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RNS Number : 0858H
Westminster Group PLC
05 June 2017
 

 

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 956/2014

 

For immediate release

 

5 June 2017

 

Westminster Group Plc

 

Final Results for the year ended 31 December 2016 and Directorate Changes

  

Westminster Group Plc ('Westminster' or the 'Company'), the AIM listed supplier of managed services and technology based security solutions to governments and government agencies, non-governmental organisations (NGO's) and blue chip commercial organisations worldwide, is pleased to announce its results for the year ended 31 December 2016 and changes to the board.

 

Key Points:

 

Operational

 

·      Received Letter of Intent on potential major long term aviation security opportunity in the Middle East with annual initial revenues of circa £35m and significant work undertaken in the year in negotiating and developing the opportunity and in setting up the appropriate supply chain and infrastructure;

·      Substantial incremental business potential relating to the above Middle East airport opportunity developed;

·      Further interest and  growing awareness in long term airport managed services business in Emerging Markets;

·      Three more long term airport security MoU's signed in 2016 and numerous other opportunities being progressed;

·      Strong recovery in West Africa passenger numbers following end of Ebola crisis in H1 boosting 2016 revenues;

·      Sovereign Ferries commenced initial operations in December 2016 and major capital expenditure now largely over;

·      Technology Division delivered a wide range of sales and solutions around the world, signed border security project MoU in Middle East and launched new and extensive website improving enquiry rates;

·      Continued to expand international presence including establishing subsidiary companies and an operational office in Germany to provide strategic support to the Group;

·      Westminster's ex-pat team in Sierra Leone awarded Ebola Medals for Service in West Africa during the Ebola crisis.

 

Financial

 

·      Revenues up by 31% to £4.4m (2015: £3.4m);

·      Gross margin increased to 71 % (2015: 58 %);

·      Adjusted EBITDA profit £25k (2015: Loss £360k);

·      Raised £3m in year to support business development and working capital;

·      £1.2m of debt converted into equity in the year;

·      Loss per share reduced by 29% to 2.5p (2015: 3.5p).

 

Post Period End

 

·      Substantial progress achieved towards finalising contract negotiations on the Middle East airport project opportunity

·      Recovery in West Africa airport passenger numbers continues;

·      Darwin Capital Limited debt now converted into equity and eliminated;

·      £0.6m new equity raised in February 2017 and a further £1m raised in April 2017;

·      CTAC claim award finalised and property assets transferred from vendors to Westminster. Any sale of these assets will benefit 2017;

 

Commenting on the results and current trading Peter Fowler, Chief Executive of Westminster Group, said:

 

"I am pleased to report in 2016 the Group has delivered a much improved financial performance both at the revenue and adjusted EBITDA levels.

 

"Our business is now in a better position than it has been for some time as the challenges and trials of the last few years are now largely behind us. Our market proposition, particularly our managed services business, has never been more relevant against a backdrop of increasing threats to air travel and a more unstable world and we are well positioned though our extensive network and governmental relationships to transform our business. Over the next few months and years we have an opportunity to achieve unprecedented growth from the prospects we are pursuing such as the Middle East airport opportunity. The Board and I remain committed to delivering on this potential.

 

"Finally we will be making some board changes at the AGM this year as detailed in the Chairman's Report. I would like to thank Ian, our outgoing CFO, for his excellent contribution over the last few years and wish him well, and to welcome Martin on board as our new CFO at this inflexion point in our growth story"

 

 

For further information please contact:

 

Westminster Group plc.

Tel: 01295 756 300

Peter Fowler (Chief Executive)

 

Ian Selby (Chief Financial Officer)

 

 

 

S. P. Angel Corporate Finance LLP (NOMAD + Joint Broker)

Tel: 020 3470 0470

Stuart Gledhill/Lindsay Mair

 

 

 

Beaufort Securities Limited (Joint Broker)

Tel: 020 7382 8300

Elliot Hance

 

 

 

Walbrook PR (Financial PR)

Tel: 020 7933 8780

 

Tom Cooper/Paul Vann

0797 122 1972

 

tom.cooper@walbrookpr.com

 

Notes:

 

Westminster Group plc is a leader in the supply of system solutions and products to the security, defence, fire protection and safety markets worldwide.

 

Westminster's principal activity is the design, supply and ongoing support of advanced technology security solutions, encompassing a wide range of surveillance, detection, tracking and interception technologies and the provision of long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities together with the provision of ferry services, manpower, consultancy and training services. The majority of its customer base, by value, comprises governments and government agencies, non-governmental organisations (NGO's) and blue chip commercial organisations.  For further information please visit www.wsg-corporate.com.

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this Announcement.

 

 

 

 

Chairman's Statement

 

Overview

 

I am pleased to present the Final Results for Westminster Group plc for the year ended 31 December 2016.

 

As we continue to recover from the challenges of the West Africa Ebola crisis, the Group has delivered a much improved financial performance both at the revenue and adjusted EBITDA levels, with revenues up by 31% to £4.4m (2015: £3.4m), resulting in a small £25k profit at EBITDA level (2015: £360k EBITDA loss). During the year the Group raised £2.7m net from the issue of equity (£1.3m) and convertible unsecured loan notes (£1.4m) to support working capital requirements and business development costs.

 

The Group continued to expand its operations, opportunities and presence around the world, notably in the Managed Services business which is now a key focus for the Group. More detail on the strategic developments, projects and opportunities we are undertaking is covered under the CEO's Strategic Report.

 

We continue to work closely with and receive excellent support from the Foreign Office and UK Diplomatic Missions around the world and I am very grateful for the support these and other governmental departments provide our teams and our operations in the various countries we are active in.

 

Corporate Conduct

 

We operate worldwide with a focus on emerging markets and in a sector where discretion, professionalism and confidentiality are essential. It is vitally important that we maintain the highest standards of corporate conduct. The Corporate Governance Report sets out all of the detailed steps that we undertake to ensure that our standards, and those of our agents, can stand any scrutiny by Government or other official bodies.

 

Social Responsibility

 

As a Group, we take our corporate social responsibilities very seriously, particularly as we operate in emerging markets and in some cases in areas of poverty and deprivation. I am proud not only of the support and assistance we as a company provide in many of the regions in which we operate but also the support and interaction our staff provide. I am also proud of our charitable support to various bodies and organisations not least our own registered charity the Westminster Group Foundation.

 

Employees and Board

 

After 10 years with the Group, a period I have thoroughly enjoyed, I have decided it is now time for me to step aside as Chairman, although I will continue to remain involved with the Group. As our Group is now anticipating significant potential growth, and due to my other commitments, I feel I am no longer able to devote the time required to chair the Group. Accordingly, I propose to stand down at the AGM and our Deputy Chairman, Sir Tony Baldry, will take over the chair. I will continue as Deputy Chairman. 

 

Ian Selby, who has been the Group CFO since July 2011, will be stepping down from the Board at the AGM in June to concentrate on his other ventures. Ian has been a valued part of our team and has helped us achieve many of our successes and helped steer us through difficult times. On behalf of the Company and the Board I wish to thank Ian for all his efforts. I am pleased to say however that Ian will remain a consultant to the Company providing assistance where required.

 

I am delighted to welcome Martin Boden as our new CFO who will join the Board on 29 June 2017, the date of this year's AGM.  Martin has considerable experience with high growth businesses and sales into international markets.  He has worked with both AIM and FTSE 250 listed companies as well as Private Equity owned organisations, having most recently been CFO at Genus plc and JDR, a privately owned energy services business.  Martin has worked closely with both UKTI and UK Export Finance on overseas projects. I believe Martin's experience of international transactions and financial management of high growth businesses brings additional strength to our Board.

In November 2016 we announced that James Sutcliffe had joined the Board as a Non-Executive Director and Chair of the Audit Committee. James has considerable experience delivering major international projects particularly in the infrastructure, ports and marine sector. He is a former Chairman of UKTI (Ports & Marine 2006-2013) promoting UK business in Emerging Markets in the Far East, India, Eastern Europe and Mediterranean countries. I am pleased to say James has become a valued addition to our team.

 

As a service based business, our employees are key to delivering success. I believe we have an exceptional workforce and I would like to take this opportunity to express my appreciation to all our employees, both in the UK and our ever expanding overseas workforce, who have worked extremely hard during the year.

 

I would also like to pay tribute to our employees and the various individuals and organisations for their generous support and contributions to our registered charity the Westminster Group Foundation. We work with local partners and other established charities to provide goods or services for the relief of poverty or advancement of education or healthcare making a difference to the lives of the local communities in which we operate. For more information or to make a donation please visit www.wg-foundation.org 

 

I would finally like to extend our appreciation to all our investors for their continued support and also to our strategic investors who are bringing their expertise to help deliver value for all.

 

 

Lt. Col. Sir Malcolm Ross GCVO, OBE

Chairman

5 June 2017

 

 

 

Chief Executive Officer's Strategic Report

 

Business Description

 

Our vision is to build a global business with strong brand recognition delivering niche security solutions and long term managed services to high growth and emerging markets around the world with a particular focus on long term recurring revenue business.

 

Our target customer base is primarily governments and governmental agencies, critical infrastructure (airports, ports & harbours, borders, power plants etc.) and large scale commercial organisations worldwide.

 

Our business has evolved from a traditional UK focused security business to what can be described today as a truly international business.  Furthermore, our evolution continues as we expand our operations into new areas and new territories creating additional opportunities around the world in the provision of long term security and managed services.

 

We deliver our wide range of solutions and services through a number of operating companies which are currently structured into two operating divisions; Managed Services and Technology; both primarily focused on international business as follows:

 

Managed Services division:

 

Focusing on long term (typically 10 - 25 years) recurring revenue managed services contracts such as the management and operation of security solutions in airports, ports and other such facilities, together with the provision of ferry services, manpower, and consultancy and training services.

 

Technology division:

 

Focussing on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking, screening and interception technologies to governments and organisations worldwide.

 

In addition to providing our business with a broad range of opportunities, these two divisions offer cost effective dynamics and vertical integration with the Technology Division providing vital infrastructure and complex technology solutions and expertise to the Managed Services Division, thereby reducing supplier exposure and cost and increasing purchasing power. Our Managed Services Division provides a long term business platform to deliver other cost effective incremental services from the Group.

 

We continue to deliver a wide range of solutions to governments and blue chip organisations around the world, and our reputation grows with each new contract delivered. This in turn underpins our strong brand and provides a platform from which we can expand our Managed Services business which is now a key focus for the Group with its growth prospects in Emerging Markets and the resulting significant recurring revenue stream potential.

 

Business Review

 

As highlighted in the Chairman's Statement, and elsewhere in this document, we have delivered a much improved performance in 2016.

 

Operationally we have delivered a wide range of security products and solutions around the world and continue to expand our international presence including the establishment of subsidiaries and an operational office in Germany which will provide strategic support to our projected growth.

 

Enquiry levels remain healthy and levels of interest in the Group's services remains high across both operating divisions. However, whilst our Technology Division provides the technological resources and platform to expand our operations around the world it is our Managed Services Division, with its potential for delivering large scale, long term, recurring revenue and transformational growth, which is increasingly our core focus, particularly within the aviation security sector.

 

Managed Services Division

 

The Group's Managed Services Division continues to make progress on a number of fronts.

 

Airport Security:

 

Our airport security operations in West Africa are experiencing strong recovery from the Ebola crisis that devastated the region and which finally came to an end in March 2016. Whilst airline traffic has not yet fully recovered to pre-Ebola levels, we have seen steady growth with flight schedules increasing and new airlines such as KLM commencing services. In 2016 our embarking passenger numbers grew by 52% to 97k (2015: 64k). We anticipate the recovery towards pre-Ebola levels will continue and are encouraged to have seen a further increase of 27% in embarking passengers in Q1 2017 to 28k (Q1 2016: 22k - albeit this was before the region was declared Ebola free). This together with the cost reduction measures we have taken has resulted in the operations once again making a worthwhile contribution.

 

In addition, cargo screening operations commenced in West Africa during 2016, following the cargo operations and security screening service achieving the coveted RA3 status. The new cargo sheds currently have far greater capacity than current utilisation and the authorities are looking to build on this and create a regional hub for cargo services.

 

Westminster's international reputation and expertise in the field of aviation security continues to grow, evidenced by both the number of new training and support contracts secured for airports around the world and the ever growing pipeline of opportunities for aviation security projects.

 

In this respect, we have invested considerable time, effort, and expense in progressing several large scale long term potential opportunities. Amongst such opportunities in progress are those for which we have previously announced the signing of a Memorandum of Understanding (MoU) and others that are approaching that stage, including our previously announced major long term airport security project opportunity within the Middle East for which the Company received a letter of intent in May 2016.  Substantial progress has been achieved towards closing this opportunity which is expected to result in annual revenues in excess of £35m.

 

With regard to the Middle East project opportunity, the Company has been actively preparing the required support structures and infrastructure necessary to deliver the projects, including organising a complex supply chain and other required resources.

 

Contracts of this size and nature are not only time-consuming but involve complex negotiations with numerous commercial and political bodies.  Discussions can ebb and flow over many months with periods of intense activity which can be followed by long periods of inactivity. No two opportunities are the same. By way of example, two of the previously announced MoUs, the Asia MoU signed in February 2015 and the MoU announced on 12 October 2015, are now considered longer term opportunities due to current political issues within the countries concerned. In contrast, the East African airport opportunity announced in November 2012 and which has taken far longer than anticipated due to the government's own internal processes and various political issues unrelated to our project, is now once again quite active. All other announced MoU's are in various stages of development and continue to be progressed.

 

Whilst there is never certainty in relation to either the outcome or timing of such negotiations, the considerable progress made to date with the Middle East and other opportunities and the ongoing support received from UK governmental departments and overseas missions is extremely encouraging.

 

Airport security solutions and our experience in the sector represent a significant growth opportunity for our Managed Services Division, however this is certainly not the only area of expansion. We are also in discussions with port operators on similar long term managed services solutions as well as continuing to look at managed services and recurring revenue opportunities beyond security.

 

Ferry Project:

 

In November 2014, we signed a 21 year contract for the operation and management of ferry terminals and the provision of a professional ferry service in Sierra Leone across the estuary between the capital Freetown and the International Airport on the Lungi peninsula.

 

The background to this project is that passengers travelling to and from the airport to the capital, Freetown, either have to cross the estuary or spend several hours driving on difficult roads. With over 200,000 passengers a year and growing passing through the airport, the vast majority of which will need to cross the estuary, there is a captive market and a strong need for a professional ferry service. The previous ferry services were largely unsuitable and at times unable to cope with volumes of passengers and it could take over an hour to transport passengers to and from the airport. This was a potential limitation on the future growth of the airport and in turn our revenues and one of the reasons this was considered a good opportunity for the Group's expansion.

 

Our ferry services, under the branding Sovereign Ferries, provide a much needed professional service with well-trained uniformed staff, air conditioned transit coaches, well equipped terminals and fast, safe and internationally compliant vessels.

 

Over the past two years we have not only built the required infrastructure and upgraded the ferry terminals but have had to deal with a number of challenges including prolonged vessel repairs to our flagship vessel the Sierra Queen. I am pleased to report therefore that this long-awaited service finally commenced with a soft start in mid-December 2016 and with formal services commencing in January 2017.

 

The current addressable ferry market is estimated to be worth around £4 million per annum in revenues. As we now move from a period of major capital expenditure to an operational phase, our focus for the business over the next 12 months is to grow our market share. It is pleasing that we have already secured 3% of the market and we believe that, given the size of the captive market, the superior quality of our service, our vessel safety and the numerous local marketing initiatives we are pursuing we will continue to grow volumes to well beyond a 14% share (the level at which we anticipate the operation will be providing a positive contribution).

 

In addition, we are looking at new markets and revenue streams by the provision of new services such as a coastal taxi service around Freetown, for which we believe there is a strong and untapped demand together with new regional routes.

 

The current service is focussed on the Sierra Princess, which will shortly be joined by the Sierra Duchess, which we have acquired on a favourable lease basis, to further provide additional flexibility to our inshore and water taxi services. Both vessels are impressive inshore fast ferry craft specifically fitted out to transport passengers and their luggage safely and in comfort. These craft can carry up to 45 passengers and their luggage in comfort. Our flagship sea going vessel, the larger 200 seat Sierra Queen, is now operational and subject to a routine engine service and will be brought into service in due course as demand and operations dictate and for longer distance regional routes currently being planned.

 

Technology Division

 

During the year, the Technology Division secured contracts for a wide range of products and services delivered to clients from around the world. By way of example of the diversity of our deliverables, we provided equipment for a nuclear facility in North America; advanced screening solutions in West Africa; security solutions for a North African postal service; secured a museum in Egypt; equipped various prisons and supplied a South African forensic police service facility with specialist equipment. In 2016 we had clients in Aruba, Australia, Azerbaijan, Bahamas, Bulgaria, China, Croatia, UAE, Egypt, Gambia, Germany, Greece, Hong Kong, India, Indonesia, Iraq, Italy, Jamaica, Jordan, Kenya, Korea, Netherlands, Nigeria, Portugal, Qatar, Romania, Rwanda, Saudi Arabia, Senegal, Somalia, South Africa, Tanzania, Thailand and Vietnam.

 

In addition, the Division has provided various equipment and technology support services to the Managed Services Division.

 

The Technology Division continues to build its recurring revenue base of maintenance and service contracts both in the UK and overseas and now has recurring revenue maintenance contracts with governmental and corporate clients valued at over £180,000 per annum. These contracts help underpin the cost base of the Division and is an area of the business we expect to grow further.

 

The ongoing world-wide slump in oil prices continues to impact previously announced projects such as the Americas consultancy and pipeline projects due to government cut backs on capital spending. As the oil price is expected to remain an issue for some time and whilst we continue to investigate alternative funding solutions, these projects along with the US Bridge project no longer form part of the Group's internal forecasts as we concentrate on the rest of the business and, in particular, our major managed services project opportunities.

 

Strategic Review

 

Last year I announced we were undertaking a wide ranging strategic review of our operations to ensure we are well positioned to maximise opportunities going forward and successfully take the business to a new level. As part of that review we have made a number of changes to our management structure, broadening the level of experience and expertise to assist our expansion, creating a PLC Board responsible for overall performance and strategy of the Group, an Operations Board responsible for day to day management of the Group's business and established an International Advisory Board to advise the Group on international issues including governmental and client liaison, cultural, ethnic and religious sensitivities, compliance with legal issues, financing and general business development.

 

This review is ongoing and we continue to review our operations, structure, management and advisors. Our business is facing unprecedented growth prospects, particularly with our airport security operations, and it is essential we have the right leadership, management and strategies in place to successfully deliver such growth. Accordingly, the changes we have made and intend to make in the near future, to strengthen our management and broaden our range of experience and expertise, together with the strategies we are putting in place, will, I believe, serve the Company well and greatly assist our planned growth.

 

Performance Indicators

 

The Key Performance Indicators by which we measure performance of our business are set out in the Chief Financial Officer's Report.

 

Financial Review

 

The financial review for the year ended 31 December 2016 is set out in the Chief Financial Officer's Report.

 

Principal Risks and Uncertainties

 

These are referenced along with key mitigation strategies in the annual report and financial statements for the year ended 31 December 2016.

 

Business Outlook

 

Our business is now in a better position than it has been for some time. The challenges and trials of the last few years dealing with the effects of Ebola are now largely behind us and our West African airport operations, in particular, are now producing a healthy and growing contribution. Our ferry service is at last operational and should also be making a contribution by the end of 2017 as the service expands. Our Technology Division continues to deliver a wide range of products and solutions around the world to destinations which, so far in 2017, include countries as widespread as Bangladesh, Belgium, UAE, Ethiopia, Indonesia, Guyana, Italy, Lithuania, Nigeria, Tanzania and the UK. We continue to grow our recurring revenue base with maintenance and service contracts both within the UK and overseas. Our Managed Services Division continues to make progress on a number of fronts. We are securing an increasing number of contracts to assist airport authorities around the world with their equipment and training needs and this further enhances our endeavours and prospects for our large scale, long term airport opportunities.

 

Over the next few months and years we have an opportunity to achieve unprecedented growth from the prospects we are pursuing, such as the Middle East airport opportunity, any one of which could be transformational for the Group. The Board and I remain committed to delivering on this potential.

 

P.D. Fowler

Chief Executive Officer

 

5 June 2017

 

 

 


 

Chief Financial Officer's Report

 

Revenue

 

Revenues were £4.4m (2015: £3.4m). The Technology Division recorded revenues of £1.6m (2015: £1.7m) and the Managed Services Division £2.8m (2015: £1.7m). Managed Services revenues recovered from 2015 due to the abatement and end of the Ebola crisis in West Africa and the consequent growth in passenger volumes and security fees. Technology Division revenues were broadly similar to 2015. Revenues from the West African ferry service commenced in December 2016 following soft launch but were immaterial during the financial year 2016.

Gross Margin

 

Gross margin rose to 71% (2015: 58%) due to both the increased revenue contribution from the Managed Services division and its higher margin and also from improving performance in the Technology Division.

 

Operating Cost Base

 

Our total operating and administrative costs were £4.5m (2015: £3.6m). Within these results an IFRS share option expense of £0.1m (2015: £0.1m) was recorded, a depreciation and amortisation charge of £0.2m (2015: £0.1m), non-capitalisation of certain ferry setup costs of £0.6m and specific uncapitalised costs related to progression of the Middle East Airport opportunity of £0.2m (2015: £ nil). 

Operational EBITDA

 

Our loss from operations was £1.4m (2015: £1.6m). When adjusted for the exceptional and non-cash items set out below and depreciation and amortisation, the Group recorded an adjusted EBITDA profit of £25k as compared to a loss of £0.4m in the prior year. The estimated impact of Ebola on Managed Services margins was approximately £0.3m (2015: £1.1m). In context, this crisis produced an adverse financial effect on the Groups EBITDA in excess of £1.9m between 2014 and 2016.

 

Reconciliation to adjusted EBTIDA £'000

2016

2015

Operating Loss

(1,389)

(1,650)

Depreciation and Amortisation

234

171

Reported EBITDA

(1,155)

(1,479)

Share Option expense

103

76

Impact of Ebola

272

1,120

CTAC settlement receipt

-

(77)

Middle East Airport Opportunity Costs

220

-

Ferry pre-launch costs

585

-

Adjusted EBTIDA profit / (loss)

25

(360)

 

The ferry pre-launch costs primarily relate to costs of preparing the Sierra Queen vessel for commercial service.

 

Financing Charges

 

Total financing charges of £0.6 m (2015: £0.3m) were higher than the prior year due to an increased average debt compared to 2015. Senior Secured Convertible Notes (10% coupon) generated an underlying cash charge of £0.2m (2015: £0.1m) reflecting the £1.0m issued in October 2015. The remaining £0.2m (2015: £0.2m) of finance charges were non-cash based and related to IFRS valuations of the convertible loan.

Result for the Year

 

Our loss before taxation was £2.0m (2015: £2.0m) and the loss per share was 2.5p (2015: 3.5p).

Statement of Financial Position

 

The Group made a significant investment in plant and equipment during the year in support of the Sovereign Ferries ferry opportunity in West Africa. This went into initial operations in December 2016.  At the balance sheet date approximately £2.7m (2015: £2.2m) was recorded as an asset. This represents the cost of the Sierra Queen and setup costs around the leased infrastructure.  A further £0.6m of expenditure was not capitalised in the period and is recorded as an exceptional item in note 4 to these financial statements as these were incurred as a result of delays in the launch of the ferry service.

Our debtor balance as of the end of December 2016 was £0.9m (2015: £0.5m). £0.2m of the increase arose from amounts recoverable on customer contracts and billed in 2017, and the remainder from debtors which were collected early in the New Year. Average days sales outstanding at the year-end were 32 (2015: 48), Certain technology division orders for the UK government were won in the fourth quarter of the year and required supply chain mobilisation payments and therefore amounts held in inventory increased to £0.2m (2015: £0.1m). These were shipped and paid for in full early in 2017.

Trade payables were £1.0m (2015: £1.1m) and average creditor days were 35 (2015: 32) The Group had no deferred payment schemes with HMRC at the end of 2016 with all amounts having been paid in the year.

Convertible Loan Notes (CLN) and Convertible Unsecured Loan Notes (CULN)

 

The Company issued £1.7m (gross) of Convertible Unsecured Loan Notes ("CULN") to Darwin Capital Limited ("Darwin") during the year. £0.5m was raised in February 2016 and a further £1.2m was raised in November 2016.  The February 2016 loan was fully converted in the year as was the outstanding balance at the start of the year of £0.7m relating to the loan drawn down in April 2015.  At the year-end a nominal value of £1.2m was outstanding all of which related to the November 2016 loan. The group received approximately 85% of these monies net of commissions and redemption premiums and the net proceeds supported the capital investment in the West African ferry operation and general corporate purposes. These loans were structured to make repayment of any amount at any point without penalty, and also allowed for a lower dilution impact with a potentially higher conversion price than an equivalent equity issue which would have in all likelihood been discounted. This decision was based on the Company's then view as to expected business performance progress.

 

Summary of movements in loan notes at principal value £'000

CULN

CLN

Total

At 1 January 2016

750

2,245

2,995

New Issue in the year

1,675

-

1,675

Conversions in the year

(1,247)

-

(1,247)

Financing Charge (equity settled) in the year

22

-

22

At 31 December 2016

1,200

2,245

3,445

Converted February/April 2017

(1,200)

-

(1,200)

Outstanding at 5 June 2017

-

2,245

2,245

 

The secured CLN carries a coupon of 10% payable quarterly in arrears, has a conversion price of 35p and matures on 18 June 2018. 

 

Equity Issues

On 3 June 2016 the Company issued 13 million ordinary shares of 10p at nominal value. Of these 10 million were issued to Hargreave Hale who also received 5 million detachable and transferrable warrants over 10p ordinary shares. These have a life of three years from the date of issue and have an exercise price of 12p per share warrant ("Warrant") valid for three years from the date of issue. A further 10,653,365 ordinary 10p shares were issued during the year at an average price of 11.71p per share on conversion of £1.2m CULN.

Shareholders' funds at 31 December stood at £2.3m (2015: £1.7m).

Summary of Non-Employee Share Options & Warrants at 31 December 2016

Number

Holder and Description

Strike Price (p)

Life (years)

Vesting Criteria

1,100,000

Darwin, April 2015, (lapsed April 2017)

39

2

At grant:- detachable

589,330

Darwin, February 2016

20.15

3

At grant:- detachable

1,100,000

Darwin, November 2016

28

3

At grant:- detachable

5,000,000

Hargreave Hale, June 2016

12

3

At grant:- detachable

1,700,000

Business development partner, July 2012

40

5

0.7m @ £5m revenue generated by them, further 1m @ £30m revenue

500,000

Business development partner, March 2014 (lapsed March 2017)

85

3

£8m new managed services revenues

300,000

Business development partner, July 2014

85

3

£5m new managed services revenues in three years from date of issue

 

Cash Flow

 

During the year the Group had an operating cash outflow of £1.7m (2015: £1.1m) which arose from trading losses. The Group reported an adverse working capital movement of £0.6m (2015: £0.2m positive movement) which largely arose from short term timing issues around increased inventory levels and amounts recoverable on contracts as well as a lower level of outstanding payroll taxes at the balance sheet date. Debtors were higher due to greater business volumes and there were no material overdue items. The Group's final stages of the set up costs of the Sovereign Ferries project in West Africa continued into 2016 and required a further £1.1m of spend (2015: £2.3m). A further £0.1m was spent on upgraded IT infrastructure.

 

During the year the Group raised £2.7m net by the issue of equity and CULN. During the year the Group was provided with overdraft support by its bankers HSBC and at present has a small but unused overdraft facility.

 

Reconciliation from adjusted EBITDA to normalised operating cash flow £'000

2016

2015

Adjusted EBITDA

25

(360)

Loss on asset disposal

13

4

Net changes in working capital

(638)

209

Equity settlement payment

-

60

Net Cash used in underlying operating activities

(600)

(96)

 

Net Cash used in underlying operating activities is presented excluding exceptional items, share options expense, and depreciation and amortisation.

Events after the Reporting Period

 

·      On 1 February 2017, 2,228,367 ordinary shares of 10p each were issued at a price of 13.462773 pence each pursuant to a conversion of £0.3m of CULN

·      On 28 February 2017, the Company raised £0.6m (gross) of new monies by subscription at a price of 11.625 pence per ordinary 10 pence share and consequently issued 5,161,290 new ordinary 10 pence shares. On the same day Darwin Capital Limited exercised a conversion of £0.4m of CULN at 11.625 pence per share resulting in the issuance of 3,440,860 new ordinary shares

·      On 4 April 2017, employees exercised 55,000 share options which were originally granted on 5 April 2007 and had an exercise price of 10p each

·      On 18 April 2017, 10 million new ordinary shares were issued at 10p each raising £1m gross to support the development of the Company. On the same day Beaufort Securities Limited were appointed as joint broker and their annual fee of £25,000 was settled by the issue of 250,000 new ordinary shares and the issue of 100,000 detachable warrants with an exercise price of 25p and a life of five years.  As part of the placing commissions, Beaufort were issued with a further 0.5 million warrants with an exercise price of 10p and a life of five years. On the same day the final £0.5m of convertible loan notes issued to Darwin were converted at a price of 10p. A condition of the placing was that Westminster agreed with Beaufort not to enter into arrangement for similar loan notes for six months from the date of this placing

·      As part of the settlement with the vendors of CTAC Limited announced in July 2015, Westminster has now received certain property assets from the vendors and any sale will benefit 2017

 

Key Performance Indicators

 

The Group constantly monitors various key performance indicators for factors affecting the overall performance. At Group level the revenues and gross margin are monitored to give a constant view of the Group's operational performance. As employment costs are the single largest cost base for the Group the number of employees and employee costs are also monitored to ensure best use of resources. Days Sales Outstanding is a measure as to the cash conversion of revenue and identifies debtor aging issues.

The Managed Services Division derives its revenues and cash flows based on the number of passengers using a facility such as an airport; therefore the number of passengers served is monitored along with the future potential of the division with reference to the number of potential airports and passengers in the divisional pipeline.

The Technology Division measures its sales activity by reference to the value of quotes issued against sales enquiries and therefore monitors the average enquiries received per month and the potential value of those enquiries. Additionally the conversion rate by quantity is monitored to counter the effects of large scale enquiries which can distort value comparisons. Finally the number of countries and number of return customers are monitored to give a view on the performance of the division both pre and post sales.

 

Group

2016

2015

Revenue £'m

4.4

3.4

Gross Margin

71%

58%

Days Sales Outstanding

32

48

Number of Employees

240

218

Average Employee Cost Per Head

£9,450

£10,250

 

Managed Services

2016

2015

Passengers Served ('000) in the last 12 months

97

64

Signed MoUs

7

4

Signed MoU's Annual Potential Passengers (m)

12.8

5.1

 

Technology Division

2016

2015

Average Enquiries Per Month

117

99

Average Value of Monthly Enquiries

£11,224

£12,553

Number of Countries Supplied

39

33

Number of Return Customers

150

142

 

 

 

 

WESTMINSTER GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2016

 

 

 

 

 

 

 

Note

2016

2015

 

 

 

£'000

£'000

 

REVENUE

3

4,406

3,359

 

Cost of sales

 

(1,296)

(1,403)

 

GROSS PROFIT

 

3,110

1,956

 

Administrative expenses

 

(4,499)

(3,606)

 

LOSS FROM OPERATIONS

6

(1,389)

(1,650)

 

 

 

 

 

 

Analysis of operating loss

 

 

 

 

Loss from operations

 

(1,389)

(1,650)

 

Add back amortisation

 

7

4

 

Add back depreciation

 

227

167

 

Add back share option expense

103

76

 

Add back exceptional items                                                                                 4

1,077

1,043

 

EBITDA Profit/(loss) from underlying operations

 

25

(360)

 

 

 

 

 

Finance costs

5

(566)

(338)

 

 

 

 

 

 

LOSS BEFORE TAXATION

 

(1,955)

(1,988)

 

Taxation

7

46

(7)

 

LOSS ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

(1,909)

(1,995)

 

TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

(1,909)

(1,995)

 

 

 

 

 

 

LOSS PER SHARE

      9

(2.46p)

(3.49p)

 

             

 

 

 

 

WESTMINSTER GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

 

 

 

2016

2015

 

Note

£'000

£'000

 

 

 

 

Goodwill

 

397

397

Other intangible assets

 

132

34

Property, plant and equipment

 

4,635

4,343

 

 

 

 

TOTAL NON-CURRENT ASSETS

 

5,164

4,774

Inventories

 

198

57

Trade and other receivables

 

894

484

Cash and cash equivalents

 

152

150

TOTAL CURRENT ASSETS

 

1,244

691

TOTAL ASSETS

 

6,408

5,465

Called up share capital

 

8,711

6,345

Share premium account

 

9,169

9,170

Merger relief reserve

 

299

299

Share based payment reserve

 

569

258

Equity reserve on convertible loan note

 

186

219

Revaluation reserve

 

134

134

Retained earnings:

 

 

 

At 1 January

 

(14,739)

(12,757)

(Loss)/profit for the year

 

(1,909)

(1,995)

Other changes in retained earnings

 

(124)

13

At 31 December

 

(16,772)

(14,739)

TOTAL SHAREHOLDERS' EQUITY

 

2,296

1,686

Borrowings

10

3,059

2,587

Deferred tax liabilities

 

-

53

TOTAL NON-CURRENT LIABILITIES

 

3,059

2,640

Deferred income

 

27

-

Trade and other payables

 

1,026

1,139

TOTAL CURRENT LIABILITIES

 

1,053

1,139

TOTAL LIABILITIES

 

4,112

3,779

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

6,408

5,465

 

 

 

WESTMINSTER GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2016

 

 

Called up share capital

Share premium account

Merger relief reserve

Share based payment reserve

Revaluation reserve

Equity Reserve on Convertible Loan Note

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

AS OF 1 JANUARY 2016

6,345

9,170

299

258

134

219

(14,739)

1,686

Shares issued for cash

1,300

-

-

-

-

-

-

1,300

Share based payment charge

-

-

-

103

-

-

-

103

Exercise of share options

-

-

-

-

-

-

-

-

Lapse of share options

-

-

-

(37)

-

-

37

-

Warrants issued with loan notes

-

-

-

245

-

-

(150)

95

Adjustment in respect of CLN conversions near par

-

-

-

-

-

-

-

-

CLN conversion

1,066

 

-

-

-

(33)

(11)

1,022

Loan notes issued

-

(1)

-

-

-

-

-

(1)

TRANSACTIONS WITH OWNERS

2,366

(1)

-

311

-

(33)

(124)

2,519

 

 

 

 

 

 

 

 

 

Total comprehensive expense for the year

-

-

-

-

-

-

(1,909)

(1,909)

 

 

 

 

 

 

 

 

 

AS AT 31 DECEMBER 2016

8,711

9,169

299

569

134

186

(16,772)

2,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AS OF 1 JANUARY 2015

5,515

9,039

299

141

134

47

(12,757)

2,418

Shares issued for cash

40

20

-

-

-

-

-

60

Share based payment charge

-

-

-

76

-

-

-

76

Exercise of share options

1

-

-

(1)

-

-

-

-

Lapse of share options

-

-

-

(13)

-

-

13

-

Warrants issued with loan notes

-

-

-

55

-

-

-

55

Bonus Issue

114

(114)

-

-

-

-

-

-

CLN conversion

675

225

-

-

-

(39)

-

861

Loan notes issued

 -

-

-

-

-

211

-

211

TRANSACTIONS WITH OWNERS

830

131

-

117

-

172

13

1,263

 

 

 

 

 

 

 

 

 

Total comprehensive expense for the year

-

-

-

-

-

-

(1,995)

(1,995)

 

 

 

 

 

 

 

 

 

AS AT 31 DECEMBER 2015

6,345

9,170

299

258

134

219

(14,739)

1,686

                                                 

 

 

 

 

 

WESTMINSTER GROUP PLC

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2016

 

 

 

 

2016

2015

 

 Note

£'000

£'000

(LOSS)/PROFIT BEFORE TAX

 

(1,955)

(1,988)

Non-cash adjustments

11

916

589

Net changes in working capital

11

(638)

209

Equity settlement payment

 

-

60

NET CASH (USED IN) /FROM OPERATING ACTIVITIES

 

(1,677)

(1,130)

INVESTING ACTIVITIES:

 

 

 

Purchase of property, plant and equipment

 

(531)

(2,642)

Purchase of intangible assets

 

(105)

(27)

Proceeds from disposal of fixed assets

 

-

25

Advances to subsidiaries

 

-

-

CASH OUTFLOW FROM INVESTING ACTIVITIES

 

(636)

(2,644)

CASHFLOWS FROM FINANCING ACTIVITIES:

 

 

 

Gross proceeds from the issues of ordinary shares

 

1,300

-

Costs of share issues

 

(45)

-

Net proceeds from the issue of convertible loan notes

 

1,675

3,155

Costs associated with the issue of convertible loan notes.

 

(272)

(280)

Interest paid

 

(247)

(131)

Other loan repayments, including interest

 

(96)

-

CASH INFLOW FROM FINANCING ACTIVITIES

 

   2,315

 2,744

Net change in cash and cash equivalents

 

2

(1,030)

CASH AND EQUIVALENTS AT BEGINNING OF YEAR

 

150

1,180

CASH AND EQUIVALENTS AT END OF YEAR

 

152

150

         

 

 

 

 

 

 

Notes to the Financial Statements

 

 

1.            General information and nature of operations

 

The Company was incorporated on 7 April 2000 and is domiciled and incorporated in the United Kingdom and quoted on AIM.  The Group's financial statements for the year ended 31 December 2016 consolidate the individual financial statements of the Company and its subsidiaries. The Group designs, supplies and provides on-going advanced technology solutions and services to governmental and non-governmental organisations on a global basis.

 

2.             Accounting Policies

 

Basis of preparation

 

The Group's financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.  The Parent Company (Westminster Group plc)  has elected to prepare its financial statements in accordance with IFRS.

 

The financial information is presented in the Group's functional currency, which is Great British Pounds ('GBP') since that is the currency in which the majority of the Group's transactions are denominated.

 

 

Basis of measurement

 

The financial statements have been prepared under the historical cost convention with the exception of certain items which are measured at fair value as disclosed in the accounting policies below.

 

Consolidation

 

(i)  Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries for the year ended 31 December 2016.

 

(ii)  Subsidiaries

Subsidiaries are entities controlled by the Company.  Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.  In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.  Subsidiaries are fully consolidated using the purchase method of accounting from the date that control commences until the date that control ceases.   Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

 

(iii)  Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

 

(iv)  Company financial statements

Investments in subsidiaries are carried at cost less provision for any impairment.  Dividend income is recognised when the right to receive payment is established.

 

Going concern

 

The financial statements are prepared on a going concern basis. In assessing whether the going concern assumption is appropriate, management have taken into account all relevant available information about the future. As part of its assessment, management have taken into account the profit and cash forecasts, the continued support of the shareholders and bondholders and Directors and management ability to affect costs and revenues. Management regularly forecast results, financial position and cash flows for the Group.

 

The Group has prepared both a Growth Scenario and a Pessimistic (for contingency planning) for assessing the Group's cash requirements over the next 12 months from the date of these financial statements.

 

·      Growth Scenario. The Group has several large opportunities such as the £35m per annum Middle Eastern contract under negotiation. Whilst these opportunities will have an inherent need for significant additional capital to mobilise the project, it is envisaged that certain initial costs could be met from organic resources depending on the timing of the contract closure. The Directors believe that based on the strong financial dynamics of incremental Managed Services contracts that they should be able to secure financing and are already in discussions with various debt and equity providers. Based on previous experience operational cash flow from these projects can support capital expenditure within the project plan. This scenario includes a rapid ramp up in ferry passenger numbers and full achievement of solution sales targets as well as the usual run rate of product sales.

 

 

 

Pessimistic Scenario. A pessimistic forecast for the 12 months following the date of these financial statements has been prepared for the purpose of stress testing the Group's cash flows. This includes revenues from the run rate of smaller contracts, a much-reduced expectation from sales of solutions in the technology division, no large new managed services contracts, and the continuation of major existing contracts such as the West African airport contract as well as an expected net cash outflow from the Sierra Leone ferry operation as it builds towards critical mass it is targeted to become cash flow positive at the end of 2017. Should these cash flows not happen as expected certain contingency measures have been identified by the board as part of its routine planning process. These options include cost reductions, restructuring operations and asset disposals to preserve cash resources, although additional funding may be required as these measures take effect.

 

The Group's convertible secured loan notes have a principal value of £2.245m and a conversion price of 35p mature on 18 June 2018.  Whilst not repayable in the 12 months from the date of these financial statements, the board believes that the pipeline of potential Managed Services contracts could either give the Company the capability of repayments from cash flow, or  that the bondholders could covert to equity. As part of a routine planning process the Board has identified options for resolution or restructuring, with potential variations to the instrument around conversion price, coupon and term. The Group has an asset base which could be used to support any changes.

 

Based upon these projections the Group has adequate working capital for the 12 months following the date of signing these accounts. For this reason they continue to adopt the going concern basis in preparing the financial statements

 

Business combinations

 

The consideration transferred by the group to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.

 

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition.  Assets acquired and liabilities assumed are generally measured at their acquisition date fair values.

 

Foreign currency

 

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction (spot exchange rate).  Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year-end exchange rates are recognised in profit or loss.  Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and not subsequently retranslated.

 

Foreign exchange gains and losses are recognised in arriving at profit before interest and taxation (see Note 6).

 

Segmental reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief decision-maker.  The chief decision-maker has been identified as the Executive Board, at which level strategic decisions are made.

 

An operating segment is a component of the Group

 

·              That engages in business activities from which it may earn revenues and incur expenses,

·              Whose operating results are regularly reviewed by the entity's chief operating decisions maker to make decisions about resources to be allocated to the segment and assess its performance, and

·              For which discrete financial information is available.

 

 

 

Revenue

 

Revenue comprises the fair value of the consideration received or receivable for the sale of products and services, net of value added tax, rebates and discounts and after eliminating sales within the Group.  Revenue is recognised as follows:

 

(i)  Supply of products

 

Revenue in respect of the supply of products is recognised when title effectively passes to the customer.

 

(ii)  Supply and installation contracts and supply of services

 

Where the outcome can be estimated reliably in respect of long-term contracts and contracts for on-going services, revenue represents the value of work done in the period, including estimates of amounts not invoiced.  Revenue in respect of long-term contracts and contracts for on-going services is recognised by reference to the stage of completion, where the stage of completion can be assessed with reasonable accuracy.  This is assessed by reference to the estimated project costs incurred to date compared to the total estimated project costs.  Revenue is calculated to reflect the substance of the contract, and is reviewed on a contract-by-contract basis, with revenues and costs at each divisible stage reflecting known inequalities of profitability.  Where a contract is loss making, the full loss is recognised immediately. Managed Services income is recognised on the basis of the volume of passengers and freight.

 

(iii)  Maintenance income

                       

Revenues in respect of the supply of maintenance contracts are recognised on a straight line basis over the life of the contract.  The unrecognised portion of maintenance income is included within trade and other payables as deferred income.

                       

(iv) Training courses

 

Revenues in respect of training courses are recognised when the trainees attend the courses.

 

 

Operating expenses

 

Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin.  Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised. Certain items have been disclosed as operating exceptional due to their size and their separate disclosure should enable better understanding of the financial dynamics.

 

Interest income and expenses

 

Interest income and expenses are reported on an accrual basis using the effective interest method.

 

Goodwill

 

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, and b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition date fair value of any existing equity interest in the acquiree, over the acquisition date fair value of identifiable net assets. If the fair value of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately. Goodwill is carried at cost less accumulated impairment losses.

 

Other intangible assets

 

Acquired intangibles that are as a result of a business combination are recorded at fair value and are amortised on a straight line over the expected useful lives.

 

Other intangible assets comprise website costs and licences.  Website costs are capitalised and amortised on a straight line basis over 5 years, the expected economic life of the asset. This amortisation is charged to administrative expenses.

 

 

 

Property, plant and equipment

 

Land and buildings held for use are held at their revalued amounts, being the fair value on the date of revaluation, less any subsequent accumulated depreciation.  Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

 

Any revaluation increase arising on the revaluation of such land and buildings is recognised in other comprehensive income, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the profit or loss to the extent of the decrease previously charged.  A decrease in carrying amount arising on the revaluation of land and buildings is charged as an expense to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset.

 

Depreciation on revalued buildings is charged to the statement of comprehensive income.

 

Plant and equipment, office equipment, fixtures and fittings and motor vehicles are stated at cost less accumulated depreciation and any recognised impairment loss.          

 

Depreciation is charged so as to write off the cost or valuation of assets to their residual value over their estimated useful lives, using the straight-line method, typically at the following rates. Where certain assets are specific for a long term contract and the customer has an obligation to purchase the asset at the end of the contract they are depreciated in accordance with the expected disposal / residual value.

                               

 

Rate

Freehold buildings

2%

Plant and equipment

7% to 25%

Office equipment, fixtures & fittings

20% to 33%

Ferries

Depreciated over 21 years.

Motor vehicles

20%

               

Leases

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  All other leases are classified as operating leases.

 

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease.  The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.  Lease payments are apportioned between finance charges and reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.  Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised.

 

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

               

Impairment on non-financial assets

 

At each reporting date, the Group reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).  The recoverable amount is the higher of fair value less costs to sell and value in use.  If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount.  An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.  Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. 

 

Financial instruments

 

Financial assets

 

The Group's financial assets include cash and cash equivalents and loans and other receivables.  All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument.  All financial assets are initially recognised at fair value, plus transaction costs.  They are subsequently measured at amortised cost using the effective interest method, less any impairment losses.  Any changes in value are recognised in the Statement of Comprehensive Income.  Interest and other cash flows resulting from holding financial assets are recognised in the Statement of Comprehensive Income when received, regardless of how the related carrying amount of financial assets is measured.

 

Loans and other receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables.  The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.

 

Cash and cash equivalents comprise cash at bank and deposits and bank overdrafts.  Bank overdrafts are shown within borrowings in current liabilities unless a legally enforceable right to offset exists.

 

Financial liabilities

 

The Group's financial liabilities comprise trade and other payables and borrowings.  All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.  Financial liabilities are derecognised when they are extinguished, discharged, cancelled or expire.

 

Convertible loan notes with an option that leads to a potentially variable number of shares, have been accounted for as a host debt with an embedded derivative.  The embedded derivative is accounted for at fair value through profit and loss at each reporting date. The host debt is recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method.

 

Convertible loan notes that can be converted to share capital at the option of the holder, and where the number of shares to be issued does not vary with changes in fair value, as they are considered to be a compound instrument.

 

The liability component of a compound instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound instrument and fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components.

 

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.  An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  The accounting policies adopted in respect of financial liabilities are set out above and below.

 

Other financial liabilities

 

Other financial liabilities include other payables and bank loans and are recognised initially at fair value and subsequently measured at amortised cost, using the effective interest method.

 

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument.  All interest related charges are recognised as an expense in "finance cost" in the Statement of Comprehensive Income.  Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

 

Inventories

 

Inventories are stated at the lower of cost and net realisable value.  Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula.  Costs principally comprise of materials and bringing them to their present location. 

 

Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

 

Taxation

 

The tax expense represents the sum of the tax currently payable and deferred tax.  Current and deferred tax are recognised as an expense or income in profit or loss, except in respect of items dealt with through equity, in which case the tax is also dealt with through equity.

 

The tax currently payable is based on taxable profit for the year.  Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax is the tax expected to be payable or recoverable on material differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.  Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit not the accounting profit.

 

Cash and cash equivalents

 

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.  Bank overdrafts are offset against cash balances and a net cash balance is presented.

 

Equity, reserves and dividend payments

 

Share capital represents the nominal value of shares that have been issued.

 

Share premium includes any premiums received on issue of share capital.  Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

 

Merger relief reserve includes any premiums on issue of share capital as part or all of the consideration in a business combination.

 

The share based payment reserve represents equity-settled share-based employee remuneration until such share options are exercised or lapse.

 

The revaluation reserve within equity comprises gains and losses due to the revaluation of property, plant and equipment.

 

Retained earnings include all current and prior period retained profits and losses.

 

Dividend distributions payable to equity shareholders are included in liabilities when the dividends have been approved in a general meeting prior to the reporting date.

 

Defined contribution pension scheme

 

The Group operates a defined contribution pension scheme for employees in the UK and is operating under auto enrolment. Local labour in Africa benefit from a termination payment on leaving employment. The expected value of this is accrued on a monthly basis.

               

Shared-based compensation (Employee Based Benefits)

 

The Group operates an equity-settled share-based compensation plan.  The fair value of the employee services received in exchange for the grant of options is recognised as an expense over the vesting period, based on the Group's estimate of awards that will eventually vest, with a corresponding increase in equity as a share based payment reserve.  For plans that include market based vesting conditions, the fair value at the date of grant reflects these conditions and are not subsequently revisited. 

 

Fair value is determined using Black-Scholes option pricing models.  Non-market based vesting conditions are included in assumptions about the number of options that are expected to vest.  At each reporting date, the number of options that are expected to vest is estimated.  The impact of any revision of original estimates, if any, is recognised in profit or loss, with a corresponding adjustment to equity, over the remaining vesting period.

 

The proceeds received when vested options are exercised, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium.

 

Provisions

 

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated.

               

SIGNIFICANT MANAGEMENT JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

 

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements.

 

Revenue recognition

 

Recognition of income is considered appropriate when all significant risks and rewards of ownership are transferred to third parties.  In respect of long-term contracts and contracts for on-going services, turnover represents the value of work done in the year, including estimates of amounts not invoiced.  Turnover in respect of long-term contracts and contracts for on-going services is recognised by reference to the stage of completion, where the stage of completion can be assessed with reasonable accuracy.  In this process management make significant judgements about milestones, actual work performed and the estimated costs to complete the work.  Revenue is calculated to reflect the substance of the contract, and is reviewed on a contract-by-contract basis, with revenues and costs at each divisible stage reflecting known inequalities of profitability.

 

Estimation uncertainty

 

When preparing the financial statements management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results are likely to differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results.  Information about the significant judgements, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are discussed below.

 

Impairment review of Sierra Leone Ferry Operations

 

At the balance sheet date the group recorded an asset of approximately £2.7m relating to the purchase of the Sierra Queen and set up costs of the ferry operation in West Africa. Of this c£1.1m relates to the vessel purchase, and the remainder relates to costs incurred before the commencement of service operations in early December 2016.

 

- Market Background

 

Westminster has 19 years remaining of its 21 year contract to operate the terminals and ferry service concession between the airport and capital.  The airport has in excess 200,000 passengers (annualised) passing through it now, which is a substantial improvement following the end of the Ebola crisis. A significant portion of these passengers use ferry services to reach the mainland and capital more quickly than the road option. The ferry service has historically been serviced by smaller craft which do not have the ruggedness and safety characteristics of the Westminster fleet, which is seagoing. The existing ferry services do not offer our luxury and safely maintained bus fleet either. Other potential coastal services offer additional revenue opportunities from serving regional destinations, including non-airport related traffic passing between the airport and capital city, and new markets such as a proposed water taxi service around Freetown. Charters and Airport traffic has grown over the last 12 months and is now broadly back at the levels of 2013 which was before the onset of Ebola.

 

- Project Status

 

Our period of major capital spend on this project is now completed. Noting that this business is a start-up in 2016 in terms of passenger handling, it is pleasing that we have already secured 3% of the market share in only three months. We believe that, given the size of the captive market at 200,000 passengers per annum, the superior quality of our service, our vessel safety and the numerous local marketing initiatives we are pursuing we will continue to grow volumes. We expect the ferry operation to become cash positive in the financial year to 31 December 2017 and continue to grow thereafter. 

 

- Impairment Testing

 

With the planned infrastructure and ferry operations in place there are significant operational opportunities for revenue growth, increased margins and improved cash flows. The Group has conducted a discounted cash flow exercise which looks at key assumptions including adoption rates and ticket volumes, ongoing expected costs, available ferry capacity, future airport passenger levels and the average net revenue per ticket. A discount rate of 10% has been used in this exercise. The scenario indicates that the net present value of future cash flows is in excess of the current carrying value of the asset and therefore the Board believes that no impairment is required. The Company will continue to monitor and review traffic levels monthly against targets to assess the ongoing financial performance.  Should these modest passenger targets not be achieved and the operation not show a clear path to adequate cash generation, then the carrying value of this asset could be subject to a future impairment charge.

 

Impairment Review Longmoor Goodwill

 

This asset is carried at approximately £0.4m at the balance sheet date. There are several opportunities for the delivery of Longmoor's training and protection services which are aligned with potential large scale opportunities in managed services.  An impairment loss is recognised for the amount by which an asset's or cash generating unit's carrying amount exceeds its recoverable amount.  To determine the recoverable amount, management estimates expected future cash flows from each asset or cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows.  In the process of measuring expected future cash flows management makes assumptions about future gross profits.  These assumptions relate to future events and circumstances.  The actual results may vary, and may cause significant adjustments to the Group's assets within the next financial year in most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors.

 

 

 

Revalued freehold property

 

The freehold property is stated at fair value.  A full revaluation exercise was carried out in May 2017. The fair value is based on market value, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

 

Consolidation of entities in which the Group holds less than 50% of the voting rights.

 

Management considers that the Group has de facto control of Westminster Sierra Leone Limited even though it has less than 50% of the voting rights. Management does not recognise the non-controlling interest as it does not consider it to be material for this or other partially owned subsidiaries.

 

Standards in issue not yet effective

 

New standards, amendments and interpretations

 

No new standards, amendments or interpretations effective for the first time in the financial year beginning on or after January 2016 have had a material impact on Group or parent Company.

 

At the date of authorisation of these financial statements, the following amendments and interpretations to existing accounting standards have been published but are not yet effective.

 

·      IFRS 9             Financial Instruments (effective date 1 January 2018)

·      IFRS 15         Revenue from Contracts with Customers (effective date1 January 2017)

·      IFRS 16         Leases (effective date 1 January 2019, but yet to be endorsed by the EU)

 

Management anticipate that the above pronouncements will be adopted in the Group's accounting policies for the first period after the effective date, but will have no material impact on the Group.

 

IFRS 9 'Financial instruments' effective for periods beginning on or after January 1, 2018. The standard removed multiple classification and measurement models for financial assets requirement by IAS 39 and introduces a model that has only two classification categories: fair value and amortised cost. Classification is driven by the business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The accounting and presentation for financial liabilities and for derecognising financial instruments is relocated from IAS 39 without any significant changes. IFRS 9 introduces additional changes relating to financial liabilities. IFRS 9 adds new requirements to address the impairment of financial assets and hedge accounting.

 

IFRS 15 'Revenue from contracts with customers'; effective for periods beginning on or after January 1, 2018. The standard establishes a new five-step model that will apply to revenue arising from contacts with customers. Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. This is converged standard on revenue recognition which replaces IAS 18 'Revenue', IAS 11 'Construction contracts' and related interpretations. The Group is currently assessing the impact of the new standard. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue.

 

IFRS 16 'Leases'; effective for periods beginning on or after January 1, 2019. Under IFRS 16, a contract is, or contains a lease if the contact conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The new standard eliminates the classification of leases by lessees as either finance leases or operating leases and instead introduces an integrated lessee accounting model. Applying this model, lessees are required to recognise a lease liability reflecting the obligation to make future lease payments and a 'right-of-use' asset for virtually all lease contracts.

 

IFRS 16 includes an optional exemption for certain short-term leases and leases of low-value assets. The Group is currently assessing the impact of the new standard.
 

 

3.             Segment reporting

 

Operating segments

 

The Board considers the Group on a Business Unit basis.  Reports by Business Unit are used by the chief decision-maker in the Group.  The Business Units operating during the year are the four operating companies Westminster Aviation, Westminster International, Sovereign Ferries and Longmoor Security. This split of business segments is based on the products and services each offer.

 

                 

 

 

Managed Services Aviation

Technology

Group and Central

Managed Services Sovereign Ferries

Managed Services Longmoor

Group Total

 

£'000

£'000

£'000

£'000

£'000

£'000

2016

 

 

 

 

 

 

Supply of products

-

1,778

-

-

-

1,778

Supply and installation contracts

-

177

-

-

157

334

Maintenance and Services

2,758

160

-

-

3

2,921

Training courses

16

-

-

-

-

16

Ferry ticket sales

-

-

-

6

-

6

Intragroup sales

-

(492)

-

-

(157)

(649)

Revenue

2,774

1,623

-

6

3

4,406

 

 

 

 

 

 

 

Segmental underlying EBITDA

1,280

273

(1,418)

(163)

53

25

Share option expense

-

-

(103)

-

-

(103)

Exceptional items (note 4)

(492)

-

-

(585)

-

(1,077)

Depreciation & amortisation

(79)

(16)

(22)

(107)

(10)

(234)

Apportionment of central overheads

(1,140)

(946)

2,116

-

(30)

-

Segment operating result

(431)

(689)

573

(855)

13

(1,389)

Finance cost

-

-

(566)

-

-

(566)

Taxation charge

(7)

-

53

-

-

46

Profit/(Loss) for the financial year

(438)

(689)

60

(855)

13

(1,909)

 

 

 

 

 

 

 

Segment assets

1,593

641

1,523

2,618

 

33

6,408

Segment liabilities

311

448

3,268

85

-

4,112

Capital expenditure

79

42

107

408

-

636

 

 

 

 

 

 

 

 

 

 

Managed Services Aviation

Technology

Group and Central

Managed Services Sovereign Ferries

Managed Services Longmoor

Group Total

 

£'000

£'000

£'000

£'000

£'000

£'000

2015

 

 

 

 

 

 

Supply of products

-

795

-

-

-

795

Supply and installation contracts

-

1,546

-

-

96

1,642

Maintenance and Services

2,450

168

-

-

4

2,622

Training courses

11

1

-

-

-

12

Intragroup sales

(812)

(804)

-

-

(96)

(1,712)

Revenue

1,649

1,706

-

-

4

3,359

 

 

 

 

 

 

 

Segmental underlying EBITDA

1,264

(140)

(1,540)

37

19

(360)

Exceptional items (note 4)

(1,120)

-

77

-

-

(1,043)

Depreciation & amortisation

(94)

(10)

(22)

(37)

(8)

(171)

Share option expense

-

-

(76)

-

-

(76)

Apportionment of central overheads

(948)

(837)

1,878

-

(93)

-

Segment operating result

(898)

(987)

317

-

(82)

(1,650)

Finance cost

-

-

(339)

-

1

(338)

Income tax charge

(7)

-

-

-

-

(7)

Loss for the financial year

(905)

(987)

(22)

-

(81)

(1,995)

 

 

 

 

 

 

 

Segment assets

1,272

149

1,565

2,454

 

25

5,465

Segment liabilities

343

434

2,962

38

2

3,779

Capital expenditure

186

-

20

2,430

33

2,669

 

 

 

 

Geographical areas

 

The Group's international business is conducted on a global scale, with agents present in all major continents.  The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services.

 

 

 

 

 

 

 

 

2016

2015

 

 

 

£'000

£'000

 

 

 

 

 

United Kingdom & Europe

 

 

369

439

Africa

 

 

3,458

2,341

Middle East

 

 

104

204

Rest of the World

 

 

475

375

 

 

 

4,406

3,359

               

 

 

Some of the Group's assets are located outside the United Kingdom where they are being put to operational use on specific contracts.  At 31 December 2016 fixed assets with a net book value of £3,591,000 (2015: £2,992,000) were located in Africa.

 

Major customers who contributed greater than 10% of total Group revenue

 

In 2016 no single customer contributed more than 10% of the Group revenue (in 2015 no customers contributed 10% of the Group's revenue). Approximately 60% of the Group's revenues are derived from the contract with a West African airport operator.

 

 

4.             Exceptional Items

 

2016

2015

 

£'000

£'000

Loss of margin arising from fall in passenger numbers due to Ebola crisis

272

1,120

Middle East airport pre-contract costs

220

-

Ferry pre-launch costs

585

-

Receipt from vendors of CTAC (dispute on acquisition consideration price)

-

(77)

 

 

 

 

1,077

1,043

 

The ferry pre-launch costs primarily relate to costs of preparing the Sierra Queen vessel for commercial service.

 

5.             Finance costs

 

 

 

 

2016

2015

 

£'000

£'000

 

 

 

 

 

 

Interest payable on bank and other borrowings

(30)

(1)

Interest expenses on convertible loan notes (CLN 2018)

(224)

(121)

 

(254)

(122)

Non-cash & amortised finance costs and other charges on convertible loan notes

(312)

(216)

 

 

 

Total finance costs

(566)

(338)

 

 

 

 

6.             Loss from operations

 

The following items have been included in arriving at the loss for the financial year

 

 

2016

2015

 

 

£'000

£'000

 

 

 

 

Staff costs (see Note 8)

 

2,267

2,236

Depreciation of property, plant and equipment.

 

227

167

 

 

 

 

Amortisation of intangible assets

 

7

4

Operating lease rentals payable

 

 

 

 Property

 

112

101

 Plant and machinery

 

3

3

 Other

 

42

60

Foreign exchange gain

 

(22)

(89)

 

 

 

 

 

7.             Taxation

 

Analysis of charge in year

 

 

2016

2015

 

 

£'000

£'000

Current year

 

 

 

UK Corporation tax on profits in the year

 

-

-

Potential foreign corporation tax on profits in the year

 

7

-

 

 

7

-

 

 

 

 

 

 

2016

2015

 

 

£'000

£'000

Reconciliation of effective tax rate

 

 

 

Loss on ordinary activities before tax

 

(1,955)

(1,988)

 

 

 

 

Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 20.0% (2015: 20.0%)

 

(391)

(398)

Effects of:

 

 

 

(Income)/expenses not deductible for tax purposes

 

88

77

Capital allowances less than depreciation

 

(203)

(72)

Other short term timing differences

 

1

3

Recognised/unrecognised losses carried forward

 

512

390

Adjustment in respect of prior years

 

(53)

-

Potential Charge in Overseas Subsidiary

 

-

7

 

 

 

 

Total tax (credit) /charge

 

(46)

7

 

 

Tax losses available for carry forward (subject to HMRC agreement) were £11m (2015: £9.5m).   

 

Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to reduce to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

 

 

8.             Employee costs

 

               

Employee costs for the Group during the year

 

 

 

 

2016

2015

 

 

£'000

£'000

 

 

 

 

Wages and salaries

 

2,007

1,999

Social security costs

 

157

165

 

 

2,164

2,164

Share based payments

 

103

72

 

 

2,267

2,236

         

 

 

The Group operates a stakeholder pension scheme.  The Group made pension contributions totalling £10,000 during the year (2015: £7,000), and pension contributions totalling £1,000 were outstanding at the year-end (2015: £1,000).

 

 

Average monthly number of people (including Executive Directors) employed

 

 

 

 

2016

2015

 

Number

Number

By function

 

 

Sales

3

3

Production

209

189

Administration

22

20

Management

6

6

 

 

240

218

       

 

9.             Loss per share

 

Earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

 

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Only those outstanding options that have an exercise price below the average market share price in the year have been included.

 

The weighted average number of ordinary shares is calculated as follows:

 

 

 

 

2016

2015

 

'000

'000

Issued ordinary shares

 

 

Start of year

63,455

55,145

Effect of shares issued during the year

14,261

2,029

Weighted average basic and diluted number of shares for year

77,716

57,174

 

 

 

For the year ended 31 December 2016 and 2015 the issue of additional shares on exercise of outstanding share options, convertible loans and warrants would decrease the basic loss per share and there is therefore no dilutive effect. Loss per share was 2.46p (2015: 3.49p).

 

 

 

10.          Financial instruments

 

Categories of financial assets and liabilities

 

The carrying amounts presented in the Consolidated of Financial Position relate to the following categories of assets and liabilities:

 

 

2016

2015

 

£'000

£'000

Financial assets

 

 

Loans and receivables

 

 

Trade and other receivables

814

403

Cash and cash equivalents

152

150

 

966

553

Financial liabilities

 

 

Financial liabilities measured at amortised cost

 

 

Borrowings

3,059

2,587

Trade and other payables

951

981

 

4,010

3,568

 

 

See note 2 for a description of the accounting policies for each category of financial instruments.  The fair values are presented in the related notes. 

 

Convertible Loan Notes

 

The Group had the following convertible loan notes outstanding during the year the key details of which are set out below: 

         

 

Secured Convertible Loan Notes ("CLN")

Convertible Unsecured Loan Notes ("CULN")

Amount

£2.245m

£1.2m outstanding 31 December 2016 The £0.75m outstanding at the start of the year and the £0.475m issued in the year were fully converted during the year. The outstanding balance was fully converted by April 2017.

Conversion Price

35p

Variable see below

Security

Secured fixed and floating subordinate to HSBC

Unsecured

Redemption Date

19 June 2018

Conversions allowed within certain market driven parameters

Management Fee

£25,000 per annum

nil

Coupon

10% paid quarterly in arrears. Listed on the CISX

nil

Conversion Detail

Company can force conversion if the share price is > 65p for 15 working days after 19 June 2016. Company can make repayment without penalty if  the share price is > 42p for 15 working days after 19 June 2016

The conversion price for these loan notes is  calculated as the lesser of i) 65 pence and ii) 90% of the arithmetic average of the five lowest daily volume weighted average share price calculations per ordinary share out of the ten trading days prior to conversion.

 

 

               

 

 

               

On initial recognition the conversion option in relation to the convertible unsecured loan notes (CULN) leads to a potentially variable number of shares, therefore the CULN is accounted for as a host debt, (recorded initially at fair value, net of transaction costs and subsequently valued at amortised cost) with an embedded derivative (recorded at fair value through profit and loss and fair valued at each reporting date).

 

 

 

2016

2016

2016

2015

2015

2015

£'000

CULN

CLN

Total

CULN

CLN

Total

At 1 January

520

1,972

       2,492

-

538

538

Fair value of new loans issued

1,408

-

1,408

1,218

1,391

2,609

Fair value of warrants included in the issue (note 22)

(112)

-

(112)

-

-

-

Amortised finance cost

116

324

440

162

175

337

Interest paid

-

(225)

(225)

-

(132)

(132)

Converted in the year

(980)

-

(980)

(860)

-

(860)

Closing Balance

952

2,071

3,023

520

1,972

2,492

 

 

Analysis of movement in debt at principal value (excluding IFRS impacts), memorandum only

 

 

2016

2016

2016

2015

2015

2015

£'000

CULN

CLN

Total

CULN

CLN

Total

At 1 January

          750

       2,245

       2,995

 

575

          575

New Issue

       1,675

-

       1,675

       1,650

       1,670

3,320

Conversion

    (1,247)

-

    (1,247)

(900)

-

(900)

Financing Charge (equity settled)

            22

-

            22

-

-

-  

Closing Balance

       1,200

       2,245

       3,445

750

2,245

2,995

 

 

Reconciliation on Conversion

2016

2015

 

£'000

£'000

 

 

 

Amortisation of Loan Note Interest Cost Element

(86)

(40)

Carrying Value at conversion

1,066

900

Total

980

              860

 

 

The Convertible Loan Notes have been separated into two components, the Host Debt Instrument and the Embedded Derivative on initial recognition. The value of the Host Debt Instrument will increase to the principal sum amount by the date of maturity. The effective interest cost of the Notes is the sum of that increasing value in the period and the interest paid to Noteholders. The Derivative element will vary in value according to the market price of the underlying Ordinary Shares and the period remaining for conversion amongst other factors.  The value of the embedded derivative was not material at inception and at the end of the year and is included in the fair value of the overall instrument for disclosure.

 

Secured convertible loan notes (CLN) are compound financial instruments that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in fair value.

 

Unlike convertible unsecured loan notes (CULN), this instrument is determined to have a liability and equity component. The liability component is initially recognised at fair value of a similar liability without a conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. It is not subsequently remeasured. The liability component is measured at amortised cost using the effective interest method.

 

 

 

 

               

Borrowings

 

2016

2015

 

 

£'000

£'000

Non-current

 

 

 

Convertible loan note

 

2,071

1,972

Other

 

36

95

Convertible unsecured loan note

 

952

520

Total borrowings

 

3,059

2,587

 

 

11.          Cash flow adjustments and changes in working capital

 

The following non-cash flow adjustments and adjustments for changes in working capital have been made to loss before taxation to arrive at operating cash flow:

 

 

2016

2015

 

£'000

£'000

Adjustments:

 

 

Depreciation, amortisation and impairment of non-financial assets

234

171

Finance costs

566

338

Loss on disposal of non-financial assets

13

4

Share-based payment expenses

103

76

 

 

 

Total adjustments

916

589

 

 

 

Net changes in working capital:

 

 

 

(Increase)/Decrease in inventories

(141)

15

Decrease/(increase) in trade and other receivables

(410)

1,625

(Decrease)/increase in trade and other payables

(87)

(1,431)

Total changes in working capital

(638)

209

 

 

 

12.          Events after the reporting period

 

On 1 February 2017 2,228,367 ordinary shares of 10p each were issued at a price of 13.462773 pence each pursuant to a conversion of £0.3m of CULN.

 

On 28 February 2017 Company raised £0.6m (gross) of new monies by subscription at a price of 11.625 pence per ordinary 10 pence share and consequently issued 5,161,290 new ordinary 10 pence shares. On the same day Darwin exercised a conversion of £0.4m of CULN at 11.625 pence per share resulting in the issuance of 3,440,860 new ordinary shares.

 

On 4 April 2017 employees exercised 55,000 share options which were originally granted on 5 April 2007 and had an exercise price of 10p each.

 

On 18 April 2017 10m new ordinary shares were issued raising £1m gross to support the development of the company. On the same day Beaufort Securities Ltd were appointed as joint broker and their annual fee of £25,000 was settled by the issue of 250,000 new ordinary shares and the issue of 100,000 detachable warrants with an exercise price of 25p and a life of five years.  As part of the placing commissions Beaufort were issued with a further 0.5m warrants with an exercise price of 10p and a life of five years. On the same day the final £0.5m of convertible loan notes issued to Darwin Capital Limited were converted at a price of 10p. A condition of the placing was that Westminster agreed with Beaufort not to enter into such an arrangement for six months from the date of this placing.
 

 

 

13.          Publication of Non-Statutory Accounts

 

The financial information set out above does not constitute the Company's Annual Report and Financial Statements for the years ended 31 December 2016 or 2015.  The Annual Report and Financial Statements for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting on 29 June 2017.  The auditor's reports on both the 2016 and 2015 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.  Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) this announcement does not itself contain sufficient information to comply with IFRSs. Copies of the Annual Report and Financial Statements for the year to 31 December 2016 will be posted to shareholders by 8 June 2017 and will be obtainable from the Company's registered offices or www.wg-plc.com when published. The information in this preliminary announcement was approved by the Board on 5 June 2017.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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