TENON AUDIT LIMITED
COMPANY REGISTRATION NUMBER 3802853
Mechan Controls Plc
Directors' Report
And Financial Statements
For the Year Ended 31 December 2008
I am pleased to announce our final results for 2008 which for the first time
include 10 months trading from our acquisition of Nirvana Engineering (Stafford)
Limited in March 2008. You will see from the key performance indicators in the
directors' report that:
- Consolidated turnover has almost trebled with an increase of 190% on last
year.
- Consolidated earnings (EBITDA) before interest, tax, depreciation and
amortisation have nearly trebled with an increase of 176%.
- Consolidated profits before tax, likewise, almost trebled with an increase of
166%.
In the current year the turnover of the combined companies is 30% up, after the
first quarter, when compared to last year. This is partly due to a "one off"
project that has enhanced our trading in the first half. We accept that this
quantum leap in turnover and profit growth will inevitably plateau in the second
half of the year; however we still expect to see double digit earnings growth
going forward.
We are still expanding organically and geographically. Further acquisitions
currently being sought, would repeat another quantum leap in earnings. However,
with or without an acquisition, we expect to achieve double digit earnings
growth in the current year.
Needless to say, the Directors are delighted with the results and the timely
acquisition of Nirvana.
As a result of the acquisition Mechan now has an associated company for
corporation tax purposes. As Nirvana is paying corporation tax at the marginal
rate of tax, this has increased the group tax rate from 19.75% last year to
26.3% this year.
In the light of this excellent increase in profits, the directors are pleased to
announce an increase in the final dividend of more than 50% to £14,000 (2007:
£9,000).
Mr W Boardman - Chairman
Date: 26 May 2009
The directors have pleasure in presenting their report and the financial
statements of the group for the year ended 31 December 2008.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
Mechan's principal activity continues to be the research & development in, and
manufacture of, electronic safety switches, control units and monitoring devices
to provide the safeguarding of personnel and machinery, whilst Nirvana
Engineering, it's newly acquired subsidiary, provides manufactured structures
for the safe and secure storage of back up power systems within a niche market
sector.
The group's key performance indicators for the year were as follows:
GROUP KEY PERFORMANCE INDICATORS
2008 2007
£ £
Turnover 2,261,422 775,841
Gross Profit 1,084,772 434,387
EBITDA 444,917 160,949
Operating Profit 322,972 95,125
Profit before taxation 259,771 97,597
Profit after taxation 168,037 78,228
Shareholders Funds 1,176,322 1,025,286
Earnings per share 8.4p 3.9p
Dividends per share 0.85p 0.76p
Net Assets per share 58.8p 51.3p
On the 1st March 2008 the company acquired the entire share capital of Nirvana
Engineering (Stafford) Limited. This has been a huge success with Nirvana's
contribution for the 10 months almost trebling Mechan's turnover and increasing
it's operating profit by a factor of 3.4 times.
The group should see a comfortable growth in the next year with a full 12 months
contribution from Nirvana.
The directors wish to highlight that after tax earnings per share have increased
115% from 3.9p in 2007 to 8.4p in 2008.
The group now pays tax at a higher marginal rate of 28% as against 20%, hence
the less than pro rata increase in earnings per share (2.16 times) compared to
the higher pro rata increase in profits before tax (2.66 times).
ENVIRONMENT
The group recognises the importance of its environmental responsibilities,
monitors its impact on the environment, and designs and implements policies to
reduce any damage that might be caused by the group's activities. Initiatives
designed to minimise the group's impact on the environment include the safe
disposal of waste and reducing energy consumption.
FUTURE DEVELOPMENTS
The group continues to develop its relationship with its key customers and
support them with a flow of new products through our research and development
efforts. Our business model of a global network is in place and requires support
in the form of new products, keen prices and responsive services. The group
continues to expand its global network with various strategic partners. This
network has a value in itself and the more products that are passed through, the
greater that value becomes.
We have exceeded our first quarter growth targets for the current year with
order intake up by 30% year on year. Despite these trying times and with a full
year of Nirvana included, and with lower interest charges and a quieter second
half we nevertheless expect profits to increase during the current year by
double digit figures. The group will continue to diligently seek further bolt on
opportunities.
RESULTS AND DIVIDENDS
The group profit for the year, after taxation, amounted to £168,037. Particulars
of dividends paid are detailed in note 10 to the financial statements.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The group's operations expose it to a variety of financial risks that include
the effects of changes in price risk, liquidity risk and credit risk.
The group's principal financial instruments comprise cash deposits, bank loans
and invoice discount financing together with trade debtors and trade creditors
arising directly from trading.
Exchange risk
There is always pressure on prices in what is a competitive and international
market. Movement in exchange rates can make a difference to prices. However,
prices are raised appropriately in line with customer expectation, competition
and the cost of living index. This has not lead to a loss of customers in the
past. During the year the fall in the strength of the pound has generally been
beneficial.
Liquidity risk
As part of our acquisition financing, the group now uses invoice discounting
plus a core 4 year senior term loan and a commercial mortgage on the
Skelmersdale building. We are in the happy position that all our banking
covenants for each of these facilities are being met after the first twelve
months.
Credit risk
We operate normal credit terms and this is specified in some cases in the
distribution agreement. The group only has one customer which causes a problem
by taking longer than appropriate and in this case deliveries are put on stop
until the credit taken is brought below the agreed level. This is monitored
closely.
As a result of the foregoing, the directors are satisfied with the results of
the group for the year and expect the general level of activity and
profitability to increase in the forthcoming year.
RESEARCH AND DEVELOPMENT
The range of switches has more than trebled since the company was acquired 10
years ago. This has been achieved as a result of our extensive and intensive
research and development efforts. Our American distributor and biggest customer
asked for and got 6 new products in the last year alone. A constant R & D effort
is necessary to retain a leading edge in Mechan's hi-tech field.
The same is true for Nirvana; whilst only owning the company for 10 months we
already have two new product prototypes under development which will probably be
ready by the second half of 2009. These new products will enhance our efforts to
penetrate further into export markets.
THE DIRECTORS AND THEIR INTERESTS
The directors who served the company during the year together with their
beneficial interests in the shares of the company were as follows:
Ordinary Shares of £0.025 each
At At
31 December 1 January
2008 2008
or later date
of appointment
Mr W Boardman - 1,013,000 1,013,000
Managing Director
150,000 150,000
Mr M F Farrah -
Technical Director
300,000 300,000
Mr P K Knowles -
Sales & Marketing
Director
100,000 100,000
Mr J Faulkner -
Non Executive
Director
113,300 113,300
Mr R Parkinson
- -
Mr R W Shaw (Appointed 1November 2008)
========= ==========
MARKET VALUE OF INTERESTS IN LAND
The directors consider that the market value of interests in land and buildings
as at 31 December 2008 was £150,000. The net book value of land and buildings in
the financial statements is £67,118.
POLICY ON THE PAYMENT OF CREDITORS
It is the group's policy that payments to suppliers are made in accordance with
the terms and conditions agreed between the company and its suppliers, providing
that all terms and conditions have been complied with. The company had 50 days
purchases outstanding as at 31 December 2008, based on trade creditors
outstanding at that date and purchases made during the year.
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. Under that law the directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
The financial statements are required by law to give a true and fair view of the
state of affairs of the company and the group and of the profit or loss of the
group for that year. In preparing these financial statements, the directors are
required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, 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 will continue in business.
The directors are responsible for keeping proper accounting records that
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 1985. 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.
In so far as the directors are aware:
* there is no relevant audit information of which the group's auditor is
unaware; and
* the directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditor is aware of that information.
DONATIONS
During the year the company made the following contributions:
2008 2007
£ £
Charitable donations 713 100
======= =======
AUDITOR
A resolution to re-appoint Tenon Audit Limited as auditor for the ensuing year
will be proposed at the annual general meeting in accordance with section 385 of
the Companies Act 1985.
Signed on behalf of the directors
Mr R Parkinson
Company Secretary
Approved by the directors on 26 May 2009
We have audited the group and parent company financial statements ("the
financial statements") of Mechan Controls Plc for the year ended
31 December 2008 on pages 9 to 30, which have been prepared on the basis of the
accounting policies set out on pages 14 to 16.
This report is made solely to the company's shareholders, as a body, in
accordance with Section 235 of the Companies Act 1985. Our audit work has been
undertaken so that we might state to the company's shareholders 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 company and the company's shareholders
as a body, for our audit work, for this report, or for the opinions we have
formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are
set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you whether in our opinion the information given in the
Directors' Report is consistent with the financial statements. The information
given in the Directors' Report includes that specific information presented in
the Chairman's statement.
In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report, and consider whether
it is consistent with the audited financial statements. This other information
comprises only the Directors' Report and the Chairman's statement. We consider
the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements. Our responsibilities
do not extend to any other information.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the group's and company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion:
* the financial statements give a true and fair view, in accordance with
United Kingdom Generally Accepted Accounting Practice, of the state of the
group's and the parent company's affairs as at 31 December 2008 and of the
group's profit for the year then ended;
* the financial statements have been properly prepared in accordance with the
Companies Act 1985; and
* the information given in the Directors' Report and Chairman's Statement are
consistent with the financial statements.
Tenon Audit Limited
Registered Auditor
88 - 96 Market Street West
Preston
PR1 2EU
Date: 26 May 2009
TURNOVER
Continuing operations 858,484 775,841
Acquisitions 1,402,938 -
-------- --------
2,261,422 775,841
Group Turnover 2,261,422 775,841
Cost of sales (1,176,650) (341,454)
-------- --------
GROSS PROFIT 1,084,772 434,387
Net operating expenses 761,800 339,262
-------- --------
OPERATING PROFIT:
Continuing operations 74,881 95,125
Acquisitions 248,091 -
-------- --------
GROUP OPERATING PROFIT 322,972 95,125
Interest receivable and 3,021 4,671
similar income
Interest payable and (66,222) (2,199)
similar charges
-------- --------
PROFIT ON ORDINARY 259,771 97,597
ACTIVITIES BEFORE TAXATION
Tax on profit on 91,734 19,369
ordinary activities
-------- -------
PROFIT FOR THE FINANCIAL YEAR 168,037 78,228
======= ========
Earnings per share(pence) 8.4p 3.9p
All of the activities of the group are classed as continuing.
The group has no recognised gains or losses other than the results for the
year as set out above.
The company has taken advantage of section 230 of the Companies Act 1985
not to publish its own Profit and Loss Account.
FIXED ASSETS
Intangible assets 1,247,600 544,198
Tangible assets 178,289 125,347
-------- -------- 1,425,889 669,545
CURRENT ASSETS
Stocks 291,934 182,405
Debtors 498,713 179,445
Cash at bank 22,057 139,577
-------- --------
812,704 501,427
CREDITORS: Amounts 567,811 123,354
falling due within one
year
-------- --------
NET CURRENT ASSETS 244,893 378,073
-------- --------
TOTAL ASSETS LESS CURRENT 1,670,782 1,047,618
LIABILITIES
CREDITORS: Amounts 476,629 19,159
falling due after more
than one year
-------- ---------
1,194,153 1,028,459
PROVISIONS FOR LIABILITIES
Deferred taxation 17,831 3,173
1,176,322 1,025,286
========= =========
CAPITAL AND RESERVES
Called-up equity share 50,000 50,000
capital
Share premium account 653,000 653,000
Profit and loss acco 473,322 322,286
-------- --------
SHAREHOLDERS' FUNDS 1,176,322 1,025,286
========= =========
These financial statements were approved by the directors and authorised for
issue on 26 May 2009, and are signed on their behalf by:
..........................
Mr W Boardman - Managing Director
Director
