufacturer and distributor of power supplies for a maximum consideration of £6.5m. To fund the initial cash consideration for this acquisition we undertook a Placing and Open Offer to raise £6.0m of gross funds. We were very pleased with the support received from shareholders and this was reflected in the fact that the Open Offer was oversubscribed. I am delighted to report that the integration of Stontronics into the Group is proceeding ahead of plan and has already generated a number of value-enhancing opportunities with suppliers and customers.

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

Outlook

We continue to strengthen our market position as we accelerate the deployment of our strategy as a design-led technologies business and we are now stronger and better positioned for growth with our upgraded technology offering in wireless, power and HMI. Our focus for the year is to continue to grow our business organically by leveraging the offering we have from our complementary electronic technologies, engineering expertise, global manufacturing footprint and skilled people. Furthermore, we are also actively targeting acquisitions that fit our strategy and would further strengthen our value-added offering to customers.

We are encouraged by the strong order book and pipeline of opportunities across the Group and the early indications are that the strong trading that we experienced in 2015 has continued into 2016. Consequently, the Board remains optimistic regarding the prospects for the year.

Nick Brayshaw OBE

Chairman

15 March 2016

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 Manufacturing Services. When we undertook this realignment our short-term target was for each division to account for 50% of Group revenues and I am delighted that Technology Products now accounts for just over half of overall sales. As we move forward, we expect the contribution from Technology Products to continue to accelerate.

Technology Products

The Technology Products division recorded revenue growth of 92.4% against the previous year, contributing £27.0m to overall sales. On a like-for-like basis, sales increased year on year by an impressive 32.9%. Whilst the Technology Products division now accounts for 50.1% of Group sales, it contributed 71.1% of operating profits, including Group overhead.

Wireless solutions

By far the biggest contributor to the overall growth performance of Technology Products was our Wireless business, formed following the acquisition of Stadium United Wireless in July 2014. We have been very pleased with the successful integration and ramp up of this exciting growth business, which has quickly become a cornerstone of the Group's technology offering. The wireless market is an exciting growth space for Stadium with market intelligence suggesting strong growth for the foreseeable future:

"Berg Insight estimates that the global number of cellular M2M subscribers increased by 23 percent during 2015 to reach 265.2 million at the end of the year - corresponding to around 3 percent of all mobile subscribers. Until 2020, the number of cellular M2M subscribers is forecasted to grow at a compound annual growth rate (CAGR) of 22.9 percent to reach 744.2 million at the end of the period. During the same period, cellular M2M network revenues are forecasted to grow at a CAGR of 23.3 percent from € 8.0 billion in 2015 to approximately € 22.8 billion in 2020." The Global M2M/IoT Communications Market -2015 Report Berg Insight

The success of Stadium's Wireless business in 2015 has been largely due to the continued growth of vehicle telematics applications with a number of existing key customers. We have also been successful with new business wins in new markets such as smart home technology, medical devices and energy management systems. Insurance telematics and the new application of usage-based insurance ("UBI"), is one of the fastest growing machine-to-machine ("M2M") vertical markets with Berg Insight projecting CAGR of 42.4% between 2015 and 2019 (Aftermarket Automotive-2015 Report Berg Insight).

The biggest challenges that we faced throughout the year were meeting the steep increase in demand for wireless products, managing the ramp up in production to high volume manufacturing, and the transfer of products to our Asia manufacturing facility, all of which were successfully achieved.

Power supplies

The Power business delivered good growth during the period and in the second half benefitted from the acquisition of Stontronics, which was completed in August 2015. Stontronics contributed almost £2.0m of additional sales as part of the enlarged group, performing above the Board's original expectations for the business.

In the first half of the year the Power business faced a challenging competitive landscape for franchised products, whereby in the absence of scale it is difficult to compete effectively. However, by transitioning this business across to Stontronics, our franchised product customers can now benefit from a more competitive offering through the stronger buying power and long-established relationships Stontronics has throughout its supply chain network. It has also allowed the existing Power business to focus on its core competence of customised power solutions enhanced by the opening of a dedicated Power Products regional design centre (RDC) at the Norwich Research Park.

Human Machine Interface (HMI) 

Our HMI business delivered growth in-line with the market for HMI devices. The global human machine interface market is forecast to expand at 10.40% CAGR during the period from 2013 to 2019 driven by high demand from the industrial sector.

Human Machine Interface Market (HMI) (Displays/Touch screen, Interface software, Industrial PCs and Others) Global Industry Analysis, Size, Share, Growth, Trends and Forecast 2013 - 2019 Transparency Market Research.

Overall the business launched 29 new products in 2015 (2014: 23) specifically designed and customised for an impressive list of blue-chip customers. We extended our range of standard products to include a range of customisable illuminated 'push and touch to exit' switches and these are expected to go to market in the first half of 2016.

As part of our continued integration of the businesses and our strategy of using our electronic assembly capacity to support our Technology Products division some of our key customer manufacturing was moved to our Hartlepool site. This led to a reduction in headcount but has now enabled the whole team at the Eastleigh site to focus on our core capabilities, designing and manufacturing intelligent human machine interface solutions.

Electronic Manufacturing Services

The Electronics Manufacturing Services 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.

The strategy for the division is to target higher value business where we can leverage our technology know-how and expertise, and also to focus on providing production capabilities to the Technology Products division as a vertically integrated supplier. As a result, we continued to exit low margin accounts during the period, and in line with management's expectations, revenues (excluding intra-group sales) declined 3.0% to £26.9m (2014: £27.7m). Group sales to domestic Chinese customers account for less than 5% of Group revenues, with the vast majority of sales being destined for Europe, the Middle East, the USA and Australia.

A major focus for the division during the year was the upgrading of our operations in Asia and the move to new hi-tech facilities at Dongkeng Hi-Tech Industrial Park near Dongguan. I am delighted to report that thanks to the meticulous planning and preparation by the Stadium Asia team prior to the move, we successfully completed the relocation in just three weeks whilst avoiding any disruption to customer deliveries.

In 2016, we will implement a coordinated global approach to operations in order to take advantage of the core competencies across our UK (Hartlepool and Warrington) and Asia (Dongguan) manufacturing footprint. As part of this strategy all sites will work in unison to further integrate our global systems, equipment, operations and engineering, providing our customers with the latest technologies and discipline from a standardised global footprint.

This integrated approach will allow us to offer our customers a seamless transition from concept through to rapid prototyping, or low/medium to high volume manufacturing from the region that provides the best landed cost to meet the customer's dynamic requirements at their point of need. By aligning our capabilities across all three sites, we can gain economies of scale from supply chain consolidations and further improve our overall margins.

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 adjacent technologies that will generate long-term value and improve the quality of earnings.

To achieve this we have set ourselves the strategic objectives shown below for 2016:

· 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

Our aim in 2016 is to invest in our technical sales capability, maximise opportunities with our existing customers and leverage our key global partnerships. We are well positioned to exploit the growth in the market with our technology offerings in Wireless solutions and Power Products. As planned, the recent acquisitions are creating cross-selling opportunities across the Group and we are starting to sell more than one technology offering to our customers such as HMI and power combined. We must continue to evolve and keep pace with the fast-moving electronics market. The investment in the regional design centres ("RDCs") and the Technology Board both play a key part in identifying emerging trends and markets.

Enhance our global operations and develop our technology roadmap

2015 has already established the platform for an enhancement in our global operations and design capability. As already mentioned above we have made significant investment in our Asia facility and significantly upgraded our technical capabilities.

In addition, we have established three RDCs to bring together our talented design engineering teams and support the development of our technology roadmap. We expect the RDCs to drive innovation and technological developments in product efficiency, user experience, connectivity and miniaturisation across our Technology Products division. We plan to invest further in this area in 2016 to facilitate the growth in wireless and power.

In 2015, we realised the benefits of our enhanced engineering capability and dedicated R&D resources, and are confident that this has improved our speed to market and value proposition to customers. Our commitment to R&D will continue in 2016, driven by the 'voice of our customers', our engineering leaders and the Group's Technology Board.

We will also roll out a new Enterprise Resource Planning system in 2016 and continue to futureproof our IT systems across the Group.

Leverage manufacturing capacity to support growth

With the successful relocation and upgrading of our Asia manufacturing facility, we believe our resources are well aligned to support the high growth that we are seeing across Technology Products, particularly from our Wireless business. Already in 2015, we have seen a greater proportion of intra-group sales progress through our manufacturing sites and we expect to see this pattern continue in 2016 as the Electronic Manufacturing Services division establishes itself as a vertically integrated supplier across the various business units.

Identify complementary acquisitions

We also continue to progress our strategy of making targeted, complementary acquisitions to strengthen our integrated technology offering. Stadium United Wireless has performed very well this year and the acquisition of Stontronics, in August 2015, has strengthened our global buying power and introduced a number of key new strategic global distribution partners for all our businesses. We believe that there is an opportunity to acquire further complementary Wireless and Power businesses to strengthen our market position in this sector.

We remain committed to acquiring businesses 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

A strong performance during 2015, particularly from our Technology Products division, has positioned us well for the forthcoming financial year. At the year end, the Group order book stood at c. £19m, a 22.6% improvement on our position at the half-year stage (H1 2015: £15.5m). Recent order activity in our wireless business is very healthy and the new business pipeline for Wireless and Power is also encouraging.

With the successful integration of our acquisitions and the investment we have made in the infrastructure to support further growth in Technology Products we are confident that 2016 will be another year of strong growth.

Finally, I would like to thank all employees across the whole Group for their commitment, positive contribution, enthusiasm and hard work, which have all combined to help propel the Company to new levels of growth and success.

Charlie Peppiatt

Chief Executive Officer

15 March 2016

Financial review

Results

Revenue

Revenues at £53.9m (2014: £41.7m) were up year on year by 29.0%. On a comparative basis, adjusting for the impact of the acquisition of Stontronics (August 2015), and Stadium United Wireless (July 2014), underlying revenues increased by 9.1%. This was supported by a positive foreign exchange translation of £1.3m accounting for 3.2% of the revenue increase.

Stontronics contributed £1.9m to Group revenues in the first four months post acquisition in 2015. Stadium United Wireless contributed £3.8m to Group revenues in the first five months of ownership in 2014.

In-line with our strategy to be a design-led organisation, the Technology Products division increased revenues year on year by 92.4% to £27.0m, contributing 50.1% to Group revenues. This was driven by the growth in Wireless and Power and on a like-for-like basis revenues from our Technology Products division increased by 32.9%. Revenues from the Electronics Manufacturing Services division were £26.9m, declining by 3.0% year-on-year, linked to our decision to exit low margin non-core accounts.

Profit

Gross margin on a normalised basis* improved by 120 basis points to 23.2% (2014: 22.0%) due to the progressive increase in sales from the higher margin Technology Products division. The recent acquisitions have also been gross margin accretive relative to the Electronics Manufacturing Services division.

*Adjusting for non-recurring costs, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to Finance Review - Earnings per share.

Adjusting for non-recurring expenditure and the amortisation of acquired intangibles operating expenses increased year on year by £1.9m. On a comparative basis, adjusting for the acquisitions, operating expenses are in-line with the prior year. This is after investing £0.3m in the Shanghai regional design centre and strengthening the management team.

The above results translated into normalised operating profit before interest* and tax of £4.6m (2014: £3.2m) in the year, an increase of 44.1%. This represents an improved return on sales of 8.5% (2014: 7.6%). After finance costs of £0.6m (2014: £0.5m), normalised profit before tax (PBT) grew by 48.2% to £4.0m (2014: £2.7m), improving the overall profit margin by 100 basis points to 7.5% (2014: 6.5%).

Reported profit before taxation of £1.7m (2014: £1.8m) was in-line with the prior year, this reflects the continued transformation of the business and consequent level of re-organisation activities in the year. Non-recurring costs incurred in the year, excluding the amortisation of acquired intangibles and interest charged on the fair value of deferred consideration, were £1.2m. These can be broken down as follows:

· Acquisition costs relating to Stontronics of £201k

· Costs associated with the Asia factory relocation project of £615k

· Reorganisation and severance costs for the Technology Products division and the Electronic Manufacturing Services division of £334k

Interest and other financing costs

Finance costs on the face of the consolidated income statement were £783k (2014: £470k). These can be split down as follows: interest payable on debt net of interest earned on cash deposits of £231k (2014: £143k); net interest on the net defined benefit pension scheme liability of £395k (2014: £303k); interest on finance leases of £23k in the year (2014: £24k); and £134k relating to the interest charged on the fair value of deferred consideration. The latter is excluded from normalised profit before tax.

Taxation

The normalised tax charge* for 2015 of £321k (2014: £339k) represents an effective rate of 8% (2014: 13%) on the normalised profits before tax. On a reported profit basis, the effective rate of taxation was 19% for 2015 in line with the prior year. A rate of between 19% and 21% is expected in the year ending 31 December 2016.

* Adjusting for non-recurring costs, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. See earnings per share table below.

Earnings per share

Basic adjusted earnings per share from continuing operations was 9.9p (2014: 7.8p), up 26.7% on the prior year. On a statutory basis earnings per share from continuing operations was 4.2p (2014: 4.8p), with 2015 being reduced by the level of re-organisation costs in the year.

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

Dividends

During the year, the Company paid a final dividend for 2014 of 1.40 pence per share, and a 2015 interim dividend of 0.90 pence per share. Total cash outflow in respect of dividends was £0.76m (2014: £0.44m).

The Board proposes a final dividend of 1.80 pence per share (2014: 1.40 pence per share), giving a total dividend for the year of 2.70 pence per share (2014: 2.10 pence per share) at a total cost of £0.66m. This final dividend is expected to be paid on 6 May 2016 to shareholders on the register on 1 April 2016 with an ex-dividend date of 31 March 2016.

Balance sheet

Shareholders' funds

Shareholders' funds increased from £10.2m in 2014 to £18.2m in 2015, driven by the equity-funded acquisition of Stontronics, growth from Technology Products and a reduction in the net pension liabilities of £1.1m.

Goodwill and intangibles

Under IFRS, goodwill is no longer amortised but is instead subject to annual impairment tests. There were no impairments identified in the year. Goodwill on the balance sheet is valued at £15.4m (2014: £11.1m), the increase reflecting the recent acquisition of Stontronics.

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. This amortisation is excluded from normalised profits. As a result of the acquisition of Stontronics, acquired intangibles recognised in the year amounted to £0.8m. 

Other intangible assets comprise of development costs, which are capitalised as intangible assets as required by IFRS. Investment in capitalised research and development increased by £0.2m in the year to £0.4m (2014: £0.2m), driven by the growth in Technology Products.

Tangible assets

The Group has property, plant and equipment totalling £4.4m (2014: £3.5m). Capital expenditure in the year was £1.5m (2014: £0.2m). The increase in investment relates to the Asia factory relocation project, which was a £1.2m project and is expected to pay back in approximately three years.

Pension schemes

The Stadium Group plc 1974 Pension Scheme and the Southern & Redfern Limited Scheme are final salary pension plans operating for qualifying employees of the Group. Both schemes are closed to new entrants and future accruals. 

The net pension liabilities at the end of the year (net of the related deferred tax asset) have decreased to £4.2m (2014: £5.3m). The decrease in the IAS 19 deficit is predominantly due to an increase in the discount rate applied to 3.60% (2014: 3.35%).

The value of plan assets as a percentage of defined benefit obligation is as follows: the Stadium Group plc 1974 plan funding status, as at 31 December 2015 is 84.5% (2014: 81.4%) and the Southern & Redfern Limited Scheme as at 31 December 2015 is 111.2% (2014: 107.9%).

The Stadium Group plc 1974 Pension Scheme underwent its triennial valuation at the start of 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 plan is for the Company to eliminate the pension plan deficit by 31 March 2019. During 2015, the Company made pension contributions of £0.5m (2014: £0.8m).

Cash generation and net debt

Operating cash from trading activities after investment in capital expenditure and research and development was £1.8m (2014: £2.5m), representing 72% (2014: 106%) of operating profit. The reduced cash conversion was due to an increase in trade receivables associated with the growth in Technology Products and the investment in the Asia factory relocation project.

As expected, inventory levels unwound in the second half of the year from a particularly high point of £7.6m in June 2015 to £6.3m (on a comparative basis, excluding Stontronics) at the year end. The increase in stock in June 2015 was planned ahead of the Asia factory relocation to ensure customer supply was not disrupted.

After payment of the pension deficit contributions and tax amounting to £0.7m (2014: £0.8m), net cash inflow from operating activities was £2.9m (2014: £2.1m).

Given the required ramp-up in investment in 2015 to support the Technology Products growth, free cash flow was £0.4m (2014: £1.3m). Free cash flow is stated after interest, tax and pensions financing, but before acquisitions, financing activities and dividends.

Net debt, including finance leases at 31 December 2015 stood at £4.7m (2014: £4.9m).

Bank facilities

The Group had debt facilities with HSBC of £7.9m 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. This is repayable in July 2019 with no formal repayment schedule prior to that date. The remaining balance is a term loan of £2.9m. This loan is repayable in increasing instalments across the period to October 2019.

To support short-term liquidity the Group has access to a £0.5m overdraft facility and an invoice discounting and factoring arrangement of £5.1m of which £2.4m was being utilised at 31 December 2015.

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

Treasury and risk management

Foreign currency effects

The Group has minimal exposure to transactional currency effects, as the currency of revenue and cost streams are generally matched by region. Most sales originating from UK operations are denominated in Sterling, so are matched with the underlying costs. Similarly, sales sourced from Asia are normally denominated in US dollars and the cost streams in US dollars or local currencies, which are closely aligned therewith.

Accordingly, there is a translation effect on consolidation of trading activities in Asia. This becomes realised only upon remittance.

The strengthening of the average Hong Kong dollar against Sterling, compared to the previous year, increased revenues by approximately £1.3m and operating profits by approximately £0.9m.

We continue to monitor the business impact ensuing from the EU referendum. This could affect the value of Sterling and in turn have an impact on supply chain costs.

Financial risks

The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. The Directors regularly review and agree policies for managing these risks.

Credit risk is managed by monitoring limits and payment performance of counterparties. The Directors consider the level of general credit risk in current market conditions to be higher than normal. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group's exposure.

Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. We have increased our US-denominated sales by 44.7% and this is providing a natural hedge on currency exposure in Asia.

The results of Stadium Asia are reported in Hong Kong dollars and as a result of this the Group's statement of financial position and trading results can be affected by movements in the Hong Kong dollar.

Liquidity risk is managed by the Group having access to an invoice discounting facility with moderate overdraft facilities in order to provide short-term flexibility.

Interest rate risk is managed by holding a mixture of cash and borrowings in Sterling, US dollars and Hong Kong dollars at floating rates of interest.

Joanne Estell

Chief Financial Officer

15 March 2016

Consolidated income statement

for the year ended 31 December 2015

Consolidated statement of comprehensive income

for the year ended 31 December 2015

The tax effects of items of other comprehensive income are disclosed in Note 5.

Consolidated statement of financial position

at 31 December 2015

Company number: 00236394

Consolidated statement of changes in equity

for the year ended 31 December 2015

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

Reserve Description and purpose

Share premium Amount subscribed for share capital in excess of nominal value.

Capital redemption reserve Amounts transferred from share capital on redemption of issued shares.

Translation reserve Gains/losses arising on retranslating the net assets of overseas operations into Sterling.

Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

Consolidated statement of cash flows

for the year ended 31 December 2015

Cash flows from operating activities

Consolidated statement of cash flows (continued)

for the year ended 31 December 2015

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 2015

Stadium Group plc (the "Company") is a company incorporated in England and is listed on AIM. The consolidated financial statements of the Company for the year ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the "Group").

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 2015, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The Company has elected to prepare its parent company accounts under UK Generally Accepted Accounting Principles (UK GAAP).

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. There were no new standards or interpretations effective for the first time for periods beginning on or after 1 January 2015. None of the amendments to standards that are effective from that date had a significant effect on the Group's financial statements.

The following standards, amendments and interpretations to existing standards have been published and are mandatory for accounting periods beginning after 1 January 2016 or later periods, but they have not been early adopted by the Group:

IFRS15 Revenue from Contracts with Customers: 1 January 2018

IFRS 9 Financial Instruments: 1 January 2018

IFRS 16 Leases: 1 January 2019

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

Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12): 1 January 2017

Disclosure Initiative (Amendments to IAS 7): 1 January 2017

Application of these standards and interpretations is not expected to have a material effect on the financial statements in the future other than IFRS 16 Leases which will result in assets and liabilities for a number of leases being recognised in the Consolidated statement of financial position.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the Company considers all relevant facts and circumstances, including:

- the size of the Company's voting rights relative to both the size and dispersion of other parties who hold voting rights;

- substantive potential voting rights held by the Company and by other parties;

- other contractual arrangements; and

- historic patterns in voting attendance.

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.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date, based on the probability of a payment being made. Subsequent changes to the fair value of contingent consideration that is deemed to be an asset or liability are recognised in accordance with IAS 39 in profit and loss.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

Goodwill

Goodwill arising on consolidation consists of the excess of the fair value of the consideration over the fair value of the Group's interest in the identifiable tangible and intangible assets net of liabilities including contingencies of the business acquired at the date of acquisition.

Goodwill is recognised as an asset at cost less any recognised impairment losses. It is reviewed for impairment at least annually and any impairment is recognised immediately in the income statement.

Revenue

Revenue is measured at the fair value of goods provided to customers net of returns, discounts, value added tax and other sales taxes. Revenue from the sales of goods is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Group will receive the previously agreed upon payment. These criteria are considered to be met when the goods are delivered to the buyer. Where the buyer has a right of return, the Group defers recognition of revenue until the right to return has lapsed. Where warranties are offered to customers, revenue is recognised in the period where the goods are delivered less an appropriate provision for returns based on past experience.

Provided the amount of revenue can be measured reliably and it is probable that the Group will receive any consideration, revenue for services is recognised in the period in which they are rendered.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.

Depreciation is charged at rates calculated to write down the cost of assets (excluding freehold land) over their estimated useful lives by equal instalments at the following rates:

Freehold buildings 2%

Plant and machinery 10%-25%

Fixtures and equipment 10%-25%

Useful lives and residual values are reviewed annually.

The gain or loss arising on disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income.

Inventories

Inventories are stated at the lower of cost and estimated net realisable value. Cost is determined on a first-in, first-out basis including transport and handling costs and, in the case of manufactured products, includes all direct expenditure and production overheads based on normal levels of activity.

Deferred taxation

Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the reporting date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the reporting date.

A deferred tax asset is regarded as recoverable and is therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable surpluses from which the future reversal of the underlying temporary differences can be deducted. Deferred tax balances are not discounted.

Other intangible assets

Other intangible assets are shown at historical cost less accumulated amortisation and impairment losses.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life either in use or under development are tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The useful lives are as follows:

Internally generated:

Development costs up to five years, consistent with the revenue generation profile of the product

Externally acquired:

Customer relationships three to five years

Customer order books one year

Amortisation periods and methods are reviewed annually and adjusted if appropriate. Amortisation of each of the above classes is charged to Operating expenses in the Consolidated income statement.

Share based payments

Employee share options are measured at fair value at grant date using the Black-Scholes model. The fair value is expensed on a straight-line basis over the vesting period, based on an estimate of the number of options that will eventually vest.

Pension costs

Defined benefit scheme

Assets and liabilities arising from retirement benefit obligations and the related funding are reflected at fair value in the financial statements and operating and finance costs are recognised in the financial periods in which they arise. Gains and losses arising from actuarial experience during the accounting period are recognised in other comprehensive income.

Defined contribution schemes

Contributions payable are charged to the income statement in the accounting period in which they are incurred.

Foreign currencies

Transactions denominated in foreign currencies are recorded at the prevailing rate on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into Sterling (the Group's presentational currency) at the rate prevailing at the period end. Gains and losses arising on the translation of foreign currencies are dealt with as part of operating profit.

The assets and liabilities of foreign subsidiary undertakings are translated into Sterling, the presentational currency of the Group, at the period end exchange rate.

The income and expenditure of foreign subsidiary undertakings are translated into Sterling at the average exchange rate prevailing during the period. Exchange differences arising on retranslation of opening assets and liabilities, long term financing denominated in foreign currency and the trading of foreign subsidiary undertakings are taken directly to the translation reserve using the net investment method.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as Sterling denominated assets and liabilities.

Provisions

A provision is recognised in the Consolidated statement of financial position when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. A warranty provision is recognised when the related goods are sold. The provision is based upon historical customer claims data relative to levels of sales activity.

Non-recurring costs

Certain costs have been classified on the face of the consolidated income statement as "non-recurring". These are material items which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence for the financial statements to give a true and fair view. These transactions are of a nature that will not be ongoing in the ordinary course of trading and the Group has classified in this manner costs incurred in restructuring and reorganising the business.

Research and development

Research expenditure is charged to the income statement as an expense when incurred. Development expenditure is capitalised as an internally generated intangible asset once criteria relating to the product's technical and commercial feasibility have been met and the decision to complete the development has been taken and resources have been committed to the completion of the project. Development expenditure is stated at cost less accumulated amortisation and impairment losses. Development costs are amortised over varying periods of up to five years in a profile that matches the revenue generation profile of the product.

Leased assets

Leases of property, plant and equipment where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Assets held under finance leases are capitalised at fair value of the leases, unless the present value of the lease payments is lower. The corresponding leasing commitments, net of finance charges, are included in liabilities.

Leasing payments are analysed between capital and interest components so the interest element is charged to the income statement over the period of the lease at the constant periodic rate of interest on the remaining balance of the liability outstanding.

Depreciation on assets held under finance leases is charged to the income statement over the useful life of the asset.

All other leases are treated as operating leases with annual rentals charged to the income statement, net of any incentives granted to the lessee, over the term of the lease.

Financial instruments

The Group's financial instruments comprise borrowings, some cash and liquid resources and items such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group's operations.

Financial assets and financial liabilities are recognised in the Group's Consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value less appropriate allowances for estimated irrecoverable amounts. Such allowances aim to ensure that receivables are only recognised to the extent to which they are recoverable. Provisions created for irrecoverable amounts are recorded in a separate allowance account with the loss being recognised within the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value is written off against the associated provision.

Cash and cash equivalents

Cash includes bank current accounts and petty cash balances, which are subject to insignificant risk of changes in value.

Bank borrowings

Interest bearing bank loans and overdrafts are recorded at the fair value of proceeds received net of any transaction costs. Such loans are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Trade payables

Trade payables do not carry any interest and are stated at their nominal value.

Invoice discounting

Amounts due in respect of invoice discounting are separately disclosed as current liabilities. The Group can use these facilities to draw down a percentage of the value of certain sales invoices. The management and collection of trade receivables remains with the Group and it therefore retains the risks and rewards of ownership.

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.

It has been, throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. The Group does not consider that it has any obligations or rights under derivative financial instruments.

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 these policies are set out in Note 15.

Accounting estimates and judgements

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:

Key sources of estimation uncertainty

Stock provisions - The stock provision is based on the age of stock to identify items for which there is no current demand or for which net realisable value (NRV) is lower than cost. The provision makes use of stock counts performed, which are considered to be representative of all stock items held.

Retirement benefit obligations - Refer to Note 19 for disclosure of the key sources of estimation uncertainty relating to the retirement benefit obligation.

Goodwill - Goodwill is evaluated for impairment at each reporting date. The recoverable amounts of cash generating units have been estimated based on value in use calculations.

Credit risk - Trade and other receivables are recognised to the extent that, in the opinion of the directors, they are recoverable in the ordinary course of business. Risk arises from the potential of any customer failing to meet their contractual obligations and settle debts when due. It is Group policy to assess creditworthiness of new customers, to review and, where necessary, renegotiate terms of trade from customers with which it has a good trading history, and to actively monitor customer compliance, ensuring that trading terms are adhered to.

Identification of intangibles on business combinations - Identified intangibles acquired in business combinations are recognised separately from goodwill. An intangible asset is identified if it arises from contractual or legal rights or if it is separable. Determining the fair value of intangible assets acquired requires estimates of the future cash flows related to the intangibles and a suitable discount rate to calculate the present value. As a result of this assessment, acquired intangibles amounting to £772,000 have been recognised as per Note 10.

Non-recurring items - Transactions classified as non-recurring require judgement to be exercised in identifying which items are of a nature that they will not be expected to recur in the ordinary course of trade and are material for the financial statements to present a true and fair view.

Notes to the financial statements

for the year ended 31 December 2015

1. Segmental reporting by operating segment

The Group measures its revenues across two main areas of activity: iEMS 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.

Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of Group resources at a rate acceptable to local tax authorities. This policy was applied consistently throughout the current and prior period.

Non-recurring costs of £155,000 were incurred from the restructuring of the iEMS segment of the business, £179,000 from the restructuring of the Technology segment of the business, £615,000 from relocating the Asia factory and £201,000 from making the acquisition of Stontronics Limited as outlined in Note 23.

The non-recurring costs incurred in the prior year relate to the restructuring of the Technology business segment (£79,000) and making the acquisition of Stadium United Wireless (£207,000). Revenue from external customers reported to the Board of directors is measured in a manner consistent with that in the income statement.

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

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

2. Profit before taxation

3. Employees

In addition to the above there were also severance costs of £642,000 (2014: £Nil) within the reorganisation costs disclosed in Note 2 and costs paid during the year that had been previously provided for of £57,000 (2014: £141,000).

4. 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.

5. Taxation

The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 20.25% (2014: 21%) for both periods shown.

The differences are explained below:

A deferred tax debit of £225,000 (2014: credit of £322,000) relating to the decrease (2014: increase) in the defined benefit pension obligations has been recognised directly in other comprehensive income, together with a tax charge of £Nil (2014: £Nil) relating to a change in the rate at which deferred tax has been calculated.

6. Dividends

The Board proposes to pay a 2015 final dividend of 1.80p per share (2014: 1.40p) on 6 May 2016 to shareholders on the register on 1 April 2016, amounting to £657,000 (2014: £435,000).

7. 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. The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired. The recoverable amount of the goodwill is determined from value in use calculations covering a ten year period. 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 period 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 5.74% using pre-tax rates that reflect current market assessments 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 of 20% and 5% per year for the first five years were used for the Wireless and Interface & Displays CGUs respectively, and thereafter 2.5%. For iEMS a nominal growth rate of 2.5% was used throughout the years. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. 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.

8. 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 £755,000 (2014: £1,148,000) in relation to plant and machinery held under finance leases. Freehold land and buildings includes assets with an NBV of £935,000 (2014: £970,000) which are the subject of the fixed charges referred to in Note 14.

9. Investments

At 31 December 2015 the subsidiaries of the Company included on consolidation, all of which were wholly owned, were as follows:

10. 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.

11. Inventories

Inventory provisions created during the year amounted to £96,000 (2014: £11,000). Inventory with a carrying amount of £7,518,000 (2014: £6,600,000) has been pledged as security for liabilities.

12. Trade and other receivables

Other non-trade receivables includes the deferred portion of the consideration for a property disposal which was made in 2007. The amount of the deferred consideration outstanding at the year end was £170,000 (2014: £229,000), which falls due for repayment in January 2020 (2014: June 2015). In the opinion of the directors, there is no material difference between the book value and the fair value of the above assets in view of their short term nature.

13. Current payables

14. 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. The first is repayable in increasing instalments across the period to July 2019 and bears interest at an annual rate equal to LIBOR plus 2.1% to 2.3%, based on total net leverage ratio. A second loan of £5,000,000 is repayable in July 2019 and has no formal repayment schedule prior to that date.

During the year the Group arranged additional flexible credit for working capital from invoice securitisation in the form of invoice discounting and invoice factoring facilities with the Group 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 £1,947,000 and undrawn invoice factoring facilities of £792,000.

15. 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 £13,500,000. 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 2015 comprised:

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