Additionally, the Company is not aware of any agreements between shareholders of the Company that may result in restrictions on the transfer of ordinary shares or voting rights.

Disabled employees

The Group gives full consideration to the career development and promotion of disabled persons, and to applications for employment from disabled persons, where the requirements of the job can be adequately fulfilled by a handicapped or disabled person.

The Group considers the training requirements of each disabled person on an individual basis. Where an employee becomes disabled during the course of their employment, the Group will consider providing the employee with such means, including appropriate training, as will enable the employee to continue to carry out their job, where it reasonably can, or will attempt to provide an alternative suitable position.

Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that it can continue to provide returns for its shareholders and benefits for its other stakeholders.

The Group considers its capital to comprise ordinary share capital, share premium, the capital redemption reserve and accumulated retained earnings (see 'Consolidated Statement of Changes in Equity' on page 44). The translation reserve is not considered as capital. In order to maintain or adjust its working capital at an acceptable level and to meet strategic investment needs, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or sell assets.

The Group does not seek to maintain any particular debt to capital ratio, but will consider investment opportunities on their merits and fund them in the most effective manner.

Environmental issues

An explanation of how the Group deals with its environmental responsibilities is included within the Strategic Report.

Directors' responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. The Directors have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.  Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that period. 

In preparing these financial statements, the Directors are required to:

·    select suitable accounting policies and then apply them consistently;

·    make judgements and accounting estimates that are reasonable and prudent;

·    state whether they have been prepared in accordance with IFRSs as adopted by the European Union,, subject to any material departures disclosed and explained in the financial statements;

·    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business; and

·  prepare a Directors' Report, a Strategic Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The Directors are responsible for ensuring that the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website, which can be found at www.titon.com/uk/investors/ in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions.  The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors are also responsible for disclosing additional information under Rule 26 of the AIM Rules, which is available at www.titon.com/uk/investors/. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' responsibilities

The Directors confirm to the best of their knowledge:

·    the Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and

·    the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the parent company, together with a description of the principal risks and uncertainties that they face.

Directors' statement as to disclosure of information to auditors

The Directors at the time of approving the Directors' Report are listed on page 28. Having made enquiries of fellow Directors and of the Officers of the Company, each of the Directors confirms that:

·    to the best of each Director's knowledge and belief, there is no relevant audit information of which the Company's auditors are unaware; and

·    each Director has taken all steps a Director ought to have taken to make themselves aware of any information needed by the Company's auditors for the purpose of their audit and to establish that the Company's auditors are aware of that information.

Directors' liability insurance and indemnity

The Company has purchased liability insurance cover, which remained in force at the date of the report, for the benefit of the Directors of the Company which gives appropriate cover for legal action brought against them. The Company also provides an indemnity for its Directors (to the extent permitted by law) in respect of liabilities which could occur as a result of their office. This indemnity does not provide cover should a Director be proved to have acted fraudulently or dishonestly.

Purchase of own shares

The Company has authority from shareholders to purchase up to 10% of its own ordinary shares in the market. This authority was not used during the year nor in the period to 14 January 2021 and the Board intends to seek shareholder approval to renew the authority at the forthcoming Annual General Meeting.

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, companies are permitted to hold purchased shares rather than cancelling them and as at 30 September 2020 and 14 January 2021 the Company held 50,000 such shares in treasury. The Company may use this power again in the future depending on market conditions and the financial position of the Company.

Post balance sheet events

Subsequent to the balance sheet date, a dividend of c£391,000 was approved to be paid from Titon Korea to Titon Holdings Plc. This also results in a cash outflow from the Group to the minority shareholders of c£396,000. This is due for payment by the end of January 2021.There have been no other events since the balance sheet date that materially affect the position of the Group.

Going concern

The Group's business activities, its financial position, together with the factors likely to affect the Group's performance, are set out in the Strategic Report. In addition, note 21 to the financial statements includes the Group's risk management objectives and policies, managing its financial risk and its exposures to credit risk, foreign exchange risk and liquidity risk.

The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios arising from the COVID-19 pandemic, the risks associated with the UK leaving the EU, and from its other principal risks set out on pages 17 to 19. Under the worst case scenario considered, which is severe and considered highly unlikely, the Group remains liquid for a period of 12 months from the date of reporting and the Directors therefore believe, at the time of approving the financial statements that the Group is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below.

The financial position remains robust with cash of £5.6m available to the Group and no debt and therefore no bank covenants in place. Our base case scenario has been prepared using forecasts from each of our operating companies, with each considering both the challenges and opportunities they are facing as a consequence of COVID-19 as well as other market forecasts. Due to the strength of the Group's balance sheet and market outlook, the Directors believe there is no material uncertainty around going concern. To this end a reverse stress test scenario has also been modelled, with the most extreme conditions being considered. All revenue was removed for all operating companies within the Group from 1 April 2021 to 31 January 2022 but with all overheads remaining constant. All discretionary expenditure was removed such as capital expenditure and dividends. The result of this scenario is that we still remain cash positive within 12 months of the reporting date. This extreme scenario excludes all other resources we would have at our disposal as means of raising further cash, such as:

·    The Group owns the freehold interest in our Haverhill site which had a fair value of £3.4 million in September 2019. This could be used as collateral to borrow funds from our bank in the form of a mortgage;

·    The Group has significant fixed assets that would have a second hand market value that could be realised;

·    A rights issue could be made;

·    The Group has a large stock balance that could be sold on if there was no production;

·    Salary costs could be reduced by virtue of either restructuring or through pay reductions;

·    BTS, our associate Company, has £2.6m of cash which could be paid to shareholders in the form of a dividend. BTS also has a residential property that could be sold to raise further funds.

The UK operation which represents 74% of the Group's turnover has already survived two lockdowns and has shown resilience throughout this pandemic year. The Group proved it could adapt under adversity and ensured that working capital was monitored closely and carefully managed and actually managed to increase its cash balance through that period.

The Directors consider that the impact of any frictional costs arising from the trade agreement with the EU would be immaterial on the base case forecast.

 

Annual General Meeting 

The Annual General Meeting of Titon Holdings Plc ("the Company") will be held at the Company's Head Office at 894 The Crescent, Colchester Business Park, Colchester, Essex, CO4 9YQ on 10 March 2021 commencing at 11.00 a.m.  A Notice convening the Annual General Meeting of the Company for the year ended 30 September 2020 may be found on page 78 of this document.

Shareholders are being asked to vote on various items of ordinary business, being Resolutions 1 to 10 inclusive, as listed below. Given the COVID-19 pandemic and the likely restrictions in force, shareholders are urged not to attend the meeting in person and to vote either via a proxy form or electronically via Link Group. More details are contained in the Notice on page 80.

 Resolution 1 - to receive and adopt the audited accounts

The Directors recommend that shareholders adopt the reports of the Directors and the Auditors and the audited accounts of the Company for the year ended 30 September 2020.

The Directors' Report was approved by the Board on 14 January 2021 and signed by order of the Board.

Resolution 2 - to declare a final dividend

The Directors recommend a final dividend of 2.0 pence per ordinary share. Subject to approval by shareholders, the final dividend will be paid on 12 March 2021 to shareholders on the register on 5 February 2021.

Resolution 3 - to re-elect Mr John Neil Anderson as a Director

The Chairman confirms that following performance evaluation Mr Anderson continues to be effective and demonstrates commitment in his role.

Resolution 4 - to re-elect Mr Kevin Sargeant as a Director

The Chairman confirms that following performance evaluation Mr Sargeant continues to be effective and demonstrates commitment in his role.

Resolution 5 - to re-elect Mr Nicholas Charles Howlett as a Director

The Chairman confirms that following performance evaluation Mr Howlett continues to be effective and demonstrates commitment in his role.

Resolution 6 - to re-elect Mr Bernd Ratzke as a Director

The Chairman confirms that following performance evaluation Mr Ratzke continues to be effective and demonstrates commitment in his role.

Resolution 7 - to re-appoint BDO LLP as auditors

This resolution proposes that BDO LLP should be re-appointed as the Company's Auditors and authorises the Directors to determine their remuneration.

Resolution 8 - to approve the Directors' Remuneration Report

Resolution 8 in the Notice of Annual General Meeting, which will be proposed as an Ordinary Resolution, is to receive and approve the Directors' Remuneration Report as set out on pages 26 to 29.

Resolution 9 - authority to allot shares

The Companies Act 2006 prevents directors of a public company from allotting unissued shares, other than pursuant to an employee share scheme, without the authority of shareholders in general meeting.  In certain circumstances this could be unduly restrictive. The Directors' existing authority to allot shares, which was granted at the Annual General Meeting held on 18 February 2020, will expire at the forthcoming Annual General Meeting.

Resolution 9 in the notice of Annual General Meeting will be proposed, as an Ordinary Resolution, to authorise the Directors to allot ordinary shares in the capital of the Company up to a maximum nominal amount of £260,000, representing approximately 24% of the nominal value of the ordinary shares in issue on 14 January 2021 (excluding treasury shares). The Company currently holds 50,000 shares in treasury.

The authority conferred by the resolution will expire on 9 June 2022 or, if sooner, at the 2022 Annual General Meeting.

The Directors have no present plans to allot unissued shares other than on the exercise of share options under the Company's employee share option schemes. However, the Directors believe it to be in the best interests of the Company that they should continue to have this authority so that such allotments can take place to finance appropriate business opportunities that may arise.

Resolution 10 - to disapply pre-emption rights

Unless they are given an appropriate authority by shareholders, if the Directors wish to allot any of the unissued shares for cash or grant rights over shares or sell treasury shares for cash (other than pursuant to an employee share scheme) they must first offer them to existing shareholders in proportion to their existing holdings. These are known as pre-emption rights. 

The existing disapplication of these statutory pre-emption rights, which was granted at the Annual General Meeting held on 18 February 2020 will expire at the forthcoming Annual General Meeting.  Accordingly, Resolution 10 in the Notice of Annual General Meeting will be proposed, as a Special Resolution, to give the Directors power to allot shares or sell treasury shares without the application of these statutory pre-emption rights: first, in relation to offers of equity securities by way of rights issue, open offer or similar arrangements; and second, in relation to the allotment of equity securities for cash up to a maximum aggregate nominal amount of £150,000 (representing approximately 14.6% of the nominal value of the ordinary shares in issue on 14 January 2021). The power conferred by this Resolution will expire on 9 June 2022 or, if sooner, at the 2022 Annual General Meeting.

In addition, there are three items of special business, being Resolutions 11 to 13, as listed below.

Resolution 11 - Company's authority to purchase its own shares

Resolution 11 in the Notice of Annual General Meeting, which will be proposed as a Special Resolution, will authorise the Company to make market purchases of up to 1,090,000 ordinary shares. This represents approximately 10% of the Company's ordinary shares in issue on 14 January 2021. The maximum price per share that may be paid shall be the higher of: (i) 5% above the average of the middle market quotations for an ordinary share for the five business days immediately before the day on which the purchase is made (exclusive of expenses); and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out (exclusive of expenses). The minimum price shall not be less than 10p per share. The authority conferred by this resolution will expire on 9 June 2022 or, if sooner, at the 2022 Annual General Meeting.

Your Directors are committed to managing the Company's capital effectively and although they have no plans to make such purchases, buying back the Company's ordinary shares is one of the options they keep under review. Purchases would only be made after considering the effect on earnings per share and the benefits for shareholders generally.

The Company may hold in treasury any of its own shares that it purchases in accordance with the Companies Act 2006 and the authority conferred by this resolution. This would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with greater flexibility in the management of its capital base. As noted above the Company currently holds 50,000 shares in treasury.

As at 14 January 2021 there were options outstanding over 415,000 ordinary shares which, if exercised at that date, would have represented 3.7% of the Company's issued ordinary share capital (including treasury shares). If the authority given by Resolution 11 were to be fully used, these would then represent 4.1% of the Company's issued ordinary share capital.

Resolution 12 - Approval of the TESOP 2021

The Company has operated executive share option schemes since 1988. The latest schemes expired in February 2020 meaning no options may now be granted under them. The Directors have considered what arrangements should be established for the future and believe that executive share option schemes are an appropriate means of incentivising key management and staff of the Group. The Directors have therefore decided to introduce a new executive share option scheme, The Titon EMI Share Option Plan 2021 ("TESOP 2021") to replace those that have expired. The Inland Revenue imposes a limit of £250,000 on the value of approved executive options which can be held by an individual at any one time and an overall limit of £3m on the total market value of ordinary shares granted under the scheme. Provided the TESOP 2021 remains approved at the time of exercise, holders of options granted under the TESOP 2021 (who are UK income tax payers) will be entitled to income tax relief when they exercise their options. The benefits under the TESOP 2021 will not be pensionable. The exercise of options granted will be subject to the satisfaction of a performance condition imposed by the Remuneration Committee. It is proposed that the exercise of initial options granted under the TESOP 2021 will be subject to a requirement that the growth in the earnings per share of the Company over any period of three consecutive financial years of the Company following the date of grant must exceed the growth in the consumer prices index over the same period by at least 9%. Further details of the TESOP 2021 are contained in the Appendix on pages 82 and 83.

Resolution 12 in the Notice of Annual General Meeting, which will be proposed as an Ordinary resolution is to adopt the TESOP 2021 and approve the Rules in such draft form subject to such amendments as are approved by a committee of the Directors as are necessary to carry the Rules into effect and obtain HMRC or other regulatory approval, as necessary. The principal terms of the TESOP 2021 are summarised in the Appendix to the Annual Report and the Rules will be produced in draft form to the Annual General Meeting.

Resolution 13- Approval for the Directors to vote in any meeting regarding the TESOP 2021

Resolution 13 in the Notice of Annual General Meeting will give the Directors power to vote and be counted in a quorum at any meeting of the Directors at which any matter connected with the TESOP 2021 is considered regardless of any interest they may have in the TESOP 2021 under consideration. This is subject to the provision that no Director may vote when the Directors are considering his own individual rights of participation in the TESOP 2021.

Recommendation

The Directors believe that the resolutions which are to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole and recommend that all shareholders vote in favour of them, as each of the Directors intends to do, in respect of his or her beneficial holding.

The Directors' Report was approved by the Board on 14 January 2021 and signed on its behalf by:

 

 

C Isom

Company Secretary

 

 

 

 

Directors' Remuneration Report

 

Statement from the Chairman of the Committee

I am pleased to present the Directors' Remuneration Report for the year ended 30 September 2020.

The vote on the Directors' Remuneration Report is, as previously, an advisory vote. An Ordinary Resolution will be put to shareholders at the forthcoming Annual General Meeting to be held on 10 March 2021, to receive and adopt the Directors' Remuneration Report. I can report that at the 2020 AGM there were 2,341,441 votes in favour, 0 votes against and 0 votes withheld for the Resolution to receive and adopt the Directors' Remuneration Report.

There has been no change to the Directors' Remuneration Policy during the period and there have been no significant changes in individual Director's levels of remuneration during the year, except as a result of the performance related elements, which are directly linked to the amount by which the Group's profit before taxation exceeds budget. As the results did not exceed budget, no performance related elements have been paid this year.

Details of the Directors' Remuneration Policy are shown on the Group's website in the Corporate Governance section. The Directors' Remuneration Policy was approved in its entirety at the 2018 AGM and the Remuneration Committee is not proposing any changes this year.

The Directors' interests in the ordinary share capital of the Company at the year-end are reported below on page 28.

 

Remuneration Committee

The Committee presently consists of Mr K Sargeant and Mr B Ratzke, both Non-executive Directors. The Committee has been established by the Board to set Remuneration Policy and to deal with all matters relating to Directors' Remuneration and reporting thereon. It has clear Terms of Reference established by the Board.

 

Directors' remuneration compared to certain other distributions are as follows:

 

	2020	2019	Percentage change
	£'000	£'000	%
Directors' remuneration	662	664	(0.3)
Other employee remuneration	5,557	6,141	(9.5)
Dividend payments to shareholders	332	526	(36.9)

 

Other employee remuneration includes grant income relating to the Coronavirus Job Retention Scheme of £0.5m. When this is included the percentage change in other employee remuneration falls to 1.1%.   

Directors' remuneration

The remuneration paid to the Directors during the year, together with a comparison of the previous year, is as follows:

Year ended 30 September		Salary and fees (a) (e)	Benefits in kind	Short term performance related remuneration                 (b)	Pension benefits	Total
Executive Directors:		£'000	£'000	£'000	£'000	£'000
T N Anderson	2020	96	-	-	8	104
	2019	96	7	-	7	110
T D Gearey	2020	55	9	-	28	92
	2019	58	7	-	28	93
K A Ritchie	2020	128	20	-	-	148
	2019	130	18	-	-	148
D A Ruffell (c)	2020	119	19	-	17	155
	2019	122	17	-	17	156
Non-executive Directors:
J N Anderson (d)	2020	35	-	-	-	35
	2019	37	-	-	-	37
N C Howlett	2020	52	-	-	4	56
	2019	54	-	-	4	58
K Sargeant	2020	36	-	-	-	36
	2019	37	-	-	-	37
B Ratzke	2020	36	-	-	-	36
	2019	25	-	-	-	25
Totals	2020	556	49	-	57	662
	2019	559	49	-	56	664

 

(a)  A 'salary sacrifice' system is in operation, where the Company makes a pension contribution on behalf of each Director, where applicable, and their salary is reduced by a corresponding amount.

(b) In accordance with the proposals adopted by shareholders, no performance related remuneration is payable to the Executive Directors for this period.

(c)  Mr D Ruffell is a beneficiary of an agreement with the Company relating to his departure from the Company in April 2021.

(d) J N Anderson was furloughed from March to September during the year. During this period he received 100% of contractual remuneration until the end of April and then 80% from May to September 2020.

(e) All Directors (except for J N Anderson as he was furloughed see note d) agreed to a 10% pay reduction in light of the uncertainty surrounding COVID-19, which took effect from 1 May 2020 and was reinstated from 1 September 2020.

 

The remuneration package of each Executive Director includes non-cash benefits, which for K Ritchie, D Ruffell and T Gearey also includes the provision of a company car. The aggregate gains made by Directors on the exercise of share options during 2020 were £nil (2019: £nil).

 

 

Directors and their interests in shares

The Directors of the Company during the year and at the year end and their beneficial interests in the ordinary share capital were as follows:

	30 September 2020 Ordinary shares of 10p each		30 September 2019 Ordinary shares of 10p each (or date of appointment   if later)
K A Ritchie	Executive Director and Chairman	981,381	981,381
D A Ruffell	Chief Executive	118,500	118,500
J N Anderson	Non-executive Director and Deputy Chairman	1,737,802	1,737,802
T N Anderson	Sales & Marketing Director	693,750	693,750
T D Gearey	I.T. Director	20,500	20,500
N C Howlett	Non-executive Director	38,500	38,500
K Sargeant	Non-executive Director	10,000	10,000
B Ratzke	Non-executive Director	14,924	14,924

 

There were no other changes in Directors' beneficial shareholdings between 30 September 2020 and 14 January 2021.

 

 

Share options

Details of the interests of Directors, who served during the year, in options over ordinary shares are as follows:-

		Exercise price per share	At 1 October  2019	Granted during  the year	Exercised during  the year	Lapsed during  the year	At 30 September  2020
			Number	Number	Number	Number	Number
T N Anderson	(b)	58.0p	25,000	-	-	-	25,000
			25,000	-	-	-	25,000
T D Gearey	(c)	156.5p	18,000	-	-	-	18,000
			18,000	-	-	-	18,000
N C Howlett	(b)	58.0p	25,000	-	-	-	25,000
			25,000	-	-	-	25,000
K A Ritchie	(b)	58.0p	50,000	-	-	-	50,000
			50,000	-	-	-	50,000
D A Ruffell	(a)	48.0p	10,000	-	-	-	10,000
	(b)	58.0p	50,000	-	-	-	50,000
			60,000	-	-	-	60,000

Mr J N Anderson, Mr K Sargeant and Mr B Ratzke had no interests in options over shares during the year.

There have been no changes to the number of share options held by Directors between 30 September 2020 and 14 January 2021.

 

Share options

Share options are exercisable between the following dates:

(a)	9 June 2014	and	9 June 2021
(b)	15 January 2017	and	15 January 2024
(c )	30 January 2021	and	30 January 2028

The Directors may only exercise share options if the growth in the earnings per share of the Company over any period of three consecutive financial years of the Company following the date of grant, exceeds the growth in the retail price index over the same period by at least 9 per cent.

At 30 September 2020 the market price of the Company's shares was 81.5p. The range during the year was 65p to 135p.

 

Approval

The Directors' Remuneration Report was approved by the Remuneration Committee on 14 January 2021 and signed on its behalf by:

 

 

K Sargeant

Remuneration Committee Chairman

 

 

 

 

Corporate Governance Report

 

Chairman's Introductory Statement

I am pleased to present the Corporate Governance Report for the last financial year. As I have noted in the past, we take our corporate governance responsibilities very seriously. I can report to shareholders that we have now adopted the Quoted Companies Alliance Corporate Governance Code ("QCA Code"), rather than the UK Corporate Governance Code, as this fits more naturally with our listing on the AIM Market. The QCA Code is available from the QCA and it involves us following ten general principles and ensuring that a number of minimum disclosure requirements are made in the Annual Report or on the Company's website, www.titon.com/uk/investors/. The website also contains more details of the governance disclosures. It is then up to us to determine how the ten principles will be applied. This contrasts with the UK Corporate Governance Code which applies a set of rules that followers have to meet and where the rules are not met this has to be explained to stakeholders. This change in governance code hasn't led to any major differences in the way that we manage the governance of the Titon Group.

 

KA Ritchie

Chairman

 

Compliance with QCA Code

The Board is accountable to the Company's shareholders for good corporate governance and the Company's website sets out how the 10 principles identified in the QCA Code are applied by the Company. Titon's business approach is based on openness and high levels of accountability and there is a commitment to high standards of corporate governance throughout the Group. With an international presence, the Group acts in accordance with the national laws of the various countries in which it operates and encourages the highest standards of business practice and procedure.

I am confident that the goals and strategy that we have set for our business have been followed during the year under review. Although the response to COVID-19 has required difficult decisions to be taken we have continued to treat our employees fairly, to invest in research and development and to communicate openly and honestly with our shareholders, to highlight three of our specific goals.

The Board seeks to instil a healthy corporate culture in all of its dealings with its stakeholders and believes that Titon is regarded by those stakeholders in a positive light and will meet its obligations in a fair and transparent way. During the year we undertook an employee survey to hear their views about working from home due to COVID-19.  We acknowledge that we can improve in some of our communications with employees and steps have been taken to identify the actions necessary to do so. The Board believes that the corporate culture is in a good state and that the reputation of Titon amongst our stakeholders is high.  

Please see the Audit Committee Report for a description of the main features of the internal control process and the risk management system in relation to the financial reporting process adopted by the Group. The disclosure of information on significant shareholdings in the Company is shown in the Directors' Report.

The Directors consider that the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

The Group consolidated accounts are prepared by the Group Financial Controller and are reviewed by the Finance Director of Titon Hardware Ltd and the Chief Executive.  The review includes a detailed inspection of the accounts of all the constituent companies that comprise the Group along with the relevant consolidation adjustments and journals.

 

Composition and operation of the Board of Directors

As at 30 September 2020 the Board consisted of the Executive Chairman, the Chief Executive, two other Executive Directors and four Non-executive Directors. 

The Board as a whole comprises a wealth of skills and experience from the wide range of activities undertaken by its individual members, as follows:

Keith Ritchie joined the Company in 2012, having had a 25 year career in the City of London. He is a member of the Institute of Chartered Accountant in England and Wales and has extensive experience of finance, legal, tax and commercial matters. He is also a non-executive director of Beama Ltd, the trade association for the electro-technical manufacturers association and is chairman of the Ventilation Group, within Beama Ltd. As a result of these different activities he continues to utilise the skills gained over his working career;

 

David Ruffell has been with Titon since 1988 and qualified as a member of the Association of Cost and Management Accountants. He has been chief executive of Titon since 2002 and offers a wide range of financial and commercial skills to the Group, alongside deep knowledge of the ventilation and hardware industry. He has extensive knowledge of the finance function within Titon and remains up-to-date with the relevant accounting practice that impact Titon and also has ongoing contacts with customers and their product needs. As noted above David will leave the Group in April 2021;

Tyson Anderson has been with the Company since 1993, when he joined the Marketing team and was elected to the board of Titon Hardware Limited in 1999. Tyson joined the Board on 1 January 2004 as Marketing Director, was appointed Sales & Marketing Director on 1 February 2007. He has wide experience of the ventilation and hardware industry and continues to develop his skills through being closely involved with new product development and procurement and also with the latest marketing approaches, which led to the introduction of Titon's latest website in 2018;

Tony Gearey joined Titon in 1985 and has held a number of positions within the Group since then. He is currently responsible for IT and for the operations of Titon Inc. and was appointed to the Board on 2 November 2016. He has extensive technical skills and experience from a number of roles within Titon. Tony led the introduction of Microsoft's ERP system in 2012 and is currently leading the upgrade of that system to the latest Microsoft package, which means that he remains closely involved with all aspects of production, purchasing, sales and the finance outputs to enable the business to function;

John Anderson founded the Company in 1972 and was its Chairman until 2012 when he became a Non-executive Director. As the Company's founder he knows more about the Company and many of its products than most other employees and has always been involved in product development and marketing, skills which he continues to offer to the business. He has a service contract which terminates at the 2021 Annual General Meeting unless he is re-elected;

Kevin Sargeant joined the Board on 1 September 2016. He worked at Vent-Axia, a subsidiary of Smith Industries PLC, from 1990 until 2002 when Volution Holdings (comprising Vent-Axia) was created. Mr Sargeant led the buyout of Volution Holdings in the same year and was CEO of the newly named Volution Group until its sale to Towerbrook Private Equity and the management in 2012. Since then, he has held a number of senior strategic development roles with major companies in the ventilation sector and was Non-executive Chairman of Nuaire Ltd from November 2013 until its sale to Polypipe PLC in August 2015. Mr Sargeant qualified as a member of the Chartered Institute of Management Accountants in 1980. He has a service contract which terminates at the 2021 Annual General Meeting unless he is re-elected. Kevin is Non-executive chairman of a bathroom equipment supplier so continues to use his skills regularly in a business environment;

Nicholas Howlett joined Titon in 1991 and has held a number of positions within the Group since then. He was appointed to the Board in 2002 and became a Non-executive Director with effect from 1 October 2017. He has a service contract which terminates at the 2021 Annual General Meeting unless he is re-elected. Nick has carried out many roles for Titon, including Production Manager at the Haverhill factory, head of Research & Development and then Managing Director of Ventilation Systems in the UK and Europe. Nick works closely with UK trade associations involved in the ventilation industry and on the impact of building regulations and other Government laws both for Titon and the wider industry;

Bernd Ratzke joined the Titon Board in March 2019 following a career as a corporate lawyer in the City of London. He has a service contract which terminates at the 2021 Annual General Meeting unless he is re-elected. He has extensive legal and commercial skills from many years of practising law for a wide range of corporate clients. Bernd continues to hold a practising certificate from the SRA and is a senior adviser to a UK legal practice. He is Group Legal Director and in this role advises the Company on any relevant legal matters which arise during the course of business.

All Executive Directors are subject to annual appraisals of their performance and membership of relevant board committees, as appropriate, during the financial year. This takes the form of a review of the targets and objectives for the period, a meeting with the appraiser and the setting of targets and objectives for the current year. It also includes a process whereby a failure to meet the targets is discussed and changes are agreed to improve performance. A continuing failure to meet targets or performance could lead ultimately to dismissal. The Non-executive Directors also provide feedback and appraisal of the Executive Directors on an ad hoc basis and this is included in the appraisals of the relevant individuals. This has also resulted in changes to the Board, announced after the year end.

 

The Executive Chairman has a range of responsibilities to perform including, inter alia, the proper functioning of the Board of Directors and setting the strategic development of the Company and Group. The Chief Executive also has a specific range of responsibilities including the day-to-day management of the Group and implementing the strategy set out by the Board.  The four Non-executive Directors provide a diverse range of skills and wide experience to the Group alongside the necessary independence, as required under principle 5, as follows:

 

1.   Mr K Sargeant is deemed to be independent for the purposes of the Code. He has no other relationships or prior service for the Company or its shareholders.

2.   Mr N Howlett is also deemed to be independent for the purposes of the Code despite his previous service and role as an executive director of the Company due to his independence of character and judgment.

3.   Mr JN Anderson is not deemed to be independent as he is a significant shareholder and was a previous chairman of the Company.

4.   Mr B Ratzke is deemed to be independent for the purposes of the Code despite his previous service as Group Legal Counsel, due to his independence of character and judgement. The Board has a schedule of matters specifically reserved to it for decision including major capital expenditure decisions, business acquisitions and disposals and the setting of treasury policy. This also includes matters such as material financial commitments, commencing or settling major litigation and appointments to main and subsidiary company boards. The Executive Directors are involved with day-to-day matters arising and the size of the Group allows the Board to have rapid access to any issues which arise in dealings with stakeholders.

Scheduled Board meetings take place on a quarterly basis with further ad hoc meetings arranged as necessary. During 2020 the Board met informally on many occasions to discuss the response to the COVID-19 pandemic. In 2021 the Board will meet monthly as well as also meeting on an ad hoc basis, as necessary. To enable the Board to function effectively and Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of comprehensive management reporting information and discussion documents regarding specific matters. All directors commit sufficient time to the Group to discharge their responsibilities: the executive directors on a full-time basis, the Non-executive Directors, as required by the needs of the business.

The individual attendance by Executive Directors and Non-executive Directors at the Board and principal Board Committee Meetings held during the financial year is shown in the table below.

	Main Board	Remuneration Committee	Audit Committee	Nominations Committee
Total meetings held	21	1	2	-
K A Ritchie	21	1	2	-
D A Ruffell	20	-	2	-
T N Anderson	21	-	-	-
T D Gearey	21	-	-	-
N C Howlett	20	-	-	-
K Sargeant	19	1	2	-
J N Anderson	21	1	-	-
B Ratzke	21	-	-	-

 

There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access which every Director has to the Company Secretary. The Company Secretary is charged by the Board with ensuring that Board procedures are followed.

When new members are appointed to the Board, they are provided with advice from the Company Secretary in respect of their role and duties as a public company director. Furthermore, all Directors have ongoing access to the Company Secretary for advice during the course of their appointment.

Appointments to the Board of both Executive and Non-executive Directors are considered by the Nominations Committee for endorsement by the Board as a whole.

Any Director appointed during the year is required, under the provisions of the Company's Articles of Association, to retire and seek election by the shareholders at the next Annual General Meeting. The Articles of Association also require that one third of the Directors retire by rotation each year and seek re-election at the Annual General Meeting. The Directors required to retire are those in office longest since their previous re-election and in practice this means that each Director retires at least every three years, in accordance with the requirements of the Code. It is the Company's practice that all of the Non-executive Directors will seek re-election at each Annual General Meeting.

 

The Directors who retire at the next AGM are Mr John Anderson, Mr Kevin Sargeant, Mr Nicholas Howlett and Mr Bernd Ratzke. All four Directors, being eligible, offer themselves for re-election.

A statement of Directors' interests and copies of their service contracts are available for inspection during usual business hours at the registered office of the Company, on any weekday (excluding public holidays), and will be available at the place of the Annual General Meeting for at least fifteen minutes prior to and during the meeting.

 

The Remuneration Committee

The Remuneration Committee Report is set out on pages 26 to 29. The Remuneration Committee's terms of reference, established by the Board, are to:

·    determine and to keep under review the Group's policy on remuneration;

·    determine the basic salaries and non-cash emoluments payable to all Executive Directors, including Executive Directors of subsidiary Group companies, giving due consideration to individual responsibility and performance and to salaries paid to Executive Directors of similar companies in comparable business sectors;

·    select the performance targets for the Executive Directors' bonus arrangements;

·    select the performance conditions relating to the Group's Share Option Schemes. Such performance conditions to be aimed to align Directors' interests to shareholder value;

·    make recommendations to the Board of Directors on other matters relating to remuneration in the Group; and

·    prepare an annual report on remuneration to the Company's shareholders for approval by the Board for submission to a vote of shareholders at the Company's Annual General Meeting and to advise the Board if it believes that, in any year, there are particular matters relating to remuneration which should be put to the Company's shareholders.

 

Nominations Committee

The Nominations Committee comprises Mr Sargeant and Mr Ratzke. It is responsible for proposing candidates as Directors of Titon Holdings Plc for endorsement by the Board. The selection of suitable candidates will be based on the suitability of the person for the position regardless of age, ethnicity or gender. Candidates may be either internal or external and executive search consultants may be used in the process. The Nominations Committee has not met in the financial period under review. However, the members of the Nomination Committee have been involved in the process of Mr Ruffell's departure from the Company and the agreement that was reached with him. This also involved the appointment of external employment law advisers for the Company. Executive search consultants have been appointed to recruit the new CEO.

 

Communications with shareholders

The Board recognises the importance of communications with shareholders. The Strategic Report on pages 7 to 19 gives a detailed review of the business, and there is regular dialogue with institutional shareholders at the time of the Group's preliminary announcement of the year end results and at the half year. The main contact with shareholders is through the Chairman or Chief Executive.

The Group's results and other announcements are published on the London Stock Exchange RNS service and on the Company's website.

The Board uses the Annual General Meeting to communicate with private and institutional investors and welcomes their participation. However, this year COVID-19 restrictions make attendance inappropriate.

The Corporate Governance Report was approved by the Board on 14 January 2021 and signed on its behalf by:

 

 

KA Ritchie

Chairman

 

 

Audit Committee Report

 

The Audit Committee reports to the Board on matters concerning the Group's internal financial controls, financial reporting and risk management systems, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.

Composition of the Audit Committee

The Audit Committee is appointed by the Board for a period of three years and comprises Mr K A Ritchie ACA and Mr D A Ruffell ACMA both of whom have financial reporting experience and Mr K Sargeant ACMA, who has extensive accounting experience from his time in industry. I confirm that the Titon Audit Committee continues to have competence relevant to the sector in which the Company operates.

 

Role of the Audit Committee

The Audit Committee operates within defined terms of reference and its main functions are:

·    to monitor the internal financial control and risk management systems on which the Group is reliant;

·    to consider whether there is a need for the Group to have its own internal audit function;

·    to monitor the integrity of the Group's financial statements and formal announcements relating to the Group's financial performance, reviewing significant financial reporting judgements contained in them;

·    to review arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or any other matter;

·    to meet the independent Auditor of the Group to review their proposed audit programme of work and the subsequent Audit Report and to assess the effectiveness of the audit process and the levels of fees paid in respect of both audit and non-audit work;

·    to make recommendations to the Board in relation to the appointment, re-appointment or removal of the Auditor, and to negotiate their remuneration and terms of engagement on audit and non-audit work; and

·    to monitor and review annually the external Auditor's independence, objectivity, effectiveness, resources and qualification.

 

Review of financial statements and risks identified

Financial statements issued by the Company need to be fair, balanced and understandable. The Audit Committee reviews the Annual Report as a whole and makes recommendations to the Board. The Audit Committee has advised the Board that, in its opinion, the Annual Report and Financial Statements are fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. The Company's unaudited interim results are also reviewed by the Audit Committee prior to their publication.

The Audit Committee assesses annually whether it is appropriate to prepare the Group's financial statements on a going concern basis, and makes its recommendation to the Board. The Board's conclusions are set out in the Directors' Report. As noted in the Strategic Report and the Directors' Report a considerable amount of work has been carried out to assess the Group's financial position as a result of the pandemic. The Audit Committee members have been fully involved in all of the financial forecasting that has been performed and the cash management steps which have been taken and has made a recommendation to the Board that the Group should continue to prepare the financial statements on a going concern basis.

In planning its own work, and reviewing the audit plan of the Auditors, the Audit Committee takes account of the most significant issues and risks, both operational and financial, likely to impact on the Group's financial statements.

The Committee considers that the timing of revenue recognition is a significant area of risk to accurate financial reporting and ensures that necessary credit note provisions and warranty provisions are made. In relation to activities in South Korea, revenues are only recognised once the third party customer has accepted the successful installation of either the first fix or the second fix products into buildings rather than the delivery of such product from our factory.

The carrying value of the Group's assets is an area where the Committee places great emphasis. In particular, calculating the carrying value for the Group's inventory is a vital factor as the Group has a wide range of product lines that may fluctuate regularly in terms of their sales volumes. Consequently, every product line is assessed at the year-end to ensure that accurate provisions for obsolescence are made.

A significant risk considered by the Committee is the Group's investment in its South Korean business and in particular the accuracy of accounting information. The Committee manage this risk through senior management making regular trips to South Korea combined with the receipt of detailed monthly management accounts from South Korea. During 2020 it was not possible to travel to South Korea but regular video calls with senior managers were held instead.

Internal audit

The Board believes that due to the size of the business there is currently no requirement for an internal audit function. This matter is reviewed annually.

Internal control

The respective responsibilities of the Directors in connection with the financial statements are set out on pages 21 and 22, and those of the Auditors are detailed in the Independent Auditor's Report on pages 36 to 40.

The Audit Committee is responsible for ensuring that suitable internal controls systems to prevent and detect fraud and error are designed and is also responsible for reviewing the effectiveness of such controls. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group in line with the FRC's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, published in September 2014 and the FRC's Guidance on Audit Committees published in April 2016. This process has been in place for the year under review and up to the date of approval of this report, and accords with the guidance. In particular, the Committee has reviewed and updated the process for identifying and evaluating the significant risks affecting the Group and policies by which these risks are managed. The risks of any failure of such controls are identified in a Risk Matrix (set out in the Risk Management Report on pages 18 to 20) which is regularly reviewed by the Board and which identifies the likelihood and severity of the impact of such risks and the controls in place to mitigate the probability of such risks occurring.

Internal control systems are designed to meet the Group's particular needs and the risks to which it is exposed. They do not eliminate the risk of failure to achieve business objectives. The following are the key components which the Group has in place to provide effective internal control:

·    an appropriate control environment through the definition of the organisation structure and authority levels;

·    the identification of the major business risks facing the Group and the development of appropriate procedures and controls to manage these risks;

·    a comprehensive budgeting and reporting system with monthly results compared with budgets and with previous years; and

·    the principal aspects of the Group's internal control processes used in preparing the Group's consolidated accounts include second reviews of consolidation workings and Board review of the composition of the Group's financial information.

The Directors acknowledge that they are responsible for establishing and maintaining the Group's system of internal control and risk management and reviewing their effectiveness, which they have done during the year. Internal control systems are designed to meet the particular needs of the Group and the risks to which it is exposed and by their nature can provide reasonable but not absolute assurance against material misstatement or loss.  Appropriate risk monitoring systems have been in place throughout the year and up to the date of approval of the Annual Report and have been regularly reviewed by the Board. The Report on Risk Management sets out the principal risks identified by the Directors, the potential impact and the mitigation measures which apply. No significant weaknesses have been identified in this report by the Directors during the year.

The Company has a shareholding in an associate company. Controls within this entity are not reviewed as part of the Company's formal review processes due to the local delegation of managerial responsibilities, but instead are reviewed as part of regular management process.

 

External audit process

The Audit Committee meets at least twice a year with the Auditor, who provides a planning report in advance of the annual audit and a report on the annual audit. The Committee has an opportunity to question and challenge the Auditor in respect of each of these reports. No significant deficiencies were noted by the Auditor in respect of the period ended 30^th September 2019. The Committee also discussed the preparation of the going concern opinion and the key audit matters with the Auditor, specifically in the context this year of the pandemic.

After each audit, the Audit Committee reviews the audit process and considers its effectiveness.

 

Auditor assessment and independence

The Group's external auditor is BDO LLP, which has been the Group's auditor since 2006.

The Audit Committee also reviewed BDO's independence policies and procedures including quality assurance procedures and it was confirmed that those policies and procedures remained fit for purpose. Accordingly, the Audit Committee recommends that BDO should be reappointed as the Group's auditor for the next financial year and a resolution to that effect will be proposed at the 2021 AGM.

The fees for audit services provided by BDO for 2020 were £91,000 (2019: £76,000). The Audit Committee discussed the non-audit services provided by BDO during the year.  The cost of non-audit services provided by the Auditor for the financial year ended 30 September 2020 was £1,000 (2019: £91,000).

 

K A Ritchie

Audit Committee Chairman

14 January 2021

 

 

Independent Auditor's Report

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF TITON HOLDINGS PLC

 

Opinion

We have audited the financial statements of Titon Holdings Plc (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 30 September 2020 which comprise  the  Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, Group and the Company Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

•       the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 30 September 2020 and of the Group's profit for the year then ended;

•       the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;

•       the Parent Company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and

•       the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

•        the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

•        the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's or the Parent Company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Revenue Recognition

The Group's performance obligations are satisfied at a point in time or over time.  In the Korean operations, the pattern of product delivery and entitlement to payment for performance of obligations indicates that recognition of revenue over time is most appropriate. We determined that the timing of revenue recognition during the period immediately prior to and subsequent to the year end carries a heightened risk of material misstatement. We reached this conclusion having considered the possible management bias in recording of revenues. We refer to the revenue recognition accounting policy in note 1.

How the scope of our audit addressed the key audit matter

We examined the Group's terms of business with its customers to check that the accounting policy applied appropriately takes account of the point of transfer of control of promised goods to customers for an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods.  We evaluated whether the Group's application of applicable accounting standards was appropriate.

We sample tested the existence of sales recorded, and the point of the transfer of control of inventory through identification of the timing of delivery, invoicing and revenue recognition. We sampled the completeness of sales recorded by obtaining the delivery note listing, ensuring the listing was complete and selecting a sample to corresponding delivery note, invoice and the general ledger.

We sampled a number of transactions in the days prior to and subsequent to the year end as to whether revenues recorded in the UK subsidiary and Korean associate were supported by appropriate delivery of inventory. For unearned revenue in the Korean subsidiary and associate we agreed a sample to delivery notes subsequent to year to end to confirm the stock quantity and agreed the margin applied in arriving at the deferred revenue amount to historical margins.

Key observations:

Based on the work performed we consider that revenue has been recognised appropriately and is in accordance with the group's revenue recognition accounting policy.

Inventory: Provision for slow moving and obsolete stock

We identified the valuation of the Group's inventory balance as carrying a risk of material misstatement due to the use of key management judgements in respect of provisions for slow moving and obsolete inventory and the condition of inventory. We refer to management's description of the accounting policies for inventory included in note 1, and the critical accounting estimates in this area included within note 2.

How the scope of our audit addressed the key audit matter:

We confirmed that the report used by Management to quantify historical usage of stock, used in calculating the slow-moving inventory provision, was accurate by agreeing a sample of aged inventory items from the report to the last recorded invoice or movement of the stock.  We also reperformed the calculation of the inventory that was slow moving and we corroborated the assumptions applied by Management in estimating inventory provisions by considering and inspecting recent receipt of stock and the future sales activity by agreeing to purchase orders and reviewing post year end stock movements. Furthermore, we inspected the condition of inventory at our physical inventory observations to ascertain whether additional provisions should be made. We assessed the accuracy of prior year provisions by comparing to actual results and year on year assessment.

Key Observations:

As a result of performing the above procedures, we did not identify any matters which indicate that management's judgements relating to the provision for slow moving and obsolete stock were not reasonable.

Inventory: Standard costing

We identified the standard costing model applied to the Group's inventory balance as carrying a risk of material misstatement due to the use of key management judgements in respect of overhead and labour recovery rates. We refer to management's description of the accounting policies for inventory included in note 1, and the critical accounting estimates in this area included within note 2.

How the scope of our audit addressed the key audit matter:

We assessed the overhead and labour costs used in the calculation of standard costs by agreeing a sample of all costs to the machine and payroll costs. We further compared the results of our recalculated standard cost to the standard costs set by Management. We assessed the cost types included within the apportionment calculation and checked that only the appropriate cost types were included as per the applicable accounting standard guidance on costs that meet the definition of inventory cost. We further examined the calculations by recalculating and performing a comparison to the prior year to test the accuracy and completeness of the calculation.

We evaluated the judgments applied by Management in setting the efficiency rate by considering actual results as well as Management's plans for improved production methods. We further evaluated the rigour of the process by which standard production times are set by recalculating Management's efficiency rate and evaluating the judgments made in adjusting the average efficiency for the year to determine that the final efficiency rate was reasonable by comparing the final efficiency rate used by Management to the average of operational months.

Key Observations:

As a result of performing the above procedures, we did not identify any matters which indicate that Management's judgements relating to the costing of stock were not reasonable.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.  We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

	Group financial statements		Parent company financial statements
	2020 £	2019 £	2020 £	2019 £
Materiality	£150,000	£150,000	£100,000	£110,000
Basis for determining materiality	0.7% of Revenue	7% of Profit before Tax	1.5% of Gross Assets capped at £ 100,000 due to aggregation risk.	1.5% of Gross Assets
Rationale for the benchmark applied	There has been a change in basis in calculating materiality from profit before tax to revenue in the current year due to the volatility in trading  resulting from the impact of the COVID-19 pandemic.  We have considered that revenue still represents a performance based measure that would interest shareholders and the users of the financial statements.	Profit before tax was used due to the shareholders and users being mostly interested in the performance of the business.	Titon Holdings is a holding company and only has intercompany revenue therefore Gross Assets was considered to be the most appropriate basis.	Titon Holdings is a holding company and only has intercompany revenue therefore Gross Assets was considered to be the most appropriate basis.
Performance materiality	£105,000	£105,000	£70,000	£77,000
Basis for determining performance materiality	70% of materiality This has been based on a number of factors including: -     Expected total value of known and likely misstatements -     Managements attitude toward proposed adjustments -     Number of accounts where amounts are subject to estimation -     Brought forward adjustments from prior years

 

Component materiality

We set materiality for each component of the Group based on a percentage of between 43% and 90% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component.  Component materiality ranged from £65,000 to £135,000. In the audit of each component, we further applied performance materiality levels of 70% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

Reporting threshold 

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £3,000 (2019: £3,000).  We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements.  We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

The Group conducts its operations principally within two main geographical regions, being Europe, through its UK subsidiary, Titon Hardware Ltd, and South East Asia, through its subsidiary Titon Korea Co. Ltd.  Titon Korea Co. Ltd sells only to the Group's associate, Browntech Sales Co. Ltd, which distributes the Group's product to third parties, predominantly in South Korea.  Full scope audits were performed on each of these entities by BDO LLP in relation to Titon Hardware Ltd and by BDO Korea in relation to Titon Korea Co. Ltd and Browntech Sales Co. Ltd.  BDO LLP also conducted a full scope audit on the Parent Company. The Group's North American subsidiary, Titon Inc., was evaluated as being a non-significant component on which we performed a limited scope review at group level along with targeted procedures on material balances where we considered it appropriate. 

Our approach to the Group audit was set on the basis of our review of key financial metrics, which are shown below.

  

Our involvement with component auditors

For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole.

Our involvement with component auditors included being involved in the scoping, risk assessment and design of the audit plan and, with full access to the component auditor's working papers, we undertook a review of the results of the audit and conclusions formed remotely from the UK and attended virtual meetings.

Other information

The Directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

•        the information given in the strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

•        the strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

•        adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

•        the Parent Company financial statements are not in agreement with the accounting records and returns; or

•        certain disclosures of Directors' remuneration specified by law are not made; or

•        we have not received all the information and explanations we require for our audit.

 

Responsibilities of Directors

As explained more fully in the Directors' responsibilities statement set out on page 22, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Matt Crane (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, UK

14 January 2021

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

 

 

 

Consolidated Income Statement

for the year ended 30 September 2020

		2020	2019
	Note	£'000	£'000
Revenue	3	20,652	27,157
Cost of sales		(15,200)	(18,959)
Grant Income	4	202	-
Gross profit		5,654	8,198
Distribution costs		(1,289)	(1,489)
Administrative expenses		(4,305)	(4,415)
Research and development expenses		(446)	(504)
Grant Income	4	326	-
Transaction related expenses		-	(181)
Other income		21	20
Operating (loss) / profit		(39)	1,629
Finance income	5	10	12
Finance expense	5	(36)	-
Share of post-tax profits from associate	13	83	329
Profit before tax	6	18	1,970
Income tax credit / (expense)	7	104	(186)
Profit after income tax		122	1,784
Attributable to:
Equity holders of the parent		58	1,423
Non-controlling interest		64	361
Profit for the year		122	1,784
Earnings per share attributed to equity holders of the parent:
Basic	9	0.52p	12.84p
Diluted	9	0.52p	12.68p

 

 

Consolidated Statement of Comprehensive Income 

for the year ended 30 September 2020                                                           

	2020	2019
	£'000	£'000
Profit for the year	122	1,784
Other comprehensive income - items which may be reclassified to profit or loss in subsequent periods:
Exchange difference on retranslation of net assets of overseas operations	(62)	(201)
Total comprehensive income for the year	60	1,583
Attributable to:
Equity holders of the parent	(17)	1,323
Non-controlling interest	77	260
	60	1,583

The notes on pages 47 to 76 form part of these financial statements.     

 

 

 

Consolidated Statement of Financial Position

at 30 September 2020

		2020	2019
	Note	£'000	£'000
Assets
Property, plant and equipment	10	3,469	3,799
Right-of-use assets	10	772	-
Intangible assets	11	753	718
Investments in associates	13	2,877	2,894
Deferred tax assets	16	333	281
Total non-current assets		8,204	7,692
Inventories	14	4,367	4,884
Trade and other receivables	15	3,779	5,446
Cash and cash equivalents	20	5,572	4,587
Total current assets		13,718	14,917
Total Assets		21,922	22,609
Liabilities
Deferred tax liability	16	-	83
Lease liabilities	18	531	-
Total non-current liabilities		531	83
Trade and other payables	17	4,303	4,793
Lease liabilities	18	277	-
Income tax payable		-	12
Total current liabilities		4,580	4,805
Total Liabilities		5,111	4,888
Equity
Share capital	19	1,113	1,113
Share premium reserve		1,049	1,049
Capital redemption reserve		56	56
Treasury shares	19	(27)	(27)
Foreign exchange reserve		327	402
Retained earnings		13,425	13,669
Total Equity attributable to equity holders of the parent		15,943	16,262
Non-controlling Interest		868	1,459
Total Equity		16,811	17,721
Total Liabilities and Equity		21,922	22,609

The notes on pages 47 to 76 form part of these financial statements.

 

These financial statements were approved and authorised for issue by the Board on 14 January 2021 and signed on its behalf by:

 

 

KA Ritchie

Chairman

 

 

 

 

Company Statement of Financial Position

at 30 September 2020

Company No. 01604952		2020	2019
	Note	£'000	£'000
Assets
Property and motor vehicles	10	1,910	1,987
Investments in subsidiaries	12	554	554
Investments in associates	13	225	225
Total non-current assets		2,689	2,766
Trade and other receivables	15	3,147	3,122
Cash and cash equivalents	20	2,001	1,494
Total current assets		5,148	4,616
Total Assets		7,837	7,382
Liabilities
Deferred tax	16	232	134
Total non-current assets		232	134
Trade and other payables	17	211	85
Total current liabilities		211	85
Total Liabilities		443	219
Equity
Share capital	19	1,113	1,113
Share premium account		1,049	1,049
Capital redemption reserve		56	56
Treasury shares		(27)	(27)
Retained earnings		5,203	4,972
Total Equity		7,394	7,163
Total Liabilities and Equity		7,837	7,382

As permitted by section 408(3) of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the year. Titon Holdings Plc reported a profit after tax for the financial year ended 30 September 2020 of £517,000 (2019: profit £246,000).The notes on pages 47 to 76 form part of these financial statements.

These financial statements were approved and authorised for issue by the Board on 14 January 2021 and signed on its behalf by:

 

KA Ritchie

Chairman

 

 

 

 

Consolidated Statement of Changes in Equity

at 30 September 2020

 

	Share Capital	Share  premium  reserve	Capital redemption reserve	Foreign exchange reserve	Treasury shares		Retained earnings	Total	Non- controlling interest	Total  Equity
	£'000	£'000	£'000	£'000	£000		£'000	£'000	£'000	£'000
At 30 September 2018	1,113	1,049	56	502	(27)		12,728	15,421	1,706	17,127
Accounting policy change IFRS 9	-	-	-	-	-		(19)	(19)	(19)	(38)
At 1 October 2018	1,113	1,049	56	502	(27)		12,709	15,402	1,687	17,089
Translation differences on overseas operations	-	-	-	(100)	-		-	(100)	(101)	(201)
Profit for the year	-	-	-	-	-		1,423	1,423	361	1,784
Total Comprehensive Income for the year	-	-	-	(100)	-		1,423	1,323	260	1,583
Dividends paid	-	-	-	-	-		(526)	(526)	-	(526)
Dividends paid to NCI in subsidiary	-	-	-	-	-		-	-	(488)	(488)
Share-based payment expense	-	-	-	-	-		63	63	-	63
At 30 September 2019	1,113	1,049	56	402	(27)		13,669	16,262	1,459	17,721
Accounting policy change IFRS 16	-	-	-	-	-	(16)		(16)	-	(16)
At 1 October 2019	1,113	1,049	56	402	(27)	13,653		16,246	1,459	17,705
Translation differences on overseas operations	-	-	-	(75)	-	-		(75)	13	(62)
Profit for the year	-	-	-	-	-	58		58	64	122
Total Comprehensive income  for the year	-	-	-	(75)	-	58		(17)	77	60
Dividends paid	-	-	-	-	-	(332)		(332)	-	(332)
Dividends paid to NCI in subsidiary	-	-	-	-	-	-		-	(668)	(668)
Share-based payment expense	-	-	-	-	-	46		46	-	46
At 30 September 2020	1,113	1,049	56	327	(27)	13,425		15,943	868	16,811

 

 

The notes on pages 47 to 76 form part of these financial statements.

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

Reserve	Description and purpose
Share capital Share premium	Nominal value of the issued share capital of the Company Premium on shares issued in excess of nominal value
Capital redemption	Amounts transferred from share capital on redemption of issued shares
Treasury shares	Weighted average cost of own shares held in Treasury
Foreign exchange reserve	Cumulative gains/losses arising on retranslating the net assets of overseas operations into Sterling
Retained earnings	All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere
Non-controlling interest	Interest in subsidiaries not owned by Titon Holdings Plc shareholders

 

 

 

Company Statement of Changes in Equity

at 30 September 2020

	Share Capital	Share  premium  reserve	Capital redemption reserve	Treasury shares	Retained earnings	Total  Equity
	£'000	£'000	£'000	£000	£'000	£'000
At 1 October 2018	1,113	1,049	56	(27)	5,189	7,380
Profit for the year	-	-	-	-	246	246
Total Comprehensive Income for the year	-	-	-	-	246	246
Dividends paid	-	-	-	-	(526)	(526)
Share-based payment expense	-	-	-	-	63	63
Ordinary shares issued	15	64	-	-	-	79
At 30 September 2019	1,113	1,049	56	(27)	4,972	7,163
Profit for the year	-	-	-	-	517	517
Total Comprehensive Income  for the year	-	-	-	-	517	517
Dividends paid	-	-	-	-	(332)	(332)
Share-based payment expense	-	-	-	-	46	46
At 30 September 2020	1,113	1,049	56	(27)	5,203	7,394

 

The notes on pages 47 to 76 form part of these financial statements.

 

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

                                                  

Reserve	Description and purpose
Share capital	Nominal value of the issued share capital of the Company
Share premium	Premium on shares issued in excess of nominal value
Capital redemption	Amounts transferred from share capital on redemption and cancellation of issued shares
Treasury shares	Weighted average cost of own shares held in Treasury
Retained earnings	All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere

 

 

 

Group and Company Statement of Cash Flows

for the year ended 30 September 2020

	Group		Company
	2020	2019	2020	2019
	£'000	£'000	£'000	£'000
Cash generated from operating activities
Profit / (loss) before tax	18	1,970	(43)	(288)
Depreciation of property, plant & equipment	559	543	77	77
Depreciation of right-of-use assets	257	-	-	-
Amortisation of intangible assets	236	228	-	-
Profit on sale of plant & equipment	(16)	-	-	-
Share based payment expense - equity settled	46	63	46	63
Finance income	(10)	(12)	(9)	(7)
Finance costs	36	-	-	-
Share of associate's post-tax profit	(83)	(329)	-	-
	1,043	2,463	71	(155)
Decrease in inventories	519	690	-	-
Decrease / (increase) in receivables	1,667	2,146	(25)	(316)
(Decrease) / increase in payables and other current liabilities	(468)	(2,033)	126	(122)
Cash generated by / (used) in operations	2,761	3,266	172	(593)
Income taxes paid	(43)	(203)	-	-
Net cash generated by / (used in) operating activities	2,718	3,063	172	(593)
Cash flows from investing activities
Purchase of plant & equipment	(246)	(694)	-	-
Purchase of intangible assets	(271)	(209)	-	-
Proceeds from sale of plant & equipment	46	7	-	-
Finance income	10	12	9	7
Dividends received from subsidiary companies	-	-	658	480
Net cash (used in) / generated by investing activities	(461)	(884)	667	487
Cash flows from financing activities
Dividends paid to equity shareholders of the parent	(332)	(526)	(332)	(526)
Dividends paid to non-controlling shareholders of a subsidiary	(668)	(488)	-	-
Payment of lease liability	(261)	-	-	-
Finance costs	(36)	-	-	-
Cash withdrawn from treasury deposit accounts	-	900	-	900
Net cash (used in) / generated by financing activities	(1,297)	(114)	(332)	374
Net increase in cash (including movement on treasury deposits)**	960	2,065	507	268
Foreign exchange	25	7	-	-
Cash at beginning of the year (excluding treasury deposits)	4,587	2,515	1,494	1,226
Cash at end of the year (excluding treasury deposits)	5,572	4,587	2,001	1,494

The Group cash and cash equivalents figure on the Consolidated Statement of Financial Position totals £5,572,000 at 30 September 2020 (2019: £4,587,000). See Note 20.

 

**The net increase in Group cash is £985,000 (2019: £1,172,000).

The notes on pages 47 to 76 form part of these financial statements.

 

 

 

 

Notes to the Consolidated Financial Statements

at 30 September 2020

 

General information

The consolidated financial statements of the Group for the year ended 30 September 2020 incorporates Titon Holdings Plc ("the Company") and its subsidiaries (together referred to as "the Group").

Titon Holdings Plc shares are publicly traded on the AIM market of the London Stock Exchange. The nature of the Group's operations and its principal activities are set out in the Strategic Report on page 7. The consolidated financial statements were authorised for release on 14 January 2021.

1        Summary of significant accounting policies 

(a) Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group and Parent Company financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs and IFRIC interpretations) and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS.

The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered potential scenarios arising from the COVID-19 pandemic, the risks associated with the UK leaving the EU, and from its other principal risks set out on pages 17 to 19. Under the worst case scenario considered, which is severe and considered highly unlikely, the Group remains liquid for a period of more than 12 months from the date of reporting and the Directors therefore believe, at the time of approving the financial statements that the Group is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are detailed on page 23.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

During the period, the following new standards, amendments and interpretations to existing standards were published. The impact on the reported results of the Group following the adoption of IFRS 16 is noted in the section below.

 

i   New standards, interpretations and amendments effective from 1 October 2019

The standard impacting the Group that will be adopted in the annual financial statements for the year ended 30 September 2020, and which has given rise to changes in the Group's accounting policies is:

 

IFRS 16 'Leases' replaces IAS 17 'Leases' and was adopted at 1 October 2019 without restatement of comparative figures using the modified retrospective approach. The adoption of this IFRS 16 has resulted in the Group recognising the right-of-use assets and related lease liabilities in connection with all former operating leases, where applicable at 1 October 2019 and as shown below, except for intra-group leases for property assets. In addition, for leases with a low value assets and those with a duration of 12 months or less, the Group has elected to account for the lease expense on a straight-line basis over the remaining lease term.

At 1 October 2019, the Group measured each lease liability at the present value of the contractual lease payments unpaid at that date, discounted using the interest rate implicit in the lease, where that was rate readily available, or used the incremental borrowing rate applying a single rate to a portfolio of leases with reasonably similar characteristics. The incremental borrowing being the rate the lessee would have to pay to borrow the funds necessary to obtain an asset similar to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

	£000s
Right-of-use assets recognised - see Note 18	770
Lease Liabilities recognised	(786)
Reduction in Retained Earnings at 01/10/19	(16)

The new Standard has been applied as at 1 October 2019 with the cumulative effect of adopting IFRS 16 being recognised in Equity as a reduction in Retained Earnings of £16,000. Prior periods have not been restated. See note 25 for further information on the implementation of this standard.

Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

 

ii   New IFRS standards not applied by the Group

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

 

(b) Basis of consolidation

Subsidiaries

The Group's consolidated financial statements incorporate the financial statements of the Company (Titon Holdings Plc) and the entities controlled by the Company (its subsidiaries) made up to 30 September 2020. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

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

Non-controlling interests

A non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests at the end of reporting period represent the non-controlling shareholders' portion of the fair values of the identifiable assets and liabilities of the subsidiary at the acquisition date and the non-controlling interests' portion of movements in equity since the date of the combination. Non-controlling interest is presented within equity, separately from the parent's shareholders' equity.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in deficit balance.

Associates

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated balance sheet at cost.

The Group's share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses in excess of the Group's investment in the associate are not recognised unless there is an obligation to make good those losses. Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate.

 

The investors' share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. The carrying amount of the investment in associates is subject to impairment in the same way as goodwill arising on a business combination (see accounting policy (h)).

Business combinations

The consolidated financial statements incorporate the results of business using the purchase method. In the consolidated balance sheet, the Group's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The Group's share of the results of acquired operations are included in the consolidated income statement from the date on which control is obtained.

Foreign currency

 

Transactions entered into by group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement.

On consolidation, the results of overseas operations are translated into Sterling, which is the presentational currency of the Company and Group, at rates approximating those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in other comprehensive income.

Upon disposal of all overseas operations, exchange differences arising from the translation of the financial statements of foreign operations are recycled and taken to the consolidated income statement as part of the profit or loss on disposal. The Company has elected, in accordance with IFRS 1, that in respect of all foreign operations, any differences that have arisen before 1 October 2004 have been set to zero. Any gain or loss on the subsequent disposal of those foreign operations would exclude translation differences that arose before the date of transition to IFRS and include only subsequent translation differences.

More than 90% (2019: 90%) of sales from the Group's UK business are invoiced in Sterling.

 

(c) Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation.

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as incurred.

Freehold land is not depreciated. Depreciation is provided on all other items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates:

Freehold buildings                                - 2% per annum straight line

Improvements to leasehold property - 10% to 20% per annum straight line (or the lease term, is shorter)

Plant and equipment                            - 10% to 33.3% per annum straight line

Motor vehicles                                        - 25% per annum straight line

 

The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable (see accounting policy (h)).

 

The Group also recognises right-of-use assets and lease liabilities under IFRS 16 (see note 25), for most leases with the exception of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less. Right-of-use assets, which include Property (factory units and office accommodation), plant and equipment and motor vehicles are initially measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments, and are depreciated on a straight line basis to write off the carrying value of the assets over the contractual term of each lease.

The carrying values of right-of-use assets are reviewed for impairment when events, such as a change in the term of the lease, or in other circumstances indicate the carrying value may not be recoverable (see accounting policy (h)).

(e) Intangible assets

Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses (see accounting policy (h)). Amortisation is charged to Administrative Expenses within the Consolidated Income Statement.

i   Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition and subject to annual impairment testing. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill associated with the acquisition of associates is included within the investment in associates. 

Goodwill is not subject to amortisation, but is tested for impairment annually. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal.

ii   Internally generated intangible assets (development costs)

Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed.

Expenditure on internally developed products is capitalised if all of the following can be demonstrated:

·    it is technically feasible to complete the intangible asset so that it will be available for use or sale;

·    there is an intention to complete the intangible asset and use or sell it;

·    an ability to use or sell the intangible asset;

·    how the intangible asset will generate probable future economic benefits;

·    the availability of adequate technical, financial and other resources to complete the development; and

·    the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Development costs are amortised using the straight line method over their remaining estimated useful lives from the date that the products are available for sale to customers, which is normally between 3 and 5 years. The remaining useful lives of such development assets are assessed by the Directors annually.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects is recognised in the consolidated income statement as incurred.

iii   Computer software

Costs incurred on the acquisition of computer software are capitalised if they meet the recognition criteria of IAS 38 as described above. Computer software costs recognised as assets are written off over their estimated useful lives, which is normally between 3 and 10 years.

 iv   Other intangible assets 

Other intangible assets arising on business combinations, including patents, are recorded at fair value at the date of acquisition. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives, which is normally 5 years. The remaining useful lives of such assets are assessed by the Directors annually.

v   Assets under development

Assets under development are not amortised until they are complete and in use by the Group.

vi    Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(f) Inventories

Inventories are stated at the lower of cost and net realisable value.  Cost is calculated as follows:

Raw materials and Bought In finished goods                 -        cost of purchase

                                                                    Work in progress and manufactured finished goods        -             cost of raw materials and labour, together with                                                                                                attributable overheads based on the normal level                                                                                                                  of activity

Net realisable value is based on estimated selling price less further costs to completion and disposal. A charge is made to the income statement for slow moving inventories. The charge is reviewed at each balance sheet date.

(g) Cash and cash equivalents

Cash and cash equivalents comprise cash balances, bank overdrafts and treasury deposits for cash flow purposes. The Group has no long term borrowings and any available cash surpluses are placed on deposit.

 

(h)  Impairment

The carrying amount of the Group's assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. Impairment losses are recognised in the income statement.

Reversals of impairment

Other than in respect of goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(i)  Employee benefits

Share-based payment transactions

The Company provides share option schemes for Directors and for other members of staff.

In accordance with IFRS 2 - Share-based Payments, the fair value of the employee services received in exchange for the grant of options is recognised as an expense to the income statement over the vesting period of the option and the corresponding credit recognised to the Retained Earnings within equity. The Black-Scholes option pricing model has been used for calculating the fair value of the Group's share options. The Directors believe that this model is the most suitable for calculating the fair value of the equity based share options.

The fair value of the options is determined excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date the Group revises its estimates of the number of option awards that are expected to vest. The impact of the revision of original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity. No adjustment is made for failure to achieve market vesting conditions providing all other vesting conditions are met.

Pension costs

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. Contributions to the pension scheme are charged to the income statement in the year in which they become payable. 

Accrued holiday pay

Provision is made at each balance sheet date for holidays accrued but not taken at the salary of the relevant employee at that date.

(j)  Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. They are discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability.

(k)  Revenue

Revenue is derived principally from the sale of goods and is measured at the fair value of consideration received or receivable, after deducting discounts, settlement discounts, rebates and value added tax. A sale is recognised when control of the goods supplied has passed to the customer, which is upon the transport of the goods from the company's premises or in South Korea, upon customer acceptance of goods, staged over time, as first and second fix components are supplied and installed and at which point contractual entitlement to payment is established and the customer obtains control of the goods.

(l) Finance income

Finance income comprises interest receivable on funds invested.

(m)  Corporation and deferred taxes

Tax on the profit or loss for the periods presented comprises current and deferred tax.

Current tax

Current tax is the expected corporation tax payable on the taxable income for the year, using rates and laws enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

 

Deferred tax

Deferred tax is provided using the balance sheet liability method, using rates and laws enacted or substantively enacted at the balance sheet date, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.