Final Results

Stadium Group plc

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

Unaudited preliminary results for the year ended 31 December 2014

Stadium Group plc (AIM: SDM), a leading electronic technologies group, announces results for the year ended 31 December 2014.

Financial headlines

· Revenues of £41.7m (2013: £42.2m) with strong growth in Technology Products

· Increased normalised operating profit margin of 7.6% (2013: 5.6%)

· Normalised profit before tax* increased to £2.7m (2013: £1.9m), up 45% on prior year

· Statutory profit before tax of £1.8m (2013: £0.4m)

· Strong cash conversion of 109% (2013: 202%) of operating profit

· Net debt of £4.9m, post-acquisition of SUW (2013: £0.2m)

· Adjusted* earnings per share of 7.8p (2013: 5.3p), up 47% on prior year

· Statutory earnings per share of 4.8p (2013: 0.5p)

· Final dividend proposed of 1.4p per share (2013: 0.75p)

· Total dividends up 75% to 2.1p per share (2013: 1.2p)

* After adjusting for non-recurring reorganisation spend and amortisation of acquired intangibles

Other highlights

· Established Technology Products and iEMS Divisions

· Strengthened global leadership and technical capability

· Acquisition of Stadium United Wireless (SUW) in July 2014

· Strong growth in order book of > 50% including SUW

· China factory relocation and upgrade scheduled for July 2015

· Regional design centre model roll-out planned in 2015

Commenting on the results and outlook, Chairman Nick Brayshaw OBE said:

"With the Group's new divisional operating structure of Technology Products and Integrated EMS, we are now well placed to take advantage of the growth markets in which we operate, in addition to driving further operational efficiencies. Furthermore, the recent acquisition of Stadium United Wireless positions us extremely well to capitalise on the growing demand for wireless connectivity solutions. As the business moves forward during the coming year, we anticipate the growing Technology Products division will generate approximately 50% of Group revenues, supported by the modernised global manufacturing facilities within the iEMS division.

"This is an exciting period for Stadium, and we have made positive progress against our strategic targets. We have continued to deliver improving results on the back of profitable and sustainable organic growth, with the addition of value accretive acquisitions. The initial months of 2015 have seen an encouraging start to the year, with the order book and revenues ahead of the comparable period of last year. We expect this improvement to continue going forward and therefore remain confident about the prospects for the current year and beyond."

For further information please contact:

Copies of the audited financial statements will be sent to all shareholders shortly and will be available at www.stadium-plc.com along with this announcement.

Chairman's statement

For the year ended 31 December 2014

I am pleased to report a year of significant progress for Stadium, underpinned by the strong foundations established over the last few years. The reduced cost base, in addition to the expanded technology products businesses and the acquisition of Stadium United Wireless (SUW) have all contributed to this strong growth in earnings, which we believe will continue to accelerate as we further develop our Integrated Technology Platform, a key element of our success.

The major restructuring programme and other cost saving initiatives that began some two years ago have delivered strong margin improvement despite the difficult sales environment across certain markets. While we have been particularly effective at cost management, we have also continued to invest in growth opportunities such as new product development and complementary acquisitions.

A key driver for future sales and margin growth is the launch of innovative new products, which command higher price points and increased margins. This commitment to innovation also sustains our technology leadership across many markets. In our Technology Products division we launched more than thirty new products in the year, with the majority being designed-in, highly customised solutions for our blue-chip OEM customers.

Stadium remains committed to pursuing a strategy of technology leadership, offering its customers an integrated solution with technical design-led expertise in wireless, power and interface supported by integrated Electronic Manufacturing Services (iEMS). In line with this strategic direction, we acquired Stadium United Wireless (SUW) in July 2014. SUW specialises in the design and manufacture of machine-to-machine (M2M) wireless solutions that enable wireless connectivity between devices, primarily across cellular networks. Furthermore, the acquisition of SUW has provided significant value creation opportunities, establishing the Group as a credible player in the high growth market for M2M wireless devices, by extending its geographical reach and increasing our expertise in this exciting technology sector.

Integration activities of SUW are on track and the acquisition is meeting all of our criteria for success. Customers have responded positively to Stadium developing its expertise in this area and encouragingly we have already seen evidence of an increase in new business and improved retention rates with existing customers as a direct result of the acquisition.

To sustain this growth trajectory it is imperative that we continue to invest to become a technology leader. We started this process in earnest in 2014 and we plan to further increase these efforts in 2015.

At the start of 2015, we have committed capital and resources to develop our regional design centre (RDC) model. A constraining factor to growth is attracting and retaining the right level of skills and technical know-how. To address this we are investing in carefully selected locations where it is easier to attract these necessary skills and where we are close to key technology eco-system partners and customers. Three new design centres will be opened by the end of the first half of 2015; one in Zhangjiang Hi-Tech Park in Shanghai, one near Southampton and the third on the Research Park in Norwich.

This is an exciting development for Stadium and I look forward to reporting progress in this area going forward, as we consider whether to commission further RDCs as a consequence of this strategic objective.

The decision was taken in early January 2015 to relocate our existing Asia facility to a new upgraded site in close proximity to our current location on the expiry of the current lease later in the year. This project will require a one-off investment of approximately £1m with an expected payback period of three years due to reduced rental and other costs. Again, this is seen as an essential development in creating the right manufacturing environment and technical expertise to foster the growth of our Technology Products division.

Financial highlights

The financial result for the year shows sales broadly maintained at £41.7m (2013: £42.2m), with reduced revenue from iEMS of £27.7m (2013: £33.5m) offset by increased revenue from the Technology Products division, where sales increased to £14.0m (2013: £8.7m). This improved sales mix expanded the operating profit margin by 200 basis points to 7.6% (2013: 5.6%), resulting in a normalised operating profit increase of 33.3% to £3.2m (2013: £2.4m).

Normalised profit before tax of £2.7m (2013: £1.9m) grew by 45.7%. On an organic basis, adjusting for the acquisition of Stadium United Wireless, normalised PBT increased by 17.7% to £2.2m due predominately to improved sales mix towards technology led products. Within the iEMS business, the reduction in sales was more than offset by the pre-emptive reorganisation undertaken during the previous year and subsequent reduction in overheads during the period.

Operating cash generated from trading activities was £2.5m (2013: £1.9m), which, after capex and development costs, represented 109% (2013: 202%) profit conversion, despite the increase in working capital to support the Technology Products division.

The Group restructured its debt facility in the year with HSBC, which enabled the acquisition of SUW and realigned repayment terms to match future investment plans. Net debt including finance leases at the year-end was £4.9m (2013: £0.2m).

Normalised earnings per share for 2014 increased by 47.1% demonstrating the success of our strategy. On a statutory reported basis, earnings per share grew by 879%, with the prior year comparative affected by the level of reorganisational activity. 

Dividend

The Board has a progressive dividend policy, which still enables the Group to retain sufficient cash flow to meet its investment needs and support its growth drivers. The growth in earnings achieved, together with the Group's positive cash generation, support the Board's recommendation to increase the dividend for 2014 substantially. Dividends paid in the year on ordinary shares amounted to £0.4m (2013: £0.6m).

The Board has recommended a final dividend of 1.40 pence per share (2013: 0.75 pence) giving a total for the year of 2.10 pence (2013: 1.20 pence), an increase of 75% over the prior year.

Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 24 April 2015 to shareholders registered at the close of business on 27 March 2015. The ex-dividend date is 26 March 2015. 

Outlook

With the Group's new divisional operating structure of Technology Products and Integrated EMS, we are now well placed to take advantage of the growth markets in which we operate in addition to driving further operational efficiencies. Furthermore, the recent acquisition of SUW positions us extremely well to capitalise on the growing demand for wireless connectivity solutions.

As the business moves forward during the coming year, we anticipate the growing Technology Products division will generate approximately 50% of Group revenues, supported by the modernised global manufacturing facilities within the iEMS division. This integrated approach presents a high value proposition to our customers and enables the Company to target higher value and higher margin opportunities going forward.

The Board remains committed to exploring complementary acquisitions that will further enhance Stadium's technology leadership, while simultaneously aligning Company resources to actively pursue organic growth opportunities across high growth technology-led markets.

This is an exciting period for Stadium, and we have made positive progress against our strategic targets. We have continued to deliver improving results on the back of profitable and sustainable organic growth, with the addition of value accretive acquisitions. The initial months of 2015 have seen an encouraging start to the year, with the order book and revenues ahead of the comparable period of last year. We expect this improvement to continue going forward and therefore remain confident about the prospects for the current year and beyond.

Nick Brayshaw OBE

Chairman

10 March 2015

Chief Executive's statement

Group review

Stadium Group realigned the business into two distinct divisions in the year: Technology Products, comprising of Wireless, Power and Interface; and Integrated EMS. The Technology Products division now accounts for 33.6% (2013: 20.6%) of revenues for the Group and is expected to account for 50% of Group revenues in the near future. This reflects delivery on the Group's strategic objective to transition the business to a design-led integrated technology solutions provider.

Stadium's exposure to the UK domestic market also reduced in the year. Revenues generated in the UK were 63% of total revenues (2013: 68%). With the addition of SUW, we have increased our presence in North America and Europe, which will give us greater opportunity to exploit our integrated sales strategy and penetrate new customer accounts in new geographical locations. This is clearly a positive development, spreading our risk in terms of dependence on one geographical region and protecting the business against external factors in specific regions beyond the Group's control.

The Group is not reliant on any one customer or cluster of similar customers in a related market sector, which could expose the business to undue risk in the event of changes in the macro-economic or technological environment. Again, with the introduction of SUW we have increased our reach into several new vertical markets and added additional large global OEM customers. 

Technology Products

The Technology Products division saw revenue growth year-on-year of 60.9% delivering £14.0m, enhanced by the recent acquisition of SUW, which contributed £3.8m of sales in the year.

On a like-for-like basis, the Technology Products division grew revenues by an impressive 17.2%, predominantly due to strong growth within the Power Products business. This growth was driven by actively pursuing semi-customised volume business and concentrating on our distribution activities. To achieve this we invested in dedicated power manufacturing capabilities at our Asia facility, establishing a customer approved low cost manufacturing source for Stadium power supplies as well as up-skilling technical and sales personnel. Whilst this level of investment has temporarily suppressed reported margins in the period, we strongly believe that we have laid the foundations to deliver sustainable profitable growth in this area. During H1-2014, Stadium Power signed a design and supply agreement with a large global tier 1 electronics distribution business that has the potential to drive further growth in this division in 2015 and beyond.

In the Interface and Displays business, the order book has grown year-on-year by 50%, whilst internal research indicates that the overall market for interface and displays grew by some 10% in 2014. Revenues in the period were flat year-on-year impacted by the rescheduling of a key project into the first half of 2015, at the request of the customer.

The Interface and Displays business launched 23 new products in 2014 specifically designed and customised for their impressive list of blue-chip customers. Working diligently on the cross-selling proposition in the year, we have started to penetrate these key customer accounts, which is giving us further opportunities in wireless and power supplies in particular.

Integrated EMS

In line with our stated strategy to target higher value business within iEMS, we exited a number of low margin accounts during the period. Therefore, in-line with management's expectations, revenue during the year declined 17.3% to £27.7m against £33.5m for the prior year, which included exceptional revenue of £1.7m from last-time buy orders prior to the Rugby site closure. Part of the decline also includes £0.8m of currency translational costs.

We now envisage that the iEMS division will act more and more as a vertically integrated supplier to the rest of the Group for electronic manufacturing services. We will continue to review our iEMS customer base in terms of profitability and market dynamics and exit selected low-margin non-core business. We aim to replace this lost volume with the growth in the Technology Products division and the momentum being established in Asia.

The Group did not have an upturn in new China-to-China contract wins as expected in the period. However, we have increased our focus and resources in this area to ensure we are well positioned to exploit this growth market opportunity and remain optimistic about converting our existing pipeline in 2015. The time-to-market (TTM) period for new accounts is typically eight to twelve months in this space and as such did not affect the 2014 results.

Against this backdrop, our iEMS business operates in a number of key growth markets; Instrumentation and Controls (Industrial), Automotive, Lighting and Security, which all performed well in the year. Customer retention rates on the core business are also improving supported by increased operational excellence and through actively promoting our integrated sales approach.

The successful streamlining of the business in 2013 has helped Stadium's iEMS Division compete against tough competition, whilst simultaneously developing the integrated sales strategy to differentiate the Group from its competitors. Significant investments were also made to modernise and upgrade the iEMS division. At the start of 2014, a new state-of-the-art Surface Mount Technology (SMT) line was installed at our Hartlepool site to deliver significant capability enhancements, allowing more complex products and larger printed circuit boards (PCBs) to be manufactured as well as increasing the flexibility in the production processes.

External research suggests the market in 2014 was flat against 2013 and forecasts for 2015 and beyond are for modest growth of 1.4% (Source: Reed Electronics Research - The European EMS Industry 2013-2018 November 2014). In the UK and across Europe there has been a period of consolidation of EMS suppliers and competition remains fierce looking forward.

Notwithstanding the above, we remain committed to the iEMS business; it is a key cornerstone of our integrated sales strategy. The challenge for us in this competitive space is to deliver the highest standards of quality and service into key growth vertical markets, with emerging technologies, where we can also sell our high value, high margin products by leveraging our key customer accounts and relationships.

Strategy

Our strategy remains to continue to build the business through a combination of design-led organic growth, leveraging existing manufacturing capability and our global footprint and where appropriate to acquire adjacent niche technologies that will generate long-term value and improve the quality of earnings. We will achieve this through the strategic objectives shown below:

· Delivering sustainable and profitable revenue growth by focusing on organic growth drivers, including actively promoting our fully integrated one-stop design and manufacturing solution with proven capabilities in Wireless, Power Products, Interface and Displays, and aligning Group resources towards high growth markets.

· Developing our technology roadmap by upgrading the technical and engineering capability across the Group, aligning this resource to support our growth strategy.

· A persistent drive for operational excellence and global supply chain optimisation.

· Complementary targeted acquisitions of businesses that bring a clear value proposition in overlapping technologies that strengthen our integrated technology offering and where synergies and an improved quality of earnings can be harnessed for the Group.

· Recruiting and developing the right talent in the organisation to execute our strategy.

We continue to pursue these objectives and some recent examples are set out below.

Organic growth and high growth markets

The Technology Products division demonstrated positive and sustainable growth in 2014 on the back of investments for Power Products in Asia and by exploiting different routes to market. Greater progress needs to be made here and we intend to invest and realign Group resources towards high growth and emerging markets. In particular, our presence in Asia will be exploited further as we look to increase our China-to-China revenues. 

Developing our technology roadmap

The recently established Group Technology Board continues to make a positive contribution to the Group. It is actively involved in assessing the relative merits of acquisition targets, driving the Group's Technology road map and critically appraising new integrated product development projects. With the addition of SUW, the breadth of the design engineering skill-set will be further enhanced by the addition of valuable radio frequency (RF) and antenna design expertise and capability. This is clearly valuable to the Group as we pursue our integrated sales strategy.

Early in 2015, after understanding the relative merits of the business case we have committed capital and resources to establishing three regional design centres in key global locations (Shanghai, Southampton and Norwich) to expand our engineering and design capabilities. This is considered a relatively low risk investment, with an anticipated payback of two to three years. This is an important development for Stadium, which will support and accelerate our organic growth in the Technology Products division in particular. Attracting and retaining the correct level of technical personnel in the organisation is an identified constraint to growth and this model should help unlock the Group's full potential.

Operational excellence

We continue to work relentlessly with our suppliers to optimise the global supply chain in the pursuit of improved availability of supply, quality of service, competitive costs and favourable payment terms. Where appropriate we have formed a strategic partnership, which is helping us leverage global benefits, identify growth areas and keep abreast of emerging technologies. During 2014, a high calibre Group Procurement and Supply Chain Director with FTSE 250 company experience joined the Group to lead and drive this important area of the business.

At the start of 2015, the decision was taken to upgrade the Group's manufacturing capability in South China by relocating to a new facility in close proximity to the current site at the expiry of the lease. This new site will significantly enhance Stadium's technical capability, providing a fully equipped modern facility, better suited to the increasing expectations of existing and new customers, both in Asia and globally. The total cost of this upgrade to new facilities will be less than £1m, which will be offset by reduced operating costs and forecast growth in 2015 and beyond. It is expected that this investment will achieve payback in three years.

Targeted acquisitions

On 25 July 2014, Stadium acquired the entire issued share capital of United Wireless Ltd, renamed Stadium United Wireless (SUW), a specialist in the design and manufacture of electronics for the M2M wireless sector, for a maximum total consideration of £8.0m in cash and shares. The initial consideration was £6.0m, of which £5.0m was in cash and the balance of £1.0m was satisfied by the issue of 1,515,152 Stadium shares. The cash consideration was paid utilising a new five year revolving credit facility of up to £5m provided by HSBC, our existing banking partner. The current owners and joint managing directors, both of whom will remain with SUW, have agreed to retain the initial consideration shares for a minimum period of two years following completion. The Company will make an additional earn-out payment of up to £2.0m in Stadium shares if SUW exceeds certain defined earn-out targets over the next three years.

SUW was established in 2009 in Warrington, Cheshire and employs 40 people. The business specialises in the design and manufacture of M2M wireless solutions that support wireless connectivity between devices across wireless technology, primarily cellular networks. The business acts as a specialised M2M wireless integrator for OEMs requiring a complete end-to-end connectivity solution for their equipment or devices. SUW has a strong customer presence in the automotive, fleet management and telematics sectors, and also works with OEMs in the areas of infotainment and vending, industrial equipment and asset tracking. Global demand for M2M wireless devices is forecast to expand at a 24% compound annual growth rate over the next 5 years, with the number of cellular M2M device subscribers to rise to 600 million by 2019 (source: Berg Insight Research 2014).

The addition of a business with expertise in the M2M wireless technology space has strengthened Stadium's integrated technology sales strategy. As a result, we can now provide both existing and new customers with turnkey design capabilities covering power supplies, electronic manufacturing services, interface and displays and wireless connectivity, to deliver a fully integrated electronics technology solution.

The Group remains committed to acquiring businesses that bring a clear value proposition in overlapping technologies, synergies and an improved quality of earnings for the Group. We are focusing on potential targets that increase our exposure to high growth markets, increase our global reach and complement our existing technologies.

Recruiting and developing talent

The successful implementation of our strategy depends upon having the right talent in place throughout the organisation and we have made good progress in this area in 2014. During the year the senior management and technical teams were strengthened in a number of locations and key positions. It has been encouraging to see the positive impact that these skilled leaders, have had on the business, and we look forward to further strengthening and developing our leadership team going forward. 

To help drive the growth agenda and cultural change we held a leadership conference in November 2014 to harness the talent and ideas of our senior management team and deploy strategic objectives. During the conference, we explored the key growth areas and business enablers for Stadium over the next five years while promoting a culture of greater ownership and responsibility.

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

10 March 2015

Financial review

Results

Revenue

Total reported revenue at £41.7m (2013: £42.2m) was down year-on-year by 1.2%. On a comparative basis, adjusting for the part-year impact of the acquisition of SUW, which generated £3.8m revenue in 5 months under our ownership, revenues declined year on year by 10.2%.

This decline is partly explained by adverse foreign exchange translation of £0.9m (2.2%) and the impact of last time buy orders in 2013 prior to the Rugby site closure of c.£1.7m (4.0%). The balance of 4.0% arises in the iEMS division, in which we decided to exit low-margin, non-core business of c.£3.2m, partially offset by underlying growth in better margin Technology Products of £1.5m.

Profit

Normalised operating profit before interest and tax grew by 33.3% to £3.2m (2013: £2.4m) in the year, supported by SUW. This delivered an improved return on sales of 7.6% (2013: 5.6%).

After finance costs of £0.5m (2013: £0.5m), normalised profit before tax (PBT) grew by 45.7% to £2.7m (2013: £1.9m) again supported by SUW. Normalised PBT margin improved by 210 basis points to 6.5% (2013: 4.4%) reflecting the transition towards the more profitable Technology Products division.

On a comparative basis, adjusting for the acquisition of SUW, normalised PBT, excluding non-recurring costs and amortisation of acquired intangibles, of £2.2m grew by 17.7% in the year, again reflecting the improvement in sales mix towards Technology Products and reorganisation savings from prior year activities. 

Reported profit before taxation of £1.8m (2013: £0.4m) improved significantly by 350% although the prior year was affected by re-organisation activities in the business of £1.2m.

Non-recurring costs incurred in the year, excluding the amortisation of acquired intangibles, were £0.3m. This can be broken down as follows:

· Acquisition costs relating to SUW £0.2m

· Abortive fees for a facility relocation £0.1m

Gross margins on a normalised basis improved by 70 basis points to 22.0% (2013: 21.3%). This was supported by the acquisition of SUW. Excluding SUW's contribution, gross margins improved by 30 basis points to 21.6%.

The improved profitability of the Company has been achieved against a background of increased long-term investment of £0.3m in the Power business, delivering the initial phases of growth in our Power distribution revenues. It also reflects the success of prior year reorganisation activities that delivered a fixed cost base reduction of c.£1.3m, current-year procurement savings and operational efficiencies, which together have more than covered increases in input costs and pricing pressures in iEMS. 

Research and development

The Group capitalised £211k (2013: £120k) of R&D costs in the year, reflecting increased investment in the Technology Products division. This is expected to increase further in the coming years to support growth and projects identified by the Group Technology Board. This is shown gross as an intangible asset on the balance sheet.

Interest and other financing costs

Finance costs on the face of the consolidated income statement were £470k (2013: £505k). This can be split down as follows: interest payable on debt, net of interest earned on cash deposits of £143k (2013: £196k), net interest on the net defined benefit pension scheme liability of £303k (2013: £296k) and interest on finance leases of £24k in the year (2013: £13k).

Taxation

The normalised tax charge for 2014 of £339k (2013: £286k) represents an effective rate of 13% (2013: 15%) on the normalised profits before tax. On a reported profits basis, the effective rate of taxation was 19% for 2014 on profit before taxation (2013: 67%). A rate of between 19% and 21% is expected in the year ending 31 December 2015. For the 2013 accounts, tax was only paid in Asia at a rate of some 20% due to carry forward losses in the UK.

Earnings per share

Basic adjusted earnings per share from continuing operations was 7.8p (2013: 5.3p) up 47% on the prior year.

On a statutory basis earnings per share from continuing operations was 4.8p (2013: 0.5p), with 2013 being suppressed by the level of re-organisation costs in the year.

Exceptional and other items relating to continuing activities excluded from normalised profit before tax are:

Dividends

During the year, the Company paid a final dividend for 2013 of 0.75 pence per share, and a 2014 interim dividend of 0.70 pence per share. Total cash outflow in respect of dividends was £0.44m (2013: £0.65m).

Given the improved performance in the second half of the year the Board proposes a final dividend of 1.40 pence per share (2013: 0.75 pence per share), giving a total dividend for the year of 2.10 pence per share (2013: 1.20 pence) at a total cost of £0.44m. This final dividend is expected to be paid on 24 April 2015 to shareholders on the register on 27 March 2015 with an ex-dividend date of 26 March 2015.

Balance sheet

Shareholders' funds

Shareholders' funds increased from £9.0m in 2013 to £10.2m in 2014, driven by the acquisition of SUW. As part of the consideration 1,515,152 shares were issued at the prevailing market value totalling £1.0m.

Goodwill and intangibles

Under IFRS, goodwill is no longer amortised but instead is subject to annual impairment tests. There were no impairments identified in the year. Goodwill on the balance sheet is valued at £11.1m (2013: £5.1m), the increase reflecting the recent acquisition of SUW.

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 SUW, acquired intangibles recognised in the year amounted to £1.7m, comprising of customer opening order books £0.6m and customer relationships £1.1m. 

Other intangible assets comprise development costs or software, which are capitalised as intangible assets as required by IFRS. Amortisation on these assets is deducted from normalised profits. Other intangibles increased in the year by £0.2m due to investment in capitalised research and development costs.

Tangible assets

The Group has property, plant and equipment totalling £3.5m (2013: £2.8m). Capital expenditure in the year was £0.2m (2013: £0.4m). This excluded committing to a new finance lease of £0.7m for a new state-of-the-art Surface Mount Technology (SMT) line, which was installed in Hartlepool.

The Group's underlying maintenance capital expenditure level is expected to be around £0.5m to £0.7m going forward given the enlarged Group.

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 pension liabilities at the end of the year (net of the related deferred tax asset) have increased to £5.3m (2013: £4.5m). The increase in the IAS 19 deficit is predominantly due to the fall in the yields available on corporate bonds over the period.

The value of plan assets as a % of defined benefit obligation is as follows: the Stadium Group plc 1974 plan funding status as at 31 December 2014 is 81% (2013: 83%) and the Southern & Redfern Limited Scheme as at 31 December 2014 is 108% (2013: 96%).

Pension contributions of approximately £0.9m (2013: £0.9m) were paid to the scheme in addition to those relating to current service.

The Stadium Group plc 1974 Pension Scheme will undergo its triennial valuation at the start of 2015. Given Stadium's increasing financial strength and recent developments in the pension legislation, a reduction in deficit funding is anticipated.

Cash generation and net debt

Operating cash from trading activities after investment in capital expenditure and research and development was £2.5m (2013: £1.9m), representing 109% (2013: 202%) of operating profit. The reduced cash conversion was largely due to an increase in working capital, which was driven by investment in SUW growth and changing trading patterns in iEMS where two key accounts have transferred to Asia manufacture, increasing stock held in the supply chain.

After payment of the pension deficit contributions and tax amounting to £1.1m (2013: £1.2m), net cash inflow from operating activities was £1.8m (2013: £1.1m inflow).

Net debt, including finance leases at 31 December 2014 stood at £4.9m (2013: £0.2m); largely reflecting the cash consideration on the acquisition of SUW.

Free cash flow increased marginally by £0.2m to £1.3m (2013: £1.1m). Free cash flow is stated after interest, tax and pensions financing, but before acquisitions, financing activities and dividends.

Bank facilities

During the year, the Group renegotiated its banking facilities with HSBC. To fund the acquisition of SUW, a £5m Revolving Credit Facility (RCF) was drawn down. This loan is repayable in July 2019 and has no formal repayment schedule prior to that date. At 31 December 2014, the full £5m of this facility remains to be repaid.

At the same time Stadium also consolidated its legacy debt into a £3m term loan; this new loan is repayable in increasing instalments across the period to October 2019. At 31 December 2014, £3m of this loan remains outstanding.

At the end of the year we therefore have drawn down £8.0m with HSBC, £0.3m of which is repayable in one year and the remaining £7.7m is repayable over a period greater than one year.

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

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 weakening of the average Hong Kong dollar against Sterling, compared to the previous year, decreased revenues by approximately £0.9m and operating profits by approximately £0.1m.

Treasury and risk management

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. 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. Part of this exposure was hedged in the year by entering into loan facilities denominated in US dollars, this came to an end in August 2014 and the Group is currently reviewing its procedures in this area.

Liquidity risk is managed by the Group maintaining undrawn 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

Finance Director

10 March 2015

Consolidated income statement

for the year ended 31 December 2014

Consolidated statement of comprehensive income

for the year ended 31 December 2014

The tax effect of items of other comprehensive income are disclosed in Note 3.

Consolidated statement of financial position

at 31 December 2014

Company number: 00236394

Consolidated statement of changes in equity

for the year ended 31 December 2014

Consolidated statement of cash flows

for the year ended 31 December 2014

Consolidated statement of cash flows notes

for the year ended 31 December 2014

A. Net cash inflow from operating activities

B. Analysis of changes in net debt

Statement of accounting policies

for the year ended 31 December 2014

Stadium Group plc (the "Company") is a company incorporated in England and is listed on the Alternative Investment Market. The consolidated financial statements of the Company for the year ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the "Group"). This preliminary announcement is an extract from the consolidated financial statements of the Company for the year ended 31 December 2014. The financial statements were authorised for issue by the directors on 10 March 2015.

Basis of preparation

The financial information set out does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2014 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the company's Annual General Meeting. The auditors' reports on the statutory accounts for the years ended 31 December 2014 and 31 December 2013 were unqualified and do not contain statements under s498(2) or (3) Companies Act 2006. While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs and does not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2014 Annual Report when it becomes available.

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 2014 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.

Any standards and interpretations that have been issued but are not yet effective, and that are available for early application, have not been applied by the Group in these financial statements.

Application of these standards and interpretations is not expected to have a material effect on the financial statements in the future.

Basis of consolidation

The Group financial information consolidates that of the Company and its subsidiaries. Businesses acquired or disposed of during the period are consolidated from the effective date of acquisition or until the effective date of disposal. The consolidated financial statements incorporate the results of the business combination using the purchase method. In the consolidated statement of financial position the acquiree's assets and liabilities are recognised at fair values at the acquisition date. The results of the acquired operations are recognised in the consolidated income statement from the date control is acquired.

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.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

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 recognition

Revenue is measured at the fair value of goods provided to customers net of returns, discounts, value added tax and other sales taxes. Revenue is recognised when goods are dispatched to the customer and the collectability of the revenue is reasonably assured.

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 - five years

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 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 the consolidated statement of 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.

Trading assets and liabilities denominated in foreign currencies are translated into Sterling (the Group's functional 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 the functional currency of the relevant Group company, 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 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 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 leased asset. 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 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.

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 the complete notes to the accounts.

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 complete notes to the accounts 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, 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 £1,681,000 have been recognised .

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 2014

1. Segmental reporting by operating segment

Following the restructuring of the iEMS business in the UK and acquisition of the specialty M2M wireless business of Stadium United Wireless Limited in July 2014, the Group now 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 specialty 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. In the prior year the Interface and Displays business and the Power business were disclosed individually. Those segments are now consolidated within the Technology segment, and the 2013 comparatives have been restated to reflect this change.

Non-recurring costs of £79,000 were incurred in the restructuring of the Technology segment of the business and £207,000 was incurred raising funding and making the acquisition of Stadium United Wireless.

The non-recurring costs incurred in the prior year relate to the restructuring of the iEMS business segment. Costs within the segment have been challenged over the previous two years and improved profitability is now seen from this part of the business. 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. Taxation

A deferred tax credit of £322,000 (2013: charge of £178,000) relating to the increase (2013: decrease) in the defined benefit obligations has been recognised directly in other comprehensive income, together with a tax charge of £Nil (2013: £213,000)relating to a change in the rate at which deferred tax has been calculated.

4. Dividends

The Board proposes to pay a 2014 final dividend of 1.4p per share (2013: 0.75p) on 24 April 2015 to shareholders on the register on 27 March 2015, amounting to £435,000 (2013: £222,000).

5. Inventories

Inventory provisions created during the year amounted to £11,000 (2013 released: £908,000). Inventory with a carrying amount of £6,600,000 (2013: £3,670,000) has been pledged as security for liabilities.

6. 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 £229,000 (2013: £295,000) which falls due for repayment on 15 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.

7. Current payables

8. Non-current payables

The net bank borrowings, including overdrafts, 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.

Previously the Group had a Revolving Credit Facility (RCF) for corporate acquisitions maturing in July 2017. In October 2014 this facility, together with an existing loan, was restructured into a single loan facility of £3,000,000 at the Group's request. The new loan 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. An additional loan of £5,000,000 was drawn during the year to fund the purchase of the subsidiary business Stadium United Wireless Limited. This loan is repayable in July 2019 and has no formal repayment schedule prior to that date.

9. Earnings per share

The calculation of basic earnings per share is based on the profit for the financial year of £1,444,000 (2013: £144,000) and the weighted average number of ordinary shares in issue during the year of 30,192,517 (2013: 29,477,179).

As Stadium United Wireless Limited is expected to meet the earn-out criteria for contingent consideration to be payable, 2,061,856 shares are treated as outstanding and included in the calculation of diluted earnings per share. However, this performance expectation does need to be maintained for a further two years for the shares to become fully dilutive. Fully diluted earnings per share therefore reflects both dilutive options granted and shares to be issued as part of contingent consideration resulting in a weighted average number of shares of 33,710,798 ordinary shares (2013: 30,524,923) and profit for the financial year of £1,444,000 (2013: £144,000).

Adjusted earnings per share from continuing operations is stated before amortisation of acquired intangibles and excluding non-recurring items as follows:

10. Business combinations

On 25 July 2014 the Group acquired all of the shares of United Wireless Limited (Wireless). The name of the company was then changed to Stadium United Wireless Limited. The company is a specialist in the design and manufacture of electronics for the machine-to-machine (M2M) wireless sector. At the same time United Wireless Limited acquired all of the assets and intellectual property of the connected business United Wireless Devices LLP.

Cash consideration of £5,000,000 was paid on completion of acquisition of the business together with the issue of 1,515,152 shares at a market value of £1,000,000. The Group will give additional consideration for the acquisition dependent upon certain EBIT targets being achieved across the following three years. The maximum earn-out that could be achieved is the issue of further Stadium shares at a market value of £2,000,000 based on the future share price at the time of the award. The directors are of the opinion that the profit will exceed the target set for the additional maximum consideration to be made. As this contingent consideration is to be given over a further three years, the value is discounted to account for the time value of money. Other costs relating to the acquisition have not been included in the consideration and have been recognised as an expense. This expense has been included in Operating expenses - non-recurring.

In the five months to 31 December 2014 the subsidiary contributed net profit before taxation of £110,000 after amortisation of acquired intangibles from revenue of £3,780,000.

If the acquisition had occurred on 1 January 2014, management estimates that consolidated revenue for 2014 would have been £46,591,000 and consolidated net profit before taxation for the year would have been £1,694,000.

In determining these amounts, management has assumed that the fair value adjustments that arose at the date of acquisition would have been the same if the acquisition occurred on 1 January 2014. The directors do not consider these results to be representative of the combined Group, however. Since acquiring the business the directors have integrated the business into the Group's operations and made the necessary changes to the structure that will improve profitability.

The acquisition had the following effect on the Group's assets and liabilities on acquisition date:

Pre-acquisition carrying amounts were determined based on applicable IFRS immediately before the acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values. In determining the fair value of customer relationships and customer order books acquired, the Group applied a discount rate of 8% to evaluate net present values of expected cash flow benefits.

The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the acquired business' work force and the synergies expected to be achieved from integrating the company into the Group's existing electronics manufacturing business.

11. Annual General Meeting

Notice is hereby given that the Annual General Meeting of Stadium Group plc will be held at Nplus1 Singer Advisory LLP's offices at 1 Bartholomew Lane, London EC2N 2AX on 17 April 2015 at 11am.