Preliminary Results

Stadium Group plc

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

Unaudited preliminary results for the year ended 31 December 2012

Stadium Group Plc (AIM: SDM), a leading electronic technologies group, announces results for the year ended 31 December 2012.

Financial headlines

·; Revenues of £40.99m (2011: £44.94m)

·; Reported profit before taxation of £1.77m (2011: £3.96m)

·; Adjusted profit before taxation* of £1.44m (2011: £2.64m)

·; Strong cash conversion from underlying operations of over 200%

·; Sale of the Hong Kong property completed for net cash proceeds of £3.3m and a one-off profit of £2.4m

·; Cash of £4.0m, offset by loans of £3.9m, results in net cash of £0.1m

·; Reported earnings per share of 4.2 pence (2011: 9.0 pence)

·; The Board proposes an unchanged final dividend of 1.75 pence per share (2011: 1.75 pence)

* After adjusting for a one off gain from the sale of the HK property, offset by reorganisation provisions and other non-recurring charges as detailed in the financial review

Other highlights

·; Delivery on the acquisition strategy: IGT (Interface & Displays) business acquired in September 2012

·; Consolidation of the UK iEMS business

·; Rationalisation of the Asia operation with activities transferring from HK to mainland China

·; Continued investment in operational improvements and increasing the management talent in the business

·; New Finance Director Joanne Estell appointed in September

Commenting on outlook, Chairman Nick Brayshaw OBE said:

"Trading in the first few months of the year has been challenging given a continuation of the difficult market conditions experienced in the latter part of 2012. Going forward our self-help programmes will deliver leaner business structures and improve operational efficiency, which will offset the impact of weak or zero growth. The Board remains committed to the growth strategy of investing in technology led businesses where we can leverage our manufacturing know how and exploit cross selling opportunities, and will continue to explore suitable opportunities to drive this strategy forward. Consequently, the Board remains confident in its strategy for the future and the Group's prospects for the current year."

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Copies of the audited financial statements will be sent to all shareholders shortly

Chairman's Statement

For the year ended 31 December 2012

I am pleased to announce that the Group has delivered satisfactory results for the year ended 31 December 2012, in a persistently difficult market. The Group delivered its strategic objectives set out in 2011, with particular highlights in the year being: the acquisition of IGT Industries Ltd (IGT), an Interface and Displays business, the announced rationalisation of the UK integrated Electronic Manufacturing Services (iEMS) operations, the consolidation of Asia activities into mainland China and the subsequent sale of the Hong Kong Property. The combined effect of these actions has repositioned the Group for future growth and better equipped it to navigate the current uncertain times.

Financial Review

Revenues at £40.99m were down year on year by 8.8% and down 11.2% on a comparative basis excluding the acquisition of IGT (2011: £44.94m). Against the global market for iEMS the business held up well, as independent market intelligence suggests this sector is down by c.25% from 2011 to 2012 (Source: Reed Electronics Research - December 2012).

Profit before tax was £1.77m (2011: £3.96m) including the impact of a number of non-recurring items incurred during the year. Excluding such items, normalised profit before tax was £1.44m (2011: £2.64m). Operating cash conversion from trading activities was 49%, whereas normalised operating cash conversion was 255% driven by improvements in inventory management and cash collection against a backdrop of reduced sales. Basic earnings per share were 4.2p (2011: 9.0p).

Overview

During the year the Group successfully acquired IGT for an initial cash consideration of £3.02m with a further sum of up to £0.75m dependent on year one performance. IGT manufactures intelligent displays and met the Group's acquisition criteria in that it delivers highly engineered, customised product to OEMs in attractive growth markets. In terms of supporting and accelerating IGT's future growth, the business will be able to leverage Stadium's manufacturing footprint and valuable expertise in electronic manufacturing as well as access to the Group's wider customer base. It is this ability to cross-sell an integrated electronics capability which is central to the future growth plans of the Group.

In December 2012, plans were announced to amalgamate the UK iEMS operations and to rationalise the existing capacity onto one site. This project is expected to yield cost savings of c.£1m per annum and will pay back partially in 2013 and fully in 2014. A strategic review of Asia operations was also conducted in the year, resulting in a reorganisation of management, overheads and logistics planning, and the move of the majority of this activity to mainland China. Subsequently, the decision was taken to sell the surplus Hong Kong building, realising cash of £3.3m (£2.6m in 2012, £0.7m to follow in 2013) and a one off profit of £2.4m.

Board changes

On behalf of the Board I would like welcome Joanne Estell as Group Finance Director as she replaces Colin Wilson who stepped down in September 2012; I would also like to thank Colin for his contribution to the Group. Joanne joins us from Survitec Group Ltd and previous to that Smiths Group plc, where she was a Finance Director within the John Crane division, leading the successful integration of three newly acquired businesses over a period of rapid growth.

Business strategy

In 2011 the Board set out three areas of business improvement that in the short and medium term will support the strategic intent of improving the quality of earnings through leveraging existing manufacturing capabilities and acquiring adjacent defendable niche technologies.

(1) Organic growth

Power Products grew its business by 5% year on year and increased its range of customised and standard power supplies. New iEMS business introduced during the year was c.£7m, predominately in the UK. This was encouraging against a backdrop of an exceptionally poor underlying market and a handful of key customers either exiting legacy products or significantly reducing volumes. Further, a number of contracts in Asia were exited due to unacceptably poor margins. Project quoting has been high in the year and the iEMS business is actively pursuing new projects with the objective of building long term relationships.

(2) Acquisition

IGT, the newly acquired Interface and Displays business is already proving a valuable addition to the Group; integration activities are on plan and are delivering sales and cost reduction opportunities. The business is seeing a strong order intake for the first half of 2013, driven from long term customer relationships and the integrated sales efforts with Power and iEMS, which is already beginning to yield positive results. We have been aggressively pursuing other acquisition targets against our structured acquisition criteria in the year, but in the current climate the lead time to convert these targets is unfortunately taking longer than anticipated. Nevertheless, the Board remains confident of its ability to find and acquire suitable acquisition targets going forward.

(3) Operational leverage

There was much to be gained in the year from a detailed review of the supply chain: contracts were renegotiated delivering material savings as well as negotiating favourable payment terms. Operations were globally organised, increasing operational efficiencies, giving customers a real choice over where they want their electronics manufactured, in Asia or the UK. During the period the Group invested £0.5m in capital equipment and development costs (2011: £0.33m) to support the Group's redefined strategy, focussing resources in our high growth areas and improving operational efficiencies. Despite the difficulty in underlying markets, it is reassuring to report that as a consequence of such actions, gross margins increased during the year to 19.3% (2011: 19.1%)

Dividend

Notwithstanding the reduction in underlying profits and earnings in the period and recognising the one off gain on the disposal of the Hong Kong property, the Board proposes an unchanged final dividend of 1.75 pence per share (2011: 1.75 pence), to be paid on 10 May 2013 to shareholders on the register on 29 March 2013. The Board's policy on dividends, as previously stated, is to maintain a dividend cover of three times through the cycle, measured against profit after tax attributable to shareholders.

Outlook

Trading in the first few months of the year has been challenging given a continuation of the difficult market conditions experienced in the latter part of 2012. The outlook for the global economy remains uncertain with few convincing signs of a sustained recovery. Against this backdrop, IGT is performing well and delivering on the acquisition case, with book-to-bill ratios increasing and the order book providing 55% cover for the rest of the year's sales; Power is performing to plan, whereas iEMS remains difficult, supporting the decision to rationalise capacity in the UK. Overall we anticipate a stronger second half as the integrated sales approach yields results, together with a reduced cost base resulting from the planned closure of the Rugby facility and other cost saving initiatives.

Our self-help programmes will deliver leaner business structures, improve operational efficiency and an enhanced global procurement capability that will help to offset the impact of weak or zero growth. The Board remains committed to the growth strategy of investing in technology led businesses where we can leverage our manufacturing know how and exploit cross selling opportunities, and will continue to explore opportunities to drive this strategy forward. This will be executed in line with developing and enhancing the service offer to existing electronic customers in the iEMS market. The Board remains confident in its strategy for the future and the Group's prospects for the current year.

Nick Brayshaw OBE

Chairman

12 March 2013

Business and Financial Review

Covering the year ended 31 December 2012

Business review

The future organic growth of the business lies in its alignment with markets for high technology products which present the opportunity for rapid growth at an early stage in the product's lifecycle. The Group's objective is to grow through gaining market share with new business whilst also maintaining the level of activity in those core areas which have a mature base of established customers.

Revenue by source

(*contribution for the 4 months only)

In line with widely reported issues with this segment, integrated Electronics Manufacturing Services (iEMS) business weakened further in the second half, as projects that were expected in 2012 moved into 2013 or were put on hold by customers. Asia was particularly hard hit from the strategic exit of a legacy contract and two large accounts in the green energy and environment sector which were significantly down from management expectations. Corrective action has been taken to right size the business in response to this reduced level of trading.

Overall the Power Products business remains resilient, delivering 5% growth year on year. The business did soften in the second half of the year albeit we believe remaining ahead of the declines more generally seen in the Power market and relative to its peers. In this area it remains important that the Group continues to invest in new products and £0.1m of new development costs were capitalised during the year (2011: £0.13m).

Interface and Displays (IGT acquisition) made a contribution to sales of £1.1m to the Group in the first 4 months of trading. The order book is strengthening and the expectation is for double digit growth for 2013.

Revenue by destination

The proportion of sales made within the UK grew to 65% (2011: 58%) as most of the new business wins achieved during the year were with UK based customers. European sales also increased due to new customer wins in the green energy and environment sector, industrial controls and the effects of the newly acquired Interface and Displays business. Asia Pacific sales by destination were down due to the exit of the legacy contract and key customer volumes down in the green energy and environment sector in Australasia.

 Revenue by industry sector

Given the overall sales decline of 9% for the Group, most sectors were down year on year. Industrial, automotive and ventilation was the strongest sector partially driven by IGT, which has 93% of its revenues in the industrial sector. Security, safety and lighting were flat year on year, helped again by new customer wins in iEMS.

Strategic decisions were taken in the year to exit low margin, non profitable accounts. These were particularly prevalent in the medical and personal care sector and also to a lesser extent in consumer and communication.

The green energy and environment sector was an area of particular disappointment especially against the prior year which saw 25% growth. This softening year on year was attributable to one key customer who reduced its volume by c.60% due to a generally difficult trading environment in certain regulated markets relating to electricity distribution and metering.

Revenue by customer

It is important to measure, monitor and manage customer concentration risk in the iEMS industry. Reliance on one specific customer or cluster of similar customers in a related market sector could expose the business to undue risk in the event of changes in the macro-economic or technological environment.

Each customer and industry sector requires a certain level of investment in capability in order to develop and maintain the level of expertise required to service the customer effectively and satisfy or exceed their expectations for quality and engineering and development support. It can become costly to maintain a customer base which is too diverse.

We consider that the customer profile does not represent an undue concentration risk, while also offering a measure of protection against external factors beyond the Group's control.

People and processes

The business has invested in strengthening the team during the year and we are continually challenging ourselves as to whether we have the right skill set to achieve our strategic objectives. We are committed to continuous improvement and are currently reviewing all our operations and business processes to identify room for improvements and to achieve best practice. We are at the beginning of this journey: it is fair to say there is room for improvement and we expect a step change in operational efficiency in 2013 as a result of the initiatives we have instigated this year.

In terms of managing the historical pension liabilities of the Group Defined Benefit Schemes the Directors' agreed with the Trustees of the Stadium Group plc 1974 plan, a reduced level of funding in the year from £1.02m to £0.79m per annum. This agreement is in place until 31st July 2015.

Outlook

After a tough trading year and actions taken to right size the business, we are now well positioned to compete effectively in our traditional iEMS markets and pursue new growth opportunities within our technology led businesses and other possible acquisition opportunities.

Our investment initiatives are building a solid foundation to capitalise on medium term growth. We expect these initiatives to deliver operational improvements and will balance investments in favour of long term growth and enhanced return on sales.

I am delighted that we delivered the acquisition of IGT which is a strategically important business to the Group, and we continue to work hard to add another value added business. to integrate into the business structure.

A great deal has been achieved in a difficult year and on behalf of the Board I would like to thank all our employees for their efforts and commitment to the long-term growth and success of the Group.

Stephen Phipson CBE

Chief Executive

12 March 2013

Financial Review

Results

Total reported revenue for the year was down 8.8% at £40.99m on the prior year (2011: £44.94m). Revenue on a like-for-like basis, excluding the IGT acquisition, was down 11.7% despite a marginal strengthening of the US$:£ exchange rate.

Gross margin improved 200 basis points to 19.3% (2011: 19.1%) despite severe pricing pressure and adverse revenue mix towards the lower margin iEMS business. These negative pressures were offset by enhanced supply chain management and the margin improvement from the first contribution of the IGT acquisition.

To support the execution of the Company's strategy, the Company has invested in the capability of the operational management team and strengthened the sales force. This increase in headcount has resulted in an increase in overheads year on year of c. £0.3m.

Reported profit before taxation of £1.77m (2011: £3.96m) was unusually low due to a number of non-recurring items such as the re-organisation provision relating to the recent announced closure of the Rugby site, customer specific stock write off provision relating to a legacy product, acquisition costs of IGT and amortisation of acquired intangibles. These non-recurring costs were offset by the profit from the sale of the Hong Kong Property of £2.38m. Adjusted operating margin (based on normalised profits, excluding IGT) reduced to 4.6% (2011: 6.4%).

Reported earnings per share from continuing operations of 4.2p (2011: 9.0p) was down 53% on the prior year. Adjusted earnings per share, before one-off items and amortisation of acquired intangibles, decreased by 3.4p to 3.1p.

Statement of financial position and cash flow

Net cash inflow from trading activities reduced to £1.0m (2011: £3.38m) from an unusually low cash conversion ratio of 49% (2011: 81%) of operating profit.

After payment of the pension deficit contributions and tax amounting to £2.0m (2011: £3.51m), net cash outflow from operating activities was £1.0m (2011: £0.12m outflow). In 2011 the pension deficit contributions paid were greater than the normal level of deficit funding by £1.04m due to the divestment of the Branded Plastics business in 2010 and from the proceeds of the disposal of the property at Chingford. Net cash to bank debt at 31 December 2012 stood at £0.12m (2011: £2.94m).

Bank facilities

In order to support the acquisition of IGT, the Group negotiated new banking facilities with HSBC of £11.5m. At the end of the year, £3.92m was drawn down on this facility of which £1.05m is repayable in one year or on demand and £2.87m is repayable over a period greater than one year. Net credit balances of £4.04m remain available and a further £3.81m of the facilities extending beyond one year have been unutilised. All Group companies have complied with all the financial covenants relating to these facilities.

Taxation

The effective rate of taxation represented 31% of profit before taxation (2011: 34%). Tax on profits earned in our Asia operations are incurred at a rate of some 20% (2011: 20%), and paid locally.

It is anticipated that the future effective rate of taxation will be substantially dependent upon the level of pension deficit contributions relative to profits before taxation.

Dividends

During the year the Company paid a final dividend for 2011 of 1.75 pence per share, and a 2012 interim dividend of 1.05 pence per share. Total cash outflow in respect of dividends was £0.84m (2011: £0.76m).

The Board intends to maintain its policy of covering the dividend three times through the cycle from profits after tax attributable to the shareholders. However recognising the one off gain on the disposal of the Hong Kong, the proposed final unchanged dividend is 1.75 pence per share. This final dividend is expected to be paid on 10 May 2013 to shareholders on the register on 29 March 2013, at a total cost of £0.52m.

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. The Stadium Group plc 1974 plan was closed to new entrants in 1995 and to future accruals in 2011. The Southern & Redfern plan was closed to new entrants in 1997 and future accruals in 2001. The pension liabilities at the end of the year (net of the related deferred tax asset) were £5.47m (2011: £4.83m).

Pension contributions of approximately £1.06m (2011: £2.48m) were paid to the schemes. The 2011 contribution included the additional sum of £1.04m relating to the sale of the Branded Plastics business in 2010. The Stadium Group plc 1974 Pension Scheme underwent a triennial valuation during 2011; following the valuation the directors subsequently agreed a new funding plan with the Trustees of £0.79m per annum for the next 3 years.

The Southern & Redfern scheme was previously accounted for as if a defined contribution scheme on the basis of the accounting impact being immaterial. It has now been fully recognised and accounted for in the current year as a defined benefit scheme.

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 exchange rate against sterling, compared to the previous year, increased revenues by approximately £0.20m and operating profits by approximately £0.02m. Trading in our Asia operations is also adversely affected by the appreciation of the Chinese Yuan against the US dollar, as this has the effect of increasing operating costs in China. Exchange losses of approximately £0.2m (2011: £0.08m) have been recognised in current year earnings in respect of movements during 2012.

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. Foreign currency is bought to match liabilities as they fall due where currency receipts are insufficient to match the liability. 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 is hedged by entering into loan facilities denominated in US dollars.

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.

Market risks

The Group's main exposure to market risk arises from increases in input costs in so far as it is unable to pass them onto customers through price increases. The Group does not undertake any hedging activity in this area and all materials and utilities are purchased in spot markets. Input prices are monitored continually and underlying commodity prices are tracked. The Group seeks to mitigate increases in input costs through a combination of continuous improvement activities to increase the efficiency of operations and passing cost increases on to customers, where this is commercially viable.

The Group also has an exposure to the limitation of the availability of component supplies which could inhibit its ability to satisfy customer demand. The main suppliers of raw materials in the Group's market are distributors, not original component manufacturers. The current global economic environment has seen component manufacturers only slowly reintroducing capacity which was cut during 2009, so being unable to meet demand from resellers. The Group has taken steps to address this risk by seeking to build direct relationships with component manufacturers on the basis of consolidated global spend. It has also taken steps with customers to approve alternatives to critical components and so increase flexibility.

The Group is also exposed to the risk of a downturn in its customers' end markets leading to reduced levels of activity for the Group. The directors seek to ensure that the Group's activities are not significantly concentrated in sales to either one individual customer or into a single market sector in order to mitigate the exposure to a downturn in activity levels. The directors consider that the current level of market risk is higher than normal.

Other principal risks

The remaining main risks faced by the Group are its exposure to pension funding and the risk to its reputation of a significant failure to comply with accepted standards of ethical and environmental behaviour.

Pension funding risk arises from the Group's operation of a defined benefit pension scheme which at present has an actuarial deficit between the value of its projected liabilities and the value of the assets the scheme holds in order to discharge those liabilities. The amount of the deficit may be adversely affected by such factors as lower than expected investment returns, changes in long term interest rates and inflation expectations and increases in the forecast longevity of members. The directors regularly review the performance of the pension scheme and the deficit recovery plan. Proactive steps are taken to identify and implement cost effective activities to mitigate the pension scheme deficit. The Group seeks to maintain a good working relationship with the trustees through regular update meetings and all Pension matters are regularly reported to the Board.

The risk to the Group's reputation of failure to comply with ethical and environmental regulations arises mainly from the operation of a production facility in Asia. The directors have taken steps to ensure that all of the Group's global operations are conducted to the highest ethical and environmental standards. Regulatory requirements are kept under review and where appropriate production facilities seek to achieve BS, ISO and FDA accreditations. Suppliers are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of the regulations.

Going concern

The directors confirm that, after having made appropriate enquiries, they have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparation of the financial statements.

Joanne Estell

Group Finance Director

12 March 2013

Consolidated income statement

for the year ended 31 December 2012

Consolidated statement of comprehensive income

For the year ended 31 December 2012

Consolidated statement of financial position

at 31 December 2012

The accounts were approved and authorised for issue by the Board on 12 March 2013 and signed for on its behalf by:

Stephen Phipson, Director

Consolidated statement of changes in equity

for the year ended 31 December 2012

Consolidated statement of cash flows

for the year ended 31 December 2012

Statement of accounting policies

for the year ended 31 December 2012

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 2012 comprise the Company and its subsidiaries (together referred to as the "Group"). The financial statements were authorised for issue by the directors on 12 March 2013.

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 2012 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 other than IAS 19 is not expected to have a material effect on the financial statements in the future.

An amended standard on employee benefits, IAS 19, which will be mandatory for the Group for the financial year beginning 1 January 2013, requires the net funding cost of retirement benefit obligations to be calculated using the discount rate used to measure the defined benefit obligation. If the Group had adopted this amended standard in the year ended 31 December 2012 its financing costs would have been increased by approximately £200,000.

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 acquirees assets and liabilities are recognised at Fair Values at acquisition date. The results of the acquired operations are recognised in the consolidated Income Statements 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 is recognised in accordance with IAS 39 either in profit and loss or as a change to other comprehensive income.

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 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 asset 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:

Development costs - five years

Customer relationships - 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 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.

Discontinued operations and non-current assets classified as held for resale

A discontinued operation is an element of the Group that represents a separate major line or geographical area of operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation satisfies the criteria to be classified as held for sale if this is earlier. When an operation is classified as discontinued, the comparative statement of income and the statement of cash flows are restated as if the operation had been discontinued from the start of the comparative period.

Non-current assets and liabilities classified as held for sale are recognised at the lower of their book value and fair value less selling costs. Non-current assets held for sale are not depreciated but reviewed for impairment and any impairment losses are recognised in the statement of income.

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 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 which 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.

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 proceeds received net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the income statement and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise.

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 will be set out in the audited financial statements.

Notes to the financial statements

for the year ended 31 December 2012

1. Segmental reporting by operating segment

Following the acquisition of the Interfaces and Displays business of Stadium IGT in September 2012, the Group derives its revenues from three main areas of activity: provision of sub-contract electronic manufacturing services, design and manufacture of power supplies and design and manufacture of intelligent interface displays. Our operating segments are based on the management structure of the Group. Segmental analysis is provided below in respect of the electronics, power supplies and interfaces/displays. 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.

Since acquiring the Interfaces and Displays business the Directors have challenged costs within the business and made necessary changes to the structure that they consider will significantly improve future profitability.

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 one Stadium Electronics customer amounted to £4,692,000 during the year, which represented over 10% of Group revenues.

2. Profit before taxation

3. Inventories

Inventory provisions created during the year amounted to £584,000 including £240,000 provision for restructuring (2011: £263,000 net utilised provisions). Inventory with a carrying amount of £3,473,000 (2011: £3,013,000) has been pledged as security for liabilities.

4. 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 £364,000 (2011: £432,000) which falls due for repayment on 15 June 2015.

5. Current payables

6. 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 in the UK to HSBC Bank Plc, which is secured by a fixed and floating charge over the assets of all group companies.

During the year the Group transferred all its bank facilities to HSBC and negotiated an £8,000,000 Revolving Credit Facility (RCF) for corporate acquisitions maturing in July 2017. Loans under the RCF bear interest at an annual rate equal to LIBOR plus 2.1 to 2.3%, based on total net leverage ratio. As at the 31st December 2012 Stadium has drawn £3,105,000 under the RCF and £2,950,000 remains to be repaid. The Group expects to draw an additional £675,000 in the fourth quarter of 2013 to fund the contingent consideration of IGT.

7. Earnings per share

The calculation of basic earnings per share is based on the profit for the financial year of £1,230,000 (2011: £2,622,000) and the weighted average number of ordinary shares in issue during the year of 29,426,250 (2011: 29,294,549).

Fully diluted earnings per share reflect dilutive options granted resulting in a weighted average number of shares of 30,256,393 ordinary shares (2011: 29,410,539) and profit for the financial year of £1,230,000 (2011: £2,622,000).

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