The Stobart 2016 Annual Report

Transcription

Stobart Group Limited
Driving the Value
G
AT
GR
20
TH
20
18
:
2
IL
E
BR NHA
NC
AN
D V E
ALUE
AND
TS
£4
BR
IE
RT
A
D
ED B
O
ST
PR
OP
m
IUS
£5
1
IR
T
E
%
£11m
N
L
OP
EN
M
1m
V
A
RA
5m
2.
:
18
12
m
IT D A
PT EB
U
25
34
£10
T
R
E
AT
RE
: C
1
AT
ES
bt)
S
ST
TURE & I NV
8m
RA
RA
UC
De
GY
I NF
IN F
2018
TR
GR
O W & R E ALISE
C
A TUR
SS E
ET PR O PERTY
S
£
HP
ER
2016:
£505m
£8
m
N
H
ES
S
ES
IN
AT
ER
26
SUSTAINABLE
GR
RM
OW
-TE
G
T
N
O
B
G USIN
E
IA
ON
TI
(£
20
m
bt)
ES
22
De
NN
(£
£11
m
m
9
16
TO
£
R
OW
%
+
P
S
S
EN
E
RS
BIT D A
PP E
8
£
m
A
Annual Report and Accounts
2016
TH
R
O
UG
H
AS
SET
A
R E A LIS A TIO N S & V
L
UE
IM
P
RO
VE
M
Stobart Group is one of the UK’s
leading infrastructure and support service
businesses operating in the biomass
energy, aviation and railway maintenance
sectors as well as having investments in
a national property and logistics portfolio.
Our vision is to deliver superior growth
and shareholder returns by enhancing and
realising our Infrastructure and Investments
assets and creating new growth platforms
in Energy, Aviation and Rail.
2016
UK
SUPERBRAND
Group at a Glance
We manage our business and
report our results in five divisions.
Stobart Aviation aims to deliver a first class passenger
experience through its ownership of London Southend
Airport, Carlisle Lake District Airport and regional airline
Stobart Air.
S
S
EN
G
ER
S
£8
AT
BIT D
PP E
5m
P
A
Highlights
–– Strengthened management team with a new CEO
and COO in place.
–– London Southend Airport rated best UK airport in
Which? customer satisfaction survey for third year
running and voted Best Airport in Britain by the Airport
Operators Association.
–– Momentum built with potential new airline operators.
–– Load factor up by 6.8%.
–– Sold part of Carlisle Airport site and building for £16.8m.
18
:
2.
£1
(
2
£2
m
De
bt)
IA
L
£2.3m
Passengers
2
RA
IN F
I NF
£5
S
RA
ST
2018
TR
R
U
C
UC
GR
TU
OW
12
RE
: C
A TUR
SS E
ET PR O P
S
AT
£
E
1
25
34
m
%
IR
R
Highlights
–– Two realisations from the property portfolio in the period
giving net proceeds of £7.4m.
–– Acquisition of Speke property, valuation uplift of £9.1m
in the year, expected to realise further value in future.
£10.5m
IN
AT
ER
0.9m
Our Infrastructure division has a strong track record of
enhancing the value of the Group’s assets. It holds our
portfolio of commercial properties and our investments in
renewable energy plants.
Underlying EBITDA
SUS
RM
-TE
NG
O
G
OP
Underlying EBITDA
ON
TI
A
V
20
m
69
TH
R
O
UG
H
AS
SET
Gain in value of investment
properties
£8.4m
Divisional EBITDA
Stobart Aviation Underlying EBITDA £m
16
2.3
1.4
15
14
+59.8%
0.1
Stobart Infrastructure Underlying EBITDA £m
16
15
14
10.5
4.0
18.9
+159.4%
R E A LIS
Stobart Rail is one of the UK’s leading providers of innovative
and efficient rail and non-rail civil engineering projects.
Highlights
–– Increased revenue from external work by 37%.
–– Healthy pipeline of work worth c.£68m.
–– Secured a devegetation contract with Network Rail
covering 11 of the 12 routes across Great Britain.
DA
GR
20
OW
%
TH
20
18
:
2
Underlying EBITDA
m
+
TO
£11
m
NN
ES
£3.4m
De
£4
BR
1m
AND
TS
EN
M
IE
A
RT
D
ED B
O
T
S
OP
m
IUS
S A TIO N S
£5
1
Highlights
–– Successful implementation of the Lisahally
renewable energy contract in Northern Ireland.
–– Secured final two additional biomass contracts
towards our target supply of over 2.0m t.p.a. by 2018.
–– Financial close achieved on a 5MW solar farm at
Pollington, East Yorkshire.
–– Increased revenue and contained costs in a difficult
trading year.
–– Saw significant progress in the construction of the
power plants that will be supplied by Stobart Energy.
E
N
T
£11m
Stobart Energy is the number one supplier of biomass in
the UK, sourcing and supplying fuel to biomass plants
under a mix of short and long-term contracts.
E
BR NHA
NC
AN
D V E
ALUE
bt)
GY
SE
PR
PERTY
IT D A
PT EB
HP
& R E ALI
E
8m
m
ER
URE & I NV
ST
&
L
VA
UE
IM
P
RO
VE
M
Underlying EBITDA
£9.1m
Stobart Rail Underlying EBITDA £m
16
3.4
2.8
15
14
9.1
7.8
15
14
+17.0%
Highlights
–– Eddie Stobart Logistics traded ahead of prior year and
made a profitable disposal of the Automotive business,
–– Propius has performed in line with management
expectations.
–– Two aircraft sold at a profit of $6.5m USD.
Underlying EBITDA
7.4
Stobart Investments Underlying EBITDA £m
16
14
11.1
6.8
18.9
Over 2.0m t.p.a.
+20.1%
3.5
16
Tonnes of supply contracts
in place for 2018
Our Investments division holds our logistics and aircraft
leasing businesses with investments of 49% in Eddie
Stobart Logistics and 33% in Propius.
Stobart Energy Underlying EBITDA £m
15
37%
£10
RA
IL
AT
26
N
ES
016:
505m
£8
(£
H
G BUSINE
SS
E
USTAINABLE
GR
OW
T
Increase in revenue from
external work
+64.1%
£11.1m
Propius dividend
£4.3m
Eddie Stobart Logistics
debt repaid
£21.0m
BIT D A
PP E
GR
20
TH
20
18
:
2
P
IL
E
BR NHA
NC
AN
D V E
ALUE
£4
BR
A
12
RT
U
PR
OP
m
IUS
25
£5
m
1
IR
E
%
£11m
T
E
34
1m
AND
TS
EN
M
R
AT
1
D
ED B
O
ST
N
V
A
OP
L
RA
5m
2.
:
18
ST
RE
: C
£
IT D A
PT EB
T
£10
ES
8m
GY
S
RA
TURE & I NV
GR
O W & R E ALISE
C
A TUR
SS E
ET PR O PERTY
S
bt)
RA
IN F
UC
De
ER
ES
2016:
£505m
HP
H
ES
S
N
IN
AT
ER
m
SUSTAINABLE
GR
RM
OW
-TE
T
NG
O
G BUSIN
TR
AT
ON
TI
26
IA
£8
20
De
bt)
ES
m
NN
22
TO
£11
m
m
69
(£
R
OW
%
+
£1
2018
£30.0m
£8
AT
m
A
S
I NF
Revenue from continuing operations
S
EN
ER
E
(2015: £116.6m)
The Stobart Value Wheel explains
our strategy of creating value through our
three growth divisions of Energy, Aviation
and Rail, and shows the expected
realisations from our Infrastructure
and Investments divisions.
S
G
(£
+8.6%
02 Driving the Value
2016
IE
Highlights of the Year
2016
£126.7m
01
Strategic Report
Governance
Financial Statements
TH
R
O
+69.8%
UG
H
AS
SET
A
L
UE
IM
PR
O
VE
M
(2015: £17.6m)
Underlying EBITDA1
£8.8m
+210%
(2015: £8.0m loss)
Overall profit after tax from continuing operations
See our Strategy in Action
20
20
2016
26
Strategic Report
Governance
Strategic Report
Governance
21
2016
Strategy in Action
Strategic Report
Governance
+89.7%
(2015: 2.6p)
Earnings per share2
1 Underlying EBITDA represents underlying earnings
before diesel swap, interest, tax, depreciation,
amortisation and non-underlying items.
2 Underlying earnings per share from
continuing operations.
27
2016
32
2016
Strategic Report
Governance
33
Strategic Report
Governance
2016
Strategy in action
Our Competitive Advantage
Value Enhancement at Speke
Existing Contracts
2.0m t.p.a.
2015 saw demand in the UK commercial aviation
markets, and London in particular, recover to
pre-2007 levels. Capacity, however, remains tightly
constrained. Despite a challenging year in 2015/16,
Stobart Aviation is confident of its growth prospects
over the next three years, for three main reasons.
Long-Term Contracts
We currently supply 1.0m t.p.a and have contracts
in place for supplying over 2.0m t.p.a to customers
by 2018.
Approx. 10 mins
(1.7 miles) drive from
the nearest train
station – Hunts Cross
Within easy reach
of the M57, M56
and the M62
Short-Term Contracts
Average long-term contract: 10 years
Lisahally
Fully operational by: May 2016
Contract term: 15 years
Speyside
Fully operational by: June 2016
0.9mt p.a.
115,000 t.p.a.
55,000 t.p.a.
First, London Southend is the only London
airport able to offer significant peak hour
capacity, both on the runway and in the
terminal. This is key to attracting both
business and leisure focused airlines and
to maximising aircraft utilisation across
the day.
Second, the compact infrastructure and
location just outside the busy London
airspace means that London Southend
is exceptionally efficient from an airline
operations perspective. Taxi times
on runways and flight times from key
destinations like Amsterdam and
Paris are characteristically shorter than
competitor airports, which reduces cost
and increases profitability.
Biomass Plants in Construction
5.0p
Strategic Report
Governance
Strategy in Action
We are On Target
Over
26
2016
32
Third, the airport’s combination of easy
access, with up to eight trains an hour
into central London, and simple airport
processes mean that the experience of
our customers is, literally, second to none.
In 2015, London Southend was voted best
airport in Britain for the third year running
by readers of Which? Magazine.
Margam
Fully operational by: January 2017
Widnes
Fully operational by: March 2017
Templeborough
Tilbury
250,000 t.p.a.
146,000 t.p.a.
260,000 t.p.a.
270,000 t.p.a.
Port Clarence
Fully operational by: December 2017
Cramlington
250,000 t.p.a.
120,000 t.p.a.
2.0
The site at Speke
is 7 miles south of
Liverpool city centre
Through a corporate acquisition in 2012, Stobart
Group inherited a long leasehold 47-acre site at
Speke, Merseyside which is sub-let to Ford and used
as a vehicle storage site. Ford have occupied the site
since the 1960’s although their occupational lease
was due to expire in December 2017. In addition,
they were also occupying an eight-acre adjoining
site, owned by a third party.
With the Group committed by a long-term
lease until 2068, representing a potentially
onerous liability and Ford’s occupation
possibly ending in 2017, we needed to
undertake a strategic review of all the
options available to us.
Recognising that the site benefitted from a
rail link, was close to Liverpool Airport and
within easy reach of motorway and port
links as well as being located next door to
the Mersey Retail Park, we felt that the site
could also be an opportunity for us to add
value using our well-developed asset
management skills.
Adjacent to
the new Mersey
Retail Park
Various options for the site were considered
including redevelopment for retail, industrial
and residential use, and it was clear to
us that there were many viable options.
However, to unlock the site’s potential,
we needed to acquire the freehold of not
only our site that Ford occupied, but an
adjacent six-acre site that would give us
53-acres in total.
In March 2016, we agreed terms with
Ford on a new 20-year occupational lease
commencing 1 July 2016 at a significantly
increased rent of £2.16m per annum, with
fixed annual 2% rental uplifts. Ford signed a
legally binding agreement to lease in March
2016 and have an option to buy the 47-acre
site for £37.0m before 30 June 2016. The
investment value, irrespective of whether
the option is exercised, will also equate to
around £37.0m over the term of the lease.
With a six-acre site remaining for
future development, the overall value
enhancement for the Group from the
Speke investment property is expected
to be in the region of £22.0m, of which
£9.1m has been recognised in the year.
£17.6m
Purchase Price
Approx. 7mins
(1.8 miles) drive
from Liverpool John
Lennon Airport
We managed to successfully negotiate
the purchase of the relevant pieces of land
for a combined total of £17.6m including
costs, in December 2015. The Board then
considered the various options for the site,
as well as a proposal to enter into a new
long-term lease with Ford to remain on
47-acres of the site, which they were keen to
do given how important the site is to them,
being located very close to their Halewood
production facility.
£22.0m
Value Created
Over
m t.p.a.
Average contract length: 15 years
Contents
Strategic Report
Group at a Glance
ifc
Highlights of the Year 2016
01
Strategy and Objectives
02
Business Model
04
Key Performance Indicators
06
Risk Management
08
Our Precious Brand
13
Chairman’s Statement
14
Chief Executive’s Statement
16
Operational Review
18
–– Stobart Energy
18
–– Stobart Aviation
22
–– Stobart Rail
28
–– Stobart Infrastructure
30
–– Stobart Investments
34
Financial Review
35
Corporate Social Responsibility
38
–– A Responsible Business
38
–– Safety and Compliance
38
–– Our People
40
–– Engagement with Local Communities 45
–– Environmental Efficiency and
Responsibility46
Governance
Board of Directors
Corporate Governance
Nomination Committee
Audit Committee Report
Remuneration Report
Directors’ Report
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement of
Changes in Equity Consolidated Statement
of Cash Flows
Notes to the Consolidated
Financial Statements Directors, Officers and Advisors
48
50
54
55
58
71
74
77
78
79
81
82
83
112
02
Strategic Report
Governance
2016
Strategy and Objectives
Driving the Value
G
BIT D A
PP E
GR
20
TH
20
18
:
2
IL
E
AND
TS
EN
M
£4
BR
IE
RT
A
12
D
ED B
O
ST
PR
OP
m
IUS
£5
m
E
BR NHA
NC
AN
D V E
ALU
L
OP
U
1
IR
T
E
%
£11m
N
25
34
1m
V
A
R
E
AT
RE
: C
1
IT D A
PT EB
T
£10
ES
bt)
S
ST
TURE & I NV
8m
RA
RA
UC
De
GY
I NF
IN F
2018
TR
GR
O W & R E ALISE
C
A TUR
SS E
ET PR O PERTY
S
£
HP
ER
2016:
£505m
£8
m
N
H
ES
S
ES
IN
AT
ER
26
SUSTAINABLE
GR
RM
OW
-TE
T
NG
O
B
U
S
G
IN
E
IA
ON
TI
RA
5m
2.
:
18
bt)
(£
20
De
AT
2
2m
ES
(£
£11
m
m
NN
9
16
TO
£
R
OW
%
+
P
S
S
EN
E
RS
£8
AT
m
A
The Stobart Value Wheel explains our strategy of creating value through our
three growth divisions of Energy, Aviation and Rail, and shows the expected
realisations from our Infrastructure and Investments divisions.
TH
R
O
UG
H
AS
SET
U
AL
E
IM
PR
O
VE
M
Note: Against £505m of assets the
Group has net debt of £48.0m.
Reconciliation to Consolidated Statement of Financial Position
Total non-current assets
Property assets classified within inventories in current assets
Property assets classified within assets held for sale in current assets
Green Energy interest due shown in current assets
£m
453.3
44.3
5.4
2.0
505.0
Strategic Report
Governance
03
2016
Divisional Medium-Term
Objective
Progress Towards Medium-Term
Objective in the Year
Year Ending February 2017
Objectives
Energy
Supply over 2mt of biomass
annually by 2018
–– Identified and secured wood required to supply
over 2m t.p.a.
–– Grown revenue and profitability.
–– Implemented Lisahally (formerly Evermore) project
(115,000 t.p.a.) in Northern Ireland in August 2015.
–– Finalise supply strategy for Margam,
Widnes, Templeborough, Tilbury and Port
Clarence plants (totalling 1,176,000 t.p.a.).
–– Open further storage and processing sites.
Aviation
2.5m passengers annually
by 2018
–– Recruitment of new CEO and COO each
with significant industry experience.
–– easyJet yield and load factors improving.
–– Ongoing talks with major airlines.
–– Completed construction of distribution centre
at Carlisle Airport and disposed of at a profit.
–– Delivered customer service excellence.
–– New website and strong online presence.
–– Secure additional sustainable airline
operators to grow passenger numbers.
–– Develop Stobart Air operations, including
further routes through London Southend
Airport.
–– Improve revenue per passenger.
–– Develop commercial operators at Carlisle
Lake District Airport.
Rail
Be a leading provider of
civil engineering services
to third parties
–– Strong order book for future works worth c.£68m.
–– Commitment from Network Rail for ballast
undercutters.
–– Secured framework contract from Network Rail
for devegetation.
–– Implementation for extraction of timber volume
from under-managed woodland.
–– Grow business across all regions,
including Scotland.
–– Improve external revenue with rail
and civil engineering clients.
–– Win additional long-term contracts.
–– Continue to support Group
developments.
–– Expand under-managed woodland
project to satisfy supply agreements
with new and existing biomass
supply contracts.
Infrastructure
Realise value from
property assets
–– Achieved plan of asset disposals.
–– Significant value added at Speke property.
–– Further dispose of infrastructure assets
generating cash.
–– Help support the Energy division
introducing new processing sites.
Investments
Grow values to realise at
the optimum time
–– Performed to management expectations.
–– Disposal of UK Automotive business at good value.
–– Dividend of £4.3m from Propius Holdings.
–– Grow and realise value of our
investment portfolio.
04
Strategic Report
Governance
2016
Business Model
Our vision is to deliver superior growth and
shareholder returns by enhancing and realising our
Infrastructure and Investments assets and creating
new growth platforms in Energy, Aviation and Rail.
We do this by using our entrepreneurial skills to
identify and develop opportunities to which we apply
our renowned logistics expertise and first class
customer service in a professional and efficient way.
E
S
IL
LOG
IST
IC
L
N
ATEGIC I VESTMENTS
ADDING
SHAREHOLDER
VALUE
ST R
S
ION
AT
ETA
MS
R
PE
AT TENTION TO D
TE
CIE
NT
RM
IC E
EN
E
TR
PR
A
M
FO
RV
GI
ER
SE
AR
E
R
EN
OM
HP
EU
ST
RIA
CU
HIG
NC
M
YS
EFF
I
D
O
E
XC
CE
EN
L
L
CE
NS
A
BE
IN
CL
AD
VA
N
SS
IS
ST
V
P R OAC T I E HS QE
E
CU
LT
U
RE
MA
THE BEST PEOPLE
X
IM
IS
E
Strategic Report
Governance
05
2016
Our Core Expertise
What Sets Us Apart
Our core areas of expertise are set out below and
they form the common principles that run throughout
the Stobart brand.
The Best People
Our people strategy has a strong focus on learning
and development and we run highly successful
3P (People, Performance, Progress) management
and leadership programmes.
Efficient Operations
We strive for efficiency in everything we do.
Entrepreneurial
We identify opportunities and take advantage
of those which present themselves.
Customer Service
A fundamental principle of everything
we do is first class customer service.
Logistics Excellence
Stemming from our heritage, this underpins
all of our businesses, whether moving
products or people.
3
Energy
Aviation
Rail
2
Infrastructure
Investments
High Performance Culture
The Stobart can-do culture is woven through every part
of our business with our people striving toward achieving
success and solutions.
Proactive Health, Safety, Quality and
Environmental (HSQE) Management
All of our operations are in regulated industries, which drives
a proactive HSQE culture.
Advanced MI Systems
Investment and bespoke development of real-time systems
to drive operational efficiency and profitability.
Strategic Investments
We invest into associated businesses which will support us
in our goals.
Maximise Margins
Whilst revenue is important, improving margins and driving
profitability is paramount.
Growth operating divisions
Asset manage and realise divisions
Attention to Detail
Our experience running a low margin business has driven a
philosophy of attention to detail across the business.
Best in Class
Striving to be the market leaders, the Stobart brand is
synonymous with high quality.
Our Divisions
Energy
Stobart Energy is the
number one supplier
of biomass in the UK,
sourcing and supplying
fuel to biomass plants
under a mix of short and
long-term contracts.
Aviation
Stobart Aviation aims
to deliver a first class
passenger experience
through its ownership of
London Southend Airport,
Carlisle Lake District
Airport and regional airline
Stobart Air.
Rail
Stobart Rail is one of the
UK’s leading providers
of innovative and efficient
rail and non-rail civil
engineering projects.
Infrastructure
Our Infrastructure division
has a strong track record
of enhancing the value
of the Group’s assets.
It holds our portfolio of
commercial properties
and our investments in
renewable energy plants.
Investments
Our Investments division
holds our logistics and
aircraft leasing businesses
with investments of 49%
in Eddie Stobart Logistics
and 33% in Propius.
06
2016
Strategic Report
Governance
Key Performance Indicators
We assess the Group’s performance according to
a wide range of measures and indicators. Our key
performance indicators (KPIs) help the Board and
executive management to measure performance
against our strategic priorities and business plans.
Operational
Safety and Environmental
Biomass Tonnage m
Accident/Incident Rate
16
0.98
16
15
0.99
15
14
0.75
Passenger Numbers m
0.90
1.09
15
14
0.05
14
These
figures are arrived at by dividing the number of
RIDDORs by the number of hours worked multiplied
by 100,000.
Tonnage supplied to customers.
16
0.13
The Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013, often known by the
acronym RIDDOR, regulates the statutory obligation
to report deaths, injuries, diseases and dangerous
occurrences, including near misses, that take place
at work or in connection with work.
1.00
Passenger numbers are total arriving and departing
passengers at London Southend Airport.
External Revenue in Stobart Rail £m
16
Environmental Impact Tonnes CO2 per £m
of Revenue
28.8
21.1
15
14
15
15.6
15
14
206.6
243.4
These figures for CO2e being the equivalent amounts
of CO2 for greenhouse gases.
Net Cash Generated from Property Disposals £m
16
16
24.1
27.2
73.5
0.64
07
Strategic Report
Governance
2016
Financial
Revenue £m
Underlying EBITDA £m
16
126.7
116.6
15
14
16
30.0
17.6
15
99.2
14
22.6
From continuing operations.
Underlying EBITDA is normalised comprising the
underlying operating profit before diesel swap,
depreciation and amortisation.
Asset Investment £m
Operating Cash Flow £m
16
49.1
15
20.6
15
14
16
3.4
(10.8)
14
14.6
32.2
Cash purchases of property, plant and equipment and
net advances to biomass plant investments.
Net Debt £m
16
15
Dividend per Share pence
48.0
19.1
14
127.9
Underlying Earnings per Share from Continuing
Operations pence
16
5.0
2.6
15
14
0.6
Based on underlying profit after tax from continuing operations.
16
6.00
15
6.00
14
6.00
08
2016
Strategic Report
Governance
Risk Management
Overview of Risk Identification and
Management
Risk Management: Stobart Group has adopted
a proactive approach to identifying and managing
risk which embraces all appropriate policies,
procedures and business continuity planning.
The overall aim is to reduce risk and ensure
compliance with legal, company and
client requirements.
Risks are identified and managed through robust risk assessment
and internal audit processes. Each divisional Managing Director has
overall responsibility for the execution and review of the division’s risk
register. High risk categories, determined by the likelihood and the
severity of the risk, are escalated to the respective divisional Board for
consideration. These risks are also captured through the internal audit
process to ensure control measures are effective.
Inherent Attributes
–– Stobart Group is strongly process driven.
–– A stable long-standing management team is in place.
–– Operations are predominantly in the UK with a well-developed
business culture.
–– All business risks are identified via the divisional risk registers with
control measures such as business specific continuity plans to
minimise the risk impact.
–– Stobart Group promotes a Just Culture which encourages open
and fair reporting enabling clear lines of communication
throughout the business.
–– Work across regulated industries in all parts of the business.
Internal Control and Ongoing Risk Identification and
Management
The Board is responsible for determining the nature and extent of the
principal risks they are willing to take in order to achieve the set strategic
objectives whilst maintaining a sound risk management system and
process. This includes the delegation of authority placed on individuals
within the Executive Board and divisional management. Clearly defined
lines of responsibility and the requirement of management to provide
relevant and timely information, such as key performance indicators,
is detailed within divisional and department specific monthly
Board reports.
All business risks and non-compliances are measured and reviewed
at Director level within each operating division and business unit,
with results reported at every divisional Board meeting as a standing
agenda item. New or amended risks are added to the divisional
risk registers.
The risk registers encompass health and safety, environmental,
strategic, operational, brand and financial risks across the business
and operate on a defined scoring matrix. Mitigation measures
are identified for implementation as part of our Business Risk
Management Framework. This enables business managers across
the Group to own and manage these risks whilst keeping the
Board fully appraised of all current and emerging risks within
the business, ensuring a consistent and controlled approach
to risk management.
The implementation of a Just Culture within the business has been
designed to work in partnership with our annual programme of internal
risk-based operational audits, which are carried out by our qualified
auditors. The 2016 programme, comprising of 134 internal audits
(including compliance monitoring of third parties) has been developed
to identify problems and issues in infancy, ensuring compliance and
performance levels are maintained whilst minimising impact to
the business.
The Group operates a web-based management information system
known as the Stobart Information Management Systems (SIMS). This
provides the Group with a user-friendly system enabling an effective
and efficient management tool.
Strategic Report
Governance
09
2016
Our Focus for 2016 and 2017
Our focus in the current year was predominately placed around
the improvement of processes and systems after the partial
disposal of the Transport and Distribution business in 2014
alongside a full business risk review.
Next financial year our focus will be to seek continual improvement
in all business areas, to strengthen and grow alongside the newly
developing businesses, and further imbed our Just Culture
throughout the Group. Next financial year will also see the
implementation of BowTie for all significant business risks across
the Group. BowTie is an established visual tool which effectively
depicts risks, their potential causes and consequences along
with the key safety barriers either in place or lacking between a
safe event and an unsafe outcome.
The BowTie model consists of different elements that build up
the risk picture. The risk picture revolves around the hazard
(something in, around or part of an organisation or activity
which has the potential to cause damage or harm) and the top
event (the release or loss of control over a hazard known as the
undesired system state). The BowTie identifies the threats and
consequences which exist from the hazard and top event.
The BowTie model also allows stress testing the effectiveness
of the barriers due to the ability of being able to audit the
BowTie assessments. Below is an example of what a
BowTie structure looks like:
T H R E AT S
CONSEQUENCES
Self combustion –
processed material
Release
of smoke
STORAGE OF
WOOD ON SITE
Arson
Fire resulting in damage
or loss of
equipment/property
Pollution
due to fire
water escape
Handling machinery
FIRE
Negative
media reports
Processing equipment
Smoking on site
Personal injuries, burns,
fatality, multiple
fatalities from fire
Commercial/
financial impacts
10
2016
Strategic Report
Governance
Risk Management continued
Principal Risks and Mitigation Controls
The principal risk table below is a summary of the top risks identified through each division’s risk register. The information in the table includes
what the risk to business is and the potential impact the risk has on the business. Mitigation controls from the current year, and areas of focus in
the next financial year, are also included in this summary:
Failure to deliver product in accordance with contractual terms and specification.
Division
Stobart Energy
Potential Impact
–– Product not supplied to customer.
–– Financial penalties.
–– Loss of revenue/profits.
–– Loss of reputation.
–– Loss of contracts.
Mitigation in year ended February 2016
–– Use of own processing facilities to better
control material quality.
–– Robust contracts with strict terms and
conditions where supply sub-contracted
to third party.
–– Quality Assurance team to work closely
with third party suppliers.
–– Secure storage sites to mitigate the risk
of seasonal material flows.
–– Use of own, flexible transport fleet for
product delivery.
–– Robust Business Continuity Plan in place
in the event of disruption to own
processing facilities.
Focus in year ending February 2017
–– To get processing sites fully operational
by the end of the current financial year.
–– Secure further storage sites by
summer 2016.
–– Continued focus on securing robust third
party sub-contracted supply agreements.
Operational failure of plants with which we have long-term supply agreements.
Division
Stobart Energy
Potential Impact
–– Product not supplied to customer.
–– Loss of contracts.
–– Take or pay arrangements in contracts
typically set at 80% of contractual volume.
–– Flexibility of processing sites and transport
fleet to switch supply/logistics to other fuel
supply contracts.
–– Continue with mitigation measures from
year ending February 2016.
Risk of major injury or fatality to employees or third parties (e.g. road traffic accident, incident involving
mechanical handling equipment).
Division
Stobart Energy
Potential Impact
–– Financial (compensation, increased
insurance costs).
–– Reputational/brand risk.
–– Robust Health and Safety compliance
procedures in place, including Safe
System of Work.
–– Robust Audit programme.
–– All drivers Certificate of Professional
Competence qualified, and driver trainers
employed to educate and reinforce best
practice.
–– All operational staff trained in use of
Manual Handling Equipment.
–– Heavy Goods Vehicle fleet and Manual
Handling Equipment maintained to highest
standard.
–– Just Culture model.
–– Drugs and Alcohol Policy.
–– Site staff trained regarding site zoning and
specific site risks.
Strategic Report
Governance
11
2016
Market dynamics or reliance on market sector/customer.
Division
Stobart Aviation (London Southend Airport)
Potential Impact
–– Single customer failure leads to inability
of business to achieve stated targets.
–– Strategy in place to secure additional
airline customers to dilute the share of
business represented by one airline to
no more than 50%.
–– Proposals made to a number of airlines
and new opportunities developed on an
ongoing basis by April 2017.
–– Relationship management of existing
airlines remains a priority.
–– Increase activity from appointment of new
Head of Aviation Business Development.
–– Prioritise successful closure of current
negotiations.
–– Increased activity to develop new airline
interest into the pipeline.
–– Roll-out initiatives to further enhance
relationships with existing airline
customers.
Loss of infrastructure leading to loss of capacity, resulting in business disruption.
Division
Potential Impact
–– Disabled aircraft on runway.
–– Major systems failure – Instrument
Landing System, Radar, Comms etc.
–– Failure of runway surface.
–– Contingency plans to remove disabled
aircraft/access to specialist engineering
support on site.
–– Instrument Landing System, contingency
Surveillance Radar Approach.
–– Back up communications in place.
–– Radar back-up feed from National Air
Traffic Service Stansted Radar operational
contingency in place.
–– Ongoing review of contingency plans to
ensure optimal response/resilience to
potential risks in-house and third party.
–– Further development of preventative
maintenance programmes.
Lack of passenger footfall due to failure in securing airlines to operate in a timely manner, airlines fail to secure
passengers, route and airline failures result.
Division
Potential Impact
–– No passenger services.
–– Successful existing services supported by
well devised targeted business to
customer marketing campaigns to support
and strengthen airline’s market position
and encourage growth.
–– Strategic plan to target airlines and new
routes supported by analysis and high
quality quantitative and qualitative
market data.
–– Development of incentivised proposals
to mitigate risk and accelerate attraction
of airlines.
–– Positive responses from a number of airline
targets with ongoing discussions regarding
commercial proposals.
–– Recruitment of Head of Aviation Business
Development to expand route development
activity in line with strategic plan.
–– Capitalise on increased capability/capacity
delivered by new senior management
team.
–– Successful existing services supported by
well devised targeted business to
customer marketing campaigns to support
and strengthen airline’s market position
and encourage growth.
–– Continued delivery of strategic plan to
target airlines and new routes supported
by analysis and high quality quantitative
and qualitative market data.
–– Development of incentivised proposals
to mitigate risk and accelerate attraction
of airlines.
–– Build on existing pipeline of airline interest.
12
2016
Strategic Report
Governance
Risk Management continued
Principal Risks and Mitigation Controls continued
Principal Contractor/Plant Operators Scheme Licences revoked.
Division
Stobart Rail
Potential Impact
–– The ability to act as Principal Contractors
or On Track Plant Operations provider
removed.
–– Integrated business systems in place that
include the requirements of the Principal
Contractor/Plant Operators Scheme.
–– A comprehensive internal/external audit
programme provides assurance that
requirements are met.
–– Reviews of standards, scheme documents
are inherent in the systems resulting in any
modifications to our process taking place.
Focus in 2017
–– Continual improvement to the integrated
management system.
–– Ensure that key personnel are retained to
ensure systems are maintained to a high
standard.
–– Further training with project teams to
ensure that works are carried out in line
with licensing requirements.
–– Competent resource recruited to facilitate
thorough costing exercises.
–– Aggressive pursuit of associated works
and variations to compensate for lack of
contribution cover.
–– Amicable renegotiation of contract
contributions sought where possible.
Focus in 2017
–– Continue with mitigations from year ending
February 2016.
–– Concentrate on current service provision
and introduce more competent and
experienced personnel.
–– Carefully consider potential contracts that
are more challenging.
–– Be more selective.
Large scale bidding error.
Division
Stobart Rail
Potential Impact
–– Win a high value bid for a long-term
contract (five–ten years + £6m per
annum) without enough contribution to
cover fixed and variable costs.
Market dynamics or reliance on market sector.
Division
Infrastructure/Investments
Potential Impact
–– Contingency plans and alternative income/
revenue streams.
–– Engagement of professional asset
managers/advisors/valuers/marketers.
–– Diversified portfolio.
Focus in 2017
–– Continue with divestment plan from year
ending February 2016.
In making this statement, the Directors have
considered the resilience of the Group, taking
account of its current position, the principal
risks facing the business in severe but
reasonable scenarios and the effectiveness
of any mitigating actions. This assessment
has considered the potential impacts of
these risks on the business model, future
performance, solvency and liquidity over
the period.
The Directors have determined that the
three-year period to February 2019 is an
appropriate period over which to provide
its Viability Statement as this period in
the business plan presents a reasonable
degree of confidence while still providing
an appropriate longer-term outlook.
The Directors have no reason to believe
the Group will not be viable over a
longer period.
Viability Statement
The Directors have assessed the viability
of the Group over a three-year period to
February 2019, considering the Group’s
current position and the potential impact
of the principal risks documented in the
Principal Risks and Mitigation Controls
section. Based on this assessment, the
Directors have a reasonable expectation
that the Company will be able to continue
in operation and meet its liabilities as they
fall due over the period.
Strategic Report
Governance
13
2016
Our Precious Brand
Stobart Group has a rich heritage having built-up a strong brand over
the years and is today recognised as a UK Superbrand. The Group’s
brand names, trademarks and designs are included within the
accounts classified under Intangible Assets. They are carried in the
accounts at a book value of £53m.
Brand Management Committee
The Group’s brands are managed by a Brand Management
Committee which includes employees and Directors who are
passionate about the brand with specialisms in promotion, marketing
and finance. The committee is focused on registering, maintaining,
protecting and maximising the value of the brand names, trademarks
and designs.
Brand Awareness, Advertising and Marketing
There is huge public awareness of the brand, a prime example being
the ‘Eddie Stobart: Trucks and Trailers’ TV series which attracted
over two million viewers. Public recognition continues with over
2,500 branded trucks and trailers on the road and via the passenger
volume through London Southend Airport.
Brand awareness activity during FY2016 included:
–– Sponsorship of race days and jockeys’ breeches via the
Professional Jockeys Association attracting wide coverage
within the British racing fraternity.
–– Attendance at external Truckfest and Stobart Fest events.
–– Management of the Stobart Members Club with over
12,000 members.
–– Sales of Stobart merchandise.
–– Social media channels.
In Partnership
Stobart’s strong association with horse racing is something we
value. Horse racing is the second biggest spectator sport in the UK,
the second biggest contributor to GDP of any sport and the second
biggest employer in sport, not to mention the 1+ billion global TV
audience. By working with several partners in the industry, it is an
opportunity for us to raise our profile and that of the sport, while
engaging with our employees and fans.
Stobart Group Career Ending Insurance
Stobart Group pioneered a posterior site sponsorship agreement
with the Professional Jockeys Association (PJA) in 2011 which
continues to 2017 and provides insurance to jockeys underwritten
by Royal Sun Alliance for the 2015/16 period. The cover
compensates jockeys who sustain an accident which prevents
them from continuing their occupation as a professional jockey;
in return jockeys wear Stobart branded breeches. As part of the
agreement, Stobart Group was the title sponsor of the prestigious
25th Lesters awards event held in Birmingham in December 2015,
which is well established as horse racing’s night of the year and
recognises the achievements of jockeys.
Stobart Jockeys’ Championship
In 2015, Stobart worked with Great British Racing to sponsor the revised
Flat Jockeys’ Championship and the Jump Jockeys’ Championship
in association with Channel 4. Recognition includes the Stobart Jockey
of the Month as well as the Stobart Hub mobile promotional unit and
a 12-strong fleet of Stobart Energy trucks all featuring imagery of
leading jockeys as initiatives that will not only strengthen the position
of Stobart as a brand synonymous with horse racing, but will promote
jockeys and the sport up and down the country.
“The Stobart Jockeys’ Championship will help to build the profile of
our racing stars, generating greater interest in our sport and allowing
us to reach bigger audiences. We welcome Stobart Group as a
sponsor and are excited to be able to jointly promote some of the
best aspects of British horse racing and will continue to look at ways
in which we can work with them across their own platforms and
audiences.” Rod Street, Chief Executive of Great British Racing.
14
2016
Strategic Report
Governance
Chairman’s Statement
Growth and Governance
This has been a year of progress across all
divisions at Stobart Group, but it is the next
18 to 24 months that are critical for our strategy.
We have set clear targets in our Energy and
Aviation divisions, and in the next year we aim
to make considerable progress on those targets.
Our strategy is set.
Results
Strategy Progress
We have made good headway with our strategy so far. We said
we would supply over 2mt of biomass by 2018 and have secured
contracts to deliver this to plants up and down the country. With six
major plants coming on-stream over the next 18 months, Stobart
Group now has to demonstrate we can fulfil these contracts.
Stobart Group aims to serve 2.5m passengers a year at London
Southend Airport by 2018. Again, we have made good progress in
terms of laying the foundations for meeting this objective. We have
built a world class airport close to London with excellent transport
links, and this year we put in place a first class team to help drive the
airport forward. 2015 saw the appointment of a new CEO and COO
along with changes in the business development team. The challenge
for this focused management structure is to grow sustainable
passenger numbers.
+8.6%
5.0p
Revenue increased
Underlying earnings per share
We are firmly on track with our strategy to grow third party customer
work in Stobart Rail; external revenue in that division grew by 37% to
£28.8m. We have built a strong order book for work worth c.£68m.
£8.8m
6.0p
Overall profit for the year
Dividend
Property value realisation is a key part to our strategy of making returns
to shareholders in the short term. During the year we realised net
cash of £24.1m from property asset disposals. In addition, property
enhancement measures led to revaluations contributing £8.4m to
our Group EBITDA.
Our investments have also performed very well, particularly Eddie
Stobart Logistics, of which we own 49%. Eddie Stobart Logistics
secured a number of significant customer wins towards the end of
the financial year, and we expect to see the full benefit of this in future
periods. It also generated £21.0m of surplus cash during their financial
year to November 2015, which was used to repay its debt, and sold its
UK Automotive business at a profit of £7.0m.
Iain Ferguson CBE
Chairman
Board
There have been no changes to the composition of the Board during
the year.
Returns to Shareholders
During the year, £19.7m was returned to shareholders via dividends.
An interim dividend of 2.0p was paid on 4 December 2015. The Board
is proposing a final dividend of 4.0p (2015: 4.0p) per ordinary share
totalling £13.8m (2015: £13.1m paid on 3 July 2015) and giving a
maintained total dividend for the year of 6.0p. We expect to maintain
our current dividend payment level. We will continue to support the
funding of the dividend from proceeds of property asset disposals
in the short term and the Board will consider additional returns to
shareholders should there be surplus funds generated.
The Board is pleased with the progress that has been made this
year and looks forward to the challenges over the next 12 months,
which promise to be very exciting indeed.
Strategic Report
Governance
Our Values
S
Safety
Safety governance is essential at all levels
within our business
T
Teamwork
Working together we deliver
O
Openness, Honesty and Integrity
Transparency, openness and honesty at
all times
B
Brand
Maintaining strong brand values whilst
delivering excellent customer service
A
15
2016
Good Governance
Allied to entrepreneurial flair, strong
governance is critical for success at
Stobart. I am pleased that the Board
has been stable and fully compliant
with the UK Corporate Governance
Code over the last financial year.
Board and governance achievements
in the last 18 months:
Aspiring Leaders
We lead by example
R
Respect
Feeling valued at all times
T
Training and Development
Creating a culture of continuous learning
and development for our employees
–– Set out strategy following the
partial disposal of the Transport
and Distribution business.
–– Held full strategy review meetings
with the divisional management
in September 2015.
–– Completed external Board
evaluation and implemented
recommendations.
–– Comprehensive review of risks.
–– Appointed financial internal
auditors who have started their
programme of work.
–– Continued implementation of
remuneration policy set out in
late 2014.
–– Full attendance at all Board
and Committee meetings
during the year*.
* Excludes special Board meetings.
Go to pages 50–53 for
Governance Report
16
2016
Strategic Report
Governance
Chief Executive’s Statement
Driving the Value
We are on track to deliver our strategy by 2018
and drive shareholder value through our three
growth operating divisions of Energy, Aviation and
Rail, while generating a cash surplus through the
exit of our Infrastructure and Investments portfolios
at the right time allowing increasing returns
to shareholders.
This year we have delivered improved profitability in
all five divisions with the foundations, management
and organisational structure almost set to achieve
our objectives and deliver our plan.
Energy Division – Supply and Transport
We continue to set up a sustainable supply chain and infrastructure
to supply and deliver over 2m tonnes per annum of waste and virgin
wood fuel on long-term contracts to existing and new biomass
plants that are coming on-stream between now and 2018.
Aviation Division – Airports and Stobart Airline
Our Aviation team has identified airlines and sustainable route
networks that complement our catchment areas. They continue
to work closely with existing and new airlines to create additional
routes to enable us to achieve 2.5m annual passengers by 2018.
Our airline, Stobart Air, flew over 1.4m passengers during FY2016 and
continues to grow. The airline returned to profitability in the year and
continues to work with London Southend Airport and Carlisle Lake
District Airport as well as other airports to create further route
development opportunities.
Rail Division – Civil Engineering
We have focused on growing external revenue and built a strong
order book through to 2018 as well as continuing to support our
Group on Infrastructure projects.
Infrastructure Division – Non-Airport Property Assets
We have set out a disposal plan of our portfolio and continue to
asset manage this plan to extract value at the right time.
Investments Division – ESL and Propius
Eddie Stobart Logistics continues to grow, allowing reduction in
debt from good operating cash flow and FY2016 saw the disposal
of the Automotive business.
Propius continues to trade profitably and we have received a
dividend from the sale of two older ATR 72-500 aircraft.
Andrew Tinkler
Chief Executive Officer
Underlying EBITDA ahead of prior year in all divisions
16
30.0
17.6
15
+69.8%
Net Cash Generated from Property Disposals £m
16
15
£124.8m
24.1
27.2
14
Total over three years
73.5
Cash Return to Shareholders £m
16
19.7
54.6
15
14
20.5
£94.8m
Total over three years
Strategic Report
Governance
Just Culture
Stobart Group has an enviable safety record which is testament to the
people, processes and culture within the business. However, the need
to improve safety in a proportionate and cost-effective way remains
a priority and challenge faced by the Group. Our Safety Strategy is a
key mechanism to drive safety performance across all our divisions.
The strategy has been developed by the Group in partnership with
senior executives and the Stobart Group Board and I believe it
provides a common sense approach. The risks throughout our Group
have been identified by each division and placed in a risk register.
Safety is therefore a shared responsibility and this strategy shows our
continuous commitment to improve our safety performance.
Energy
Management is focusing on the fuel supply strategy for new and
existing biomass plants, with all plants expected to be operational by
the end of 2018. The new volume, which is in excess of 1m t.p.a., will
see us achieving our target of over 2mt supplied each year to the
biomass market. These supplies are under long-term, index-linked,
customer contracts generating predictable income streams for years
to come with our focus on delivering solid margins. An improved
margin per tonne metric this year is also encouraging given the
backdrop of downtime due to unplanned maintenance at UK plants
and the delays at Calais which caused increased transport costs.
We are securing strategic sites for waste wood processing and have
also been sourcing the additional plant and equipment required.
Aviation
As expected, passenger numbers at London Southend Airport
were lower than prior years, as we worked with easyJet under a
new long-term contract to enhance load factors and yields with a
view to growing volumes again in the near future. The experienced
and credible new management team led by CEO Glyn Jones are
now embedded and are in talks with a number of major operators
regarding sustainable new routes to achieve our growth plans. Our
target remains to serve 2.5m passengers a year by 2018. The airport
has been built with excellent transport links to London and sufficient
capacity to handle up to 5m passengers, double our near-term
target, providing a platform for growth well beyond 2018. Glyn is
well placed to deliver this target based on his track record of building
passenger growth when he was Managing Director at Luton Airport.
Grant funding has been secured for development of infrastructure
works that will help support airlines to operate from Carlisle to London
Southend, Dublin and Belfast in conjunction with Stobart Air. Our civil
engineering team is working with the CAA on a proposal for
refurbishment of the runway required to enable these services
to operate.
The 2.5MW solar project at London Southend Airport was also
completed this year, delivering renewable electricity for the airport
estate and its customers. Our new solar farm is the largest at a UK
airport and supports one of our key objectives, which is reducing
both our carbon footprint and the electricity we require from the
national grid network. We are delighted, as London’s newest airport,
to have opportunities to introduce the latest ‘green’ initiatives as part
of our development.
Our 45% investment in the airline, Stobart Air, continues to grow with
improved passenger volumes and profitability in the year ending
December 2015.
17
2016
Rail
Stobart Rail completed on time and on budget the Carlisle Airport
distribution centre which was subsequently sold by the Group this
year in line with the plan to capture and realise value. The completion
of the all-weather track at Newcastle Racecourse is an example
of the division winning contracts and maintaining strong margins
in diverse areas. There is a strong order book for 2016/17 on longterm rail infrastructure projects for Network Rail. The division is
focused on increasing third party contracts and supporting our
Energy division with site developments for its fuel supply strategy.
Infrastructure
In the past year, we have generated cash from asset sales of
over £24m, including the sale of Carlisle Airport distribution centre,
and properties at Worcester and Swindon. This has contributed to
covering the Group dividend and we remain committed to returning
surplus cash to shareholders as we continue to exit mature properties
and investments.
The £9.1m valuation uplift of the Speke property is a fantastic
demonstration of the division managing assets to deliver their full
potential. This uplift reflects well progressed negotiations taking place
around the February 2016 year end in relation to a new 20-year lease
with the tenant. This lease was subsequently agreed in March 2016
at an annual rent of £2.1m and an option for the tenant to acquire the
site for £37m has also been granted, expiring on 30 June 2016.
The property was purchased by the Group for £17.6m this year,
including costs.
Investments
Eddie Stobart Logistics continues to grow in line with management
expectations and has strengthened its balance sheet via cash
generated from operations and the sale of the UK Stobart Automotive
business. Propius, the aircraft leasing investment, is also performing
well and has this year sold two older aircraft, producing a good return
on investment and return of cash of £4.3m to the Group.
Our Brand, Our People, Our Values
We are passionate about our brand, its heritage and what it stands
for. We live the brand values. Stobart people work hard and think
differently and innovatively. We work collaboratively with focus on
smart, professional, well planned delivery. We pay attention to and
challenge the finest details in all areas of our work to ensure the
highest standards of service, capturing and controlling value and
de-risking at every opportunity. This focus has resulted in an awardwinning airport poised for further success and has won us long-term
contracts to supply over 2mt of biomass fuel annually by 2018.
Outlook
This is an exceptional time for the Stobart corporate family and its
shareholders. Our Energy and Aviation divisions are finishing the
groundwork in preparation for a period of rapid growth. We remain
focused on delivering the strategy and realising superior growth
and shareholder returns from our strong service, infrastructure and
logistics heritage.
I would like to take this opportunity to thank the Board and every
Stobart employee for their passion, hard work and dedication during
the year and for their contribution to our incredible, valuable and
unique Stobart brand and culture.
18
2016
Strategic Report
Governance
Operational Review
Stobart Energy
The UK’s No.1 Biomass Supplier
Stobart Energy is the number
one supplier of biomass in the UK,
sourcing and transporting fuel to
biomass plants under a mix of short
and long-term contracts.
Long-Term Plan
–– Target biomass supply of over 2m t.p.a. by 2018.
–– Grow EBITDA to £10 per tonne by 2018.
–– Develop processing sites to process around 50% of the total
volume required by Stobart Group contracts.
Progress with the Plan
–– Secured long-term customer contracts adding to current
volume of c.1m t.p.a.
–– Volume of c.1.4m t.p.a. coming on-stream between December
2016 and May 2018.
–– Five key customer RCF plants and one virgin plant in
construction at financial year end.
–– Plans for key processing sites are advancing well.
Divisional Key Performance Indicators
Tonnes Supplied thousands
16
979.3
15
986.9
14
-1.0%
748.2
Revenue £m
16
73.4
68.4
15
Mike Smith
Chief Operating Officer, Stobart Energy
14
+7.4%
58.5
16
15
14
9.1
7.8
+17.0%
7.4
Underlying EBITDA per Tonne1 £
16
15
9.28
7.87
14
1 Relates to Stobart Biomass Products Limited.
9.88
+17.9%
Strategic Report
Governance
19
2016
What is the business strategy?
We are the number one supplier of biomass in the UK. Our strategy is
to increase our delivery to over 2m t.p.a. by 2018 serving the rapidly
growing biomass power market. We now have customer contracts in
place to not only meet, but exceed, this target. These are long-term,
index-linked, supply and transportation contracts, which underpin the
growth of the business over the next ten years and beyond.
During the year five key RCF (Recycled Fuel) plants and one
virgin plant were in construction by customers into which we will be
supplying new volume under long-term customer contracts, giving
us confidence in our growth target. We expect around 1.4mt to come
on-stream between December 2016 and May 2018.
We are currently focused on our fuel supply strategy for our biomass
contracts. In addition, we have successfully implemented a number
of projects across the UK and aim to have our own facilities in place
to process up to 50% p.a. of the waste wood. We are continuing to
secure new processing sites for collecting waste wood to increase
our current processing capacity.
How have the last 12 months been for Stobart Energy?
Over the last year, we have secured two additional biomass contracts.
We won a 12-year agreement with the Estover Combined Heat and
Processing (CHP) Plant at Cramlington, Northumberland to manage
240,000 t.p.a. of virgin wood material.
The second contract will see Stobart Energy supply 250,000 t.p.a.
of Grade C waste wood material to a plant in Port Clarence, Teesside.
The contract is for 15 years with Stobart Energy likely to supply 3.7mt
over the duration of the agreement.
In addition to the new contract wins, we have successfully
implemented the Lisahally renewable energy contract in Northern
Ireland and developed a 5MW solar farm at our Pollington processing
site in West Yorkshire.
The ongoing migrant crisis in Calais had a serious effect on road
networks, impacting operational efficiency and our ability to export.
As a result, a number of our key waste product disposal outlets had
to close, which impacted our output tonnage. However, we were able
to control our costs by procuring alternative outlets.
What are the key challenges facing the business?
Legislation represents one of the main challenges we face. The
timetable for the closure of the Renewables Obligation Certificates
(ROCs) scheme has materially slowed down the financial close of
new wood-fired CHP plants. However, all our major customers either
have ROC accredited plants or are aiming to complete their facilities
before the ROC scheme is closed. In winning these supply contracts
we have secured our targeted growth.
The waste wood sector is also largely driven by mismatches in
demand and supply, with larger volumes available during the summer
but demand for heat and power at its peak during the winter. As such,
the provision of sufficient suitable stock-holding sites is vital to the
successful delivery of our plan and for the operation of the biomass
power stations. Stobart Energy is working to ensure that it has
available a range of suitable stock-holding and processing sites.
The business is also exposed to any changes to the regulatory
requirements for the operation of these storage and processing sites.
The Stobart Group has a long track record of being a responsible
operator and working positively with the relevant agencies to ensure
regulatory compliance.
Over the last year, the weakening Euro has led to a large volume of
virgin timber imports. As a result, the previously large increase in raw
material prices (a 28% increase in coniferous standing sales price
index) has flattened. On the other hand, volume remains balanced in
many regions of the UK.
What are the key drivers for growth?
At the heart of the Stobart Group is excellence in logistics, efficiency in
operations and customer service. This, combined with our sourcing
and processing capabilities, provides a unique offering to our
customers. Above all, our business is driven by our inspired team
of people who have extensive experience in the biomass sector.
20
2016
Strategic Report
Governance
Strategy in Action
We are On Target
Over
2.0 m t.p.a.
We currently supply 1.0m t.p.a. and have contracts
in place for supplying over 2.0m t.p.a. to customers
by 2018.
Biomass Plants in Construction
Margam
Fully operational by: January 2017
Widnes
Fully operational by: March 2017
Templeborough
250,000 t.p.a.
146,000 t.p.a.
260,000 t.p.a.
Strategic Report
Governance
21
2016
Existing Contracts
Long-Term Contracts
Short-Term Contracts
Average long-term contract: 10 years
Lisahally
Speyside
Fully operational by: June 2016
0.9m t.p.a.
115,000 t.p.a.
55,000 t.p.a.
Tilbury
Port Clarence
Fully operational by: December 2017
Cramlington
270,000 t.p.a.
250,000 t.p.a.
120,000 t.p.a.
2.0
Over m t.p.a.
Average contract length: 15 years
22
2016
Strategic Report
Governance
Operational Review continued
Stobart Aviation
An Award Winning Year
Stobart Aviation aims to deliver a first class
passenger experience.
The division owns and operates two airports:
London Southend Airport (LSA) including the
surrounding infrastructure comprising a railway
station, a four-star Holiday Inn hotel, a 2.5MW
solar farm and a tenanted estate; and Carlisle
Lake District Airport (CLDA). Passenger growth
and service excellence are the focus of the
division. Stobart Aviation also includes regional
airline Stobart Air, in which the Group owns a
45% interest.
Long-Term Plan
–– Grow passenger numbers at LSA to over 2.5 million per year
by calendar year 2018.
–– Grow EBITDA per passenger to £8 by 2018.
–– Establish CLDA as a centre of commercial operation.
–– G
rowth at LSA is expected to come from a combination of
low cost carriers, inbound to and outbound from the UK, and
full service operators taking advantage of access to London
capacity at peak times, high operational efficiency and
low costs.
–– Despite a slight reduction in traffic in 2015, our ‘Simply Easier’
offer is now gaining traction with several carriers and we
anticipate being on track in 2016/17. Our reputation for
market-leading service to passengers remains strong and that,
combined with increasing interest from airlines, encourages
us to believe that we will meet our long-term targets.
–– Development at CLDA is the subject of three funding bids,
one of which has already proved successful, and planning for
infrastructure works is well advanced.
–– Sold part of Carlisle Airport site and buildings for £16.8m.
Revenue £m
16
22.9
23.6
15
14
-3.2%
20.3
Passenger Numbers m
Glyn Jones
Chief Executive Officer, Stobart Aviation
16
0.9
1.1
15
14
-17.3%
1.0
Load Factor %
16
82.2
15
77.0
14
78.0
+6.8%
Strategic Report
Governance
What are Stobart Aviation’s business objectives?
Our objective for London Southend Airport is to become a top ten
UK airport.
On Time Performance %
16
87.9
15
86.8
14
+1.3%
90.4
16
2.3
1.4
15
14
+59.8%
0.1
16
14
Stobart Group has invested in London Southend Airport so that it
now has the capacity of handling up to 5m passengers per year,
without further significant investment. Such volume could make
LSA a top ten UK airport.
Our near-term strategic plan is to welcome 2.5m passengers per
year to LSA by 2018. Whilst capacity reallocation by easyJet in
2015 meant that we finished the year a little behind expectations,
the traction we are now gaining with several airlines attracted to
our ‘Simply Easier’ proposition gives us confidence that we will
still achieve this near-term target.
We do not anticipate any new major capital investments in the
short term, but plan on continuing to improve operational compliance
in areas such as surface water drainage.
Revenue per Passenger1 £
15
23
2016
23.9
20.8
+15.0%
19.2
1 Revenue per passenger consists of commercial passenger throughput at London
Southend Airport.
What have been the key highlights from the last 12 months?
FY2016 was a period of consolidation and setting the foundations
for growth.
Stobart Group appointed myself as CEO and Jon Horne as COO.
We both come with strong aviation track records of business growth
and customer service excellence. Together with changes in the
business development team, this gives the Board confidence that
passenger numbers will increase from 2016, with material growth
from 2017 onwards.
24
2016
Strategic Report
Governance
Stobart Aviation continued
Our financial performance is in line with expectations. Tight cost
control largely offset the impact of lower than expected passenger
numbers at LSA, while new customers in the private jet sector offset
the business failure of a major tenant. We are in advanced discussions
to re-let the facility in mid-2016.
The LSA hotel continues to perform well, with above local market
occupancy rates and average daily rates. The new solar farm was
installed on time and is already making a contribution to power
supply. We also received confirmation from government of support
for new air services in 2016 to CLDA, which was a key highlight.
Service excellence is at the heart of our
division and we were delighted to have won
the Which? award for ‘Best Airport in Britain’
for the third year running. The Airport
Operators Association (AOA) also ranked us
top for ‘Best Small Airport’ in Britain, which
was a great accolade to receive.
What was the main development at Carlisle Airport?
The sale of the Carlisle Airport distribution centre is a good example
of maximising an opportunity, utilising our in-house development
and asset management skills for the benefit of the Group and the
shareholders. We sold the company which held the property asset
for £16.8m.
What are the key drivers for growth?
Stobart Aviation has built an advantaged position to deliver material
growth to 2018 and beyond. LSA is uniquely positioned in being able
to offer peak time capacity in the congested South East market.
Above all, our business is driven by our commitment to
service excellence.
The task for LSA remains to increase market share, rather than rely on
overall market growth. Consumers are increasingly service-conscious
and cost-aware, with no suggestion of a reversal of those underlying
trends. The delivery of excellent service at a competitive price, based
on a detailed understanding of the customer and their needs, remains
integral to success.
How is Stobart Air performing?
The airline is making good progress. Passenger numbers are over
1.4m. The Stobart Air fleet consists of eight ATR 72 aircraft. We are
looking at opportunities to continue to work the airline through our
London Southend Airport. The franchise with Aer Lingus continues
to grow and the franchise with Flybe from LSA is performing well.
How have aviation market conditions impacted your business
over the last 12 months?
The UK aviation market showed reasonably strong growth throughout
2015, with passenger numbers up over 4% year-on-year. The terrorist
incidents in Sharm el-Sheikh and Paris had an immediate effect on
demand late in the year, with airlines reporting a downturn in forward
bookings relative to expectations. However, with fuel prices low and
GDP growth reasonably stable, the effect is expected to be short term.
The UK Government postponed its decision on the Airport
Commission’s report into the location of a new runway in the South
East, and this came as no great surprise. It pushes back the timescale
for additional capacity but raises the probability that London Gatwick
could be the beneficiary of its decision, which would be marginally
less welcome to Stobart Group than London Heathrow. In practice,
any new capacity is at least a decade away so the impact on our
strategic outlook is minimal.
What are the key challenges facing the business?
The challenge with any airport is to attract and retain quality airline
carriers. Our service offering, combined with the recent strengthening
of the management team, is helping us meet this challenge and
helping us gain momentum with a number of prospective airlines.
Gaining awareness for new passengers is also key to delivering
our growth target. Our continually high market survey rankings help.
In addition, we ran a major marketing campaign in Q1 2016 to drive
awareness in East London.
UK airline profitability has been relatively good throughout 2015.
easyJet grew its profits by 18% and Ryanair by 66%. However, this has
been achieved in part by cautious approaches to capacity allocation,
as well as by benign macro conditions including exchange rates and
does not, therefore, imply the probability of major capacity increases.
Strategic Report
Governance
25
2016
Interview with Glyn Jones,
CEO of Stobart Aviation
“...we have an exceptional top team,
supported by what is now a tightly
focused organisation.”
Q. What did you do before joining Stobart Aviation?
A. I had been working as Managing Director of Luton Airport since
2007. During that time, I was able to help Luton become a bigger and
better airport, improving the roster of airlines and the commercial offer.
We built the airport up to serve over 10m passengers a year, while
significantly improving the financial performance of the airport, laying
the foundations for longer-term growth.
Q. Why did you want to come to work here?
A. I think there is great opportunity to build a larger, first class
airport at LSA. The location and transport links are exceptional.
The demand is here. If we can get the right airline partners in place,
then we can offer their passengers a unique experience, based on
our twin promises of easy and simple travel. People are increasingly
tired of long walks around airport terminals and even longer queues.
We’re offering a passenger experience that does away with all that.
Q. Why do you think Southend will be a major success?
A. As I mentioned, the location is key. LSA is 50 minutes away from
Liverpool Street by train. The train station is located right by the
airport, so it’s just a short walk to the terminal. We focus on customer
experience and help our passengers through security and airside as
quickly as possible. We then offer a range of shops and food outlets
to keep passengers well catered for before they get on their flights.
It’s hassle-free flying.
Q. What was the first thing you wanted to do when you joined?
A. We needed to get the right team in place. I wanted to get in people
who have experience working with airlines, who knew how to help
them to optimise the flights they offer. If airlines can make money
from flying from our airport, then we can grow and make money
too. So helping airlines to do that is key. We now have a very strong
team in place, and I am delighted to be working at Southend with
Jon Horne, who came in as Chief Operating Officer. Jon first started
working in the aviation industry in 1973 as an Air Traffic Control
Assistant and has remained within the industry ever since. Rising
through the ranks, he was the Chief Executive of Cardiff International
Airport prior to joining us. With Jon and our very experienced FD,
Rick Jackson, we have an exceptional top team, supported by what
is now a tightly focused organisation.
Q. What has been the focus for your first year?
A. I’ve been busy talking to new airlines. The key to our success
will be offering a wide range of flights from different providers.
Talks have been going very well and I’m really excited for next year.
Q. What are your three big targets for next year?
A. Next year we want to achieve three things:
We want to increase passenger numbers, and we’ll do this by
getting more airlines to fly to and from Southend.
We also want to improve the range of services we offer
passengers including better restaurants and shops.
And thirdly we want to grow without compromising on customer
service. Getting bigger and better for our customers is what we are
all about! Maintaining and improving the customer experience is our
top priority as we continue to grow.
26
2016
Strategic Report
Governance
Strategy in Action
Our Competitive Advantage
Strategic Report
Governance
2015 saw demand in the UK commercial aviation
markets, and London in particular, recover to
pre-2007 levels. Capacity, however, remains tightly
constrained. Despite a challenging year in 2015/16,
Stobart Aviation is confident of its growth prospects
over the next three years, for three main reasons.
First, London Southend is the only London
airport able to offer significant peak hour
capacity, both on the runway and in the
terminal. This is key to attracting both
business and leisure focused airlines and
to maximising aircraft utilisation across
the day.
Second, the compact infrastructure and
location just outside the busy London
airspace means that London Southend
is exceptionally efficient from an airline
operations perspective. Taxi times
on runways and flight times from key
destinations such as Amsterdam and
Paris are characteristically shorter than
competitor airports, which reduces cost
and increases profitability.
Third, the airport’s combination of easy
access, with up to eight trains an hour
into central London, and simple airport
processes mean that the experience of
our customers is, literally, second to none.
In 2015, London Southend was voted best
airport in Britain for the third year running
by readers of Which? magazine.
27
2016
28
2016
Strategic Report
Governance
Stobart Rail
On Track to Deliver
Stobart Rail is one of the UK’s leading providers
of innovative and efficient rail and non-rail civil
engineering projects.
Long-Term Plan
–– Focus on framework contracts directly or through partnerships
with major tier 1 contractors.
–– Develop external revenue with wider geographic coverage
and services.
–– Target longer-term contracts to further increase external work
order book.
–– Work starts in April 2016 on our largest single contract win to date
– Gospel Oak to Barking, worth c.£12m.
–– Won long-term frameworks with Network Rail,
commencing 2016.
–– Won devegetation framework which complements the
Energy division.
–– Achieved five-star status for Quality Management System.
–– Expanded Permanent Way capability to support the
contract wins.
–– Introduced an exciting new Health, Safety and
Wellbeing campaign.
Total Revenue £m
16
46.2
15
28.0
14
28.8
+64.7%
External Revenue £m
16
Kirk Taylor
Managing Director, Stobart Rail
28.8
21.1
15
14
+36.5%
15.6
Total Underlying EBITDA £m
16
15
3.4
2.8
14
+20.1%
3.5
External Underlying EBITDA £m
16
3.3
3.1
15
14
2.9
+6.5%
Strategic Report
Governance
29
2016
What have been the highlights over the last 12 months?
Our objective for the year was to increase the amount of work we
do with third party customers such as Network Rail. We are pleased
to confirm we have won a wide range of contracts, which include
framework agreements directly with Network Rail as well as contracts
with other major infrastructure organisations.
Stobart Rail has commenced work on the Far North Plain Line
maintenance contract which is worth £5.8m over three years. We have
in place a civils framework with Network Rail enabling us to quote in
their London North West region. We also have a Mechanical Ballast
Replacement and Spoil Extraction contract providing us with
the ability to quote for predominantly Network Rail Delivery Unit
projects nationwide.
We successfully completed our first major project with Network Rail;
the Walsall to Rugeley Electrification Track Lowering. Stobart Rail also
secured a devegetation contract with Network Rail covering 11 of the
12 routes available.
Are you just working with Network Rail?
No, we are not exclusive to Network Rail. We successfully bid
for the Gospel Oak to Barking Electrification contract for Murphy
worth c.£12m and an eight-year framework contract for the Highlands
Enhancements Programme with BAM Nuttall. Away from work on
the railways, we have completed an all-weather racetrack worth c.£5m
at Newcastle Racecourse for ARC Racing & Leisure Group.
Have you also been working with Stobart Group’s other
divisions?
Absolutely. We delivered the solar farm at London Southend Airport,
which is now fully operational. Stobart Rail also completed the design
and construction of Carlisle Airport distribution centre and has started
construction of the dryer facility at the Widnes biomass plant. Going
forward we plan to focus more on working with external parties.
How do you plan to grow?
We want to continue winning contracts working both directly and
indirectly with Network Rail. Also, Stobart Rail is targeting longerterm maintenance contracts for other rail infrastructure owners as
well as with light-rail operators, while maintaining overhead costs at
current levels. In order to continue winning these contracts, we need
to deliver value for money and maintain our excellent safety record
at the same time.
What is the opportunity for Stobart Rail?
We are a relatively small business with plenty of opportunity to
increase market share. We have the same credentials as the major
contractors and have a five-star rated Quality Management System.
An Ofsted report rated our training department as ‘outstanding’
and we have an enviable Health, Safety and Environment record.
Innovation is at the core of everything we do and we are therefore well
placed to continue increasing our market share, external revenues
and operating margins.
In 2015, Stobart Group initiated a forestry programme to demonstrate
the feasibility of activating a sustainable source of timber, significant
enough to support the rapidly expanding biomass market. Following
successful verification of this proof of concept, Stobart Group is now
establishing the necessary team to activate the project and stimulate
productivity of the UK’s un-managed woodlands. Support for the
initiative has been gained from the Forestry Commission and other
key stakeholders.
What are your targets for 2016?
We aim to successfully deliver the Gospel Oak to Barking electrification
project, make good progress on our Far North Plain Line contract
and strengthen our delivery team for the Highlands Enhancements
Programme in readiness for the major interventions. We have built up
a strong order book for work worth c.£68m.
We aim to secure more contracts with Network Rail and other tier 1
providers while maintaining good working relationships with our
clients at all levels of the business. While we will not waiver from our
growth target of a minimum 5% per year, we will need to be flexible
and open to new areas of service provision.
30
2016
Strategic Report
Governance
Stobart Infrastructure
Enhancing Assets and Realising Value
Our Infrastructure division has a strong track
record of enhancing the value of the Group’s
assets. It holds our portfolio of commercial
properties and our investments in energy plants.
Long-Term Plan
–– Manage and develop Group assets effectively and enhance
their value.
–– Divest all commercial property assets by 2018.
–– Deliver an average realisation of at least 20% above book
value across the portfolio.
–– During 2015/16 we generated £7.4m from property
asset disposals.
16
Richard Butcher
Chief Executive Officer, Stobart Energy and Stobart Infrastructure
15
+159.4%
10.5
4.0
14
18.9
Infrastructure Asset Value £m
16
133.9
15
109.5
14
106.3
£108.1m
Net Cash Generated from Property
Disposals £m
16
15
14
+22.3%
over three years
7.4
27.2
73.5
Strategic Report
Governance
Strategy in Action
SO
What is the business strategy?
The division has a strong track record of using its in-house
development and asset management skills to enhance the value of
the Group’s portfolio and achieve strong realisations upon disposal.
31
2016
LD
The Group has taken the decision to divest all of our non-core
infrastructure assets and use the proceeds to support payment of
the dividend and return excess cash to shareholders.
Our strategy is to maximise the realisable value of these assets
through their efficient development and management.
Across the portfolio, we are targeting to achieve an average realisation
of 20% above book value, and we have a near-term target of divesting
all commercial property assets by 2018.
What have been the key disposals during the year?
We sold commercial properties at Worcester and Swindon, generating
net cash proceeds of £7.4m. The properties at Worcester and
Swindon were disclosed as assets held for sale.
LD
We bought the Speke site, which is used by the tenant for storage,
from the receivers of Towerbeg Limited for £14.5m cash plus
costs. We also acquired the freehold to an adjoining site which is
used for the same purpose for £2.25m cash plus costs, payable on
completion. These purchases resulted in the Group saving annual
rental payments of £0.75m and released the Group from a potentially
onerous lease liability.
SO
Have any acquisitions taken place?
While remaining focused on divesting all of our non-core infrastructure
assets, we identified a compelling investment opportunity which
enhanced shareholder value. Stobart Group acquired the freehold
and long-leasehold interests to a property at Speke in Liverpool on
which it originally had leasehold interests. The purchase created a
number of opportunities for the site, including the option to enter into
a new extended lease with the existing sub-tenant.
Swindon
In October 2015, our 34 Regent Street property in Swindon sold
successfully at auction. The property is tenanted by Robert Dyas,
a company owned by former Dragons’ Den judge Theo Paphitis.
Selling via auction followed an extensive marketing campaign and
ensured best price was achieved in a difficult retail market sector.
The bidding started at £1.0m and rose to £1.21m.
Worcester
Built in 2000 and strategically located with links to Junction 7
of the M5 motorway, our property in Worcester was put on the
market in February 2015. The property, a self-contained 92,402
sq ft distribution warehouse benefiting from 10 metre eaves, a
43 metre secure yard and two ancillary offices with low site cover
at 48% was let in its entirety to the established third party logistics
provider Bibby Distribution.
An extensive marketing campaign resulted in three formal offers
for the property at levels ahead of market valuation. The sale
completed on 13 March 2015 for £6.1m net. This was £0.5m more
than book value and £1.1m ahead of the realisation price forecast
in 2014.
32
2016
Strategic Report
Governance
Strategy in Action
Value Enhancement at Speke
Approx. 10 mins
(1.7 miles) drive from
the nearest train
station – Hunts Cross
The site at Speke
is 7 miles south of
Liverpool city centre
Adjacent to
the new Mersey
Retail Park
Approx. 7 mins
(1.8 miles) drive
from Liverpool John
Lennon Airport
Within easy reach
of the M57, M56
and the M62
Strategic Report
Governance
Through a corporate acquisition in 2012, Stobart
Group inherited a long leasehold 47-acre site at
Speke, Merseyside which is sub-let to Ford and used
as a vehicle storage site. Ford have occupied the site
since the 1960s although their occupational lease
was due to expire in December 2017. In addition,
they were also occupying an eight-acre adjoining
site, owned by a third party.
With the Group committed by a long-term
lease until 2068, representing a potentially
onerous liability and Ford’s occupation
possibly ending in 2017, we needed to
undertake a strategic review of all the
options available to us.
Recognising that the site benefited from a
rail link, was close to Liverpool Airport and
within easy reach of motorway and port
links, as well as being located next door to
the Mersey Retail Park, we felt that the site
could also be an opportunity for us to add
value using our well-developed asset
management skills.
Various options for the site were considered
including redevelopment for retail, industrial
and residential use, and it was clear to
us that there were many viable options.
However, to unlock the site’s potential,
we needed to acquire the freehold of not
only our site that Ford occupied, but an
adjacent six-acre site that would give us
53 acres in total.
In March 2016, we agreed terms with
Ford on a new 20-year occupational lease
commencing 1 July 2016 at a significantly
increased rent of £2.16m per annum, with
fixed annual 2% rental uplifts. Ford signed a
legally binding agreement to lease in March
2016 and have an option to buy the 47-acre
site for £37.0m before 30 June 2016. The
investment value, irrespective of whether
the option is exercised, will also equate to
around £37.0m over the term of the lease.
With a six-acre site remaining for
future development, the overall value
enhancement for the Group from the
Speke investment property is expected
to be in the region of £22.0m, of which
£9.1m has been recognised in the year.
£17.6m
Purchase Price
We managed to successfully negotiate
the purchase of the relevant pieces of land
for a combined total of £17.6m, including
costs, in December 2015. The Board then
considered the various options for the site,
as well as a proposal to enter into a new
long-term lease with Ford to remain on
47 acres of the site, which they were keen to
do given how important the site is to them,
being located very close to their Halewood
production facility.
£22.0m
Value Created
33
2016
34
2016
Strategic Report
Governance
Stobart Investments
Delivering Value
Our Investments division holds our logistics and
aircraft leasing businesses.
49% Investment in Eddie Stobart Logistics
Eddie Stobart Logistics
What is Stobart Group’s interest in Eddie Stobart Logistics?
Stobart Group has a 49% investment in the Group headed by
Greenwhitestar Holding Company 1 Limited, which holds the
Eddie Stobart Logistics business.
What were the highlights for the year?
Eddie Stobart secured a number of significant customer wins towards
the end of the financial year and we expect to see the full benefit of
these in future periods.
+3.2%
Underlying Revenue
Underlying revenue increased by 3.2% to £547.0m on a like-for-like
basis despite a wet summer and pressure within the retail and
consumer markets. Underlying EBITDA increased by 5.3% to £42.0m
on a like-for-like basis, reflecting the benefits of an organisational
redesign and a focus on cost reduction. Eddie Stobart also sold a
non-core business, Automotive UK, on attractive terms generating a
£7.0m profit, of which the Group’s share is £3.4m. Benefits of lower
fuel costs were passed back to the customer without an impact on
EBITDA due to a matched contract pricing mechanism.
In the year, Eddie Stobart generated £21.0m of surplus cash which
was used to repay £21.0m of debt and to increase the investment
value of the business.
What was Eddie Stobart’s contribution to Stobart Group in
the year?
EBITDA within the trading business of Greenwhitestar is up £2.3m
on a like-for-like basis, reflective of an organisational redesign and
a focus on cost reduction. Our total share of profits was £7.0m.
33% Investment in Propius
Propius
What does Propius do?
Propius Holdings Limited is the parent company for an aircraft leasing
group (Propius), which is owned and controlled jointly by Stobart
Group, Aer Lingus and Invesco.
How many planes does Propius have?
Propius owned ten aircraft, including eight ATR 72-600 series and two
older ATR 72-500 series. In November 2015, Propius sold the two
older aircraft which continue to be leased to Stobart Air by the new
owner. This left Propius with eight aircraft, all of which are leased to
Stobart Air.
What have been the returns for Stobart Group?
Following the sale of aircraft, Propius paid a special dividend
of £4.3m to Stobart Group during the year.
Stobart Group’s share of the profits of Propius for the year ended
February 2016 was £1.3m.
Note
Eddie Stobart Logistics figures relate to financial year end November 2015.
35
Strategic Report
Governance
2016
Financial Review
Strong Growth
I am pleased to report revenue growth overall,
and increased profitability in all of our divisions.
With low levels of debt and a significant asset base
we are well set to deliver on our 2018 targets.
Revenue
Energy
Aviation
Rail
Investments
Infrastructure
Eliminations
2016
£m
2015
£m
73.4
22.9
46.2
–
4.3
(20.1)
68.4
23.6
28.0
–
5.0
(8.4)
126.7
116.6
Growth
+7.4%
–3.2%
+64.7%
–
–13.6%
+8.6%
Revenue from continuing operations has grown by 8.6% to £126.7m
driven by increased revenue per tonne in our Energy division. External
revenue in our Rail division also increased by 36.5% to £28.8m.
The Operational Reviews on pages 18 to 34 contain details of the
performance of our divisions.
Profitability
2016
£m
2015
£m
Growth
Underlying EBITDA
Energy
Aviation
Rail
Investments
Infrastructure
Central function and eliminations
9.1
2.3
3.4
11.1
10.5
(6.4)
7.8
+17.0%
1.4 +59.8%
2.8
+20.1%
6.8
+64.1%
4.0 +159.4%
(5.2)
Underlying EBITDA
Impact of diesel swap
Depreciation
Underlying finance costs (net)
30.0
(2.2)
(8.4)
(1.0)
17.6
0.1
(6.7)
(1.7)
+69.8%
Underlying profit before tax
Non-underlying items
18.4
(8.4)
9.3
(18.7)
+98.0%
Profit/(loss) before tax
Tax
Discontinued operations, net of tax
10.0
(1.2)
–
(9.4) +206.2%
1.4
6.8
8.8
(1.2) +857.5%
1
Ben Whawell
Chief Financial Officer
Profit/(loss) for the year
1 Underlying EBITDA represents underlying earnings before diesel swap, interest, tax,
depreciation, amortisation and non-underlying items.
36
2016
Strategic Report
Governance
Financial Review continued
Underlying EBITDA
Underlying EBITDA is our key measure of profitability for the business.
Underlying EBITDA before diesel swap has grown by 69.8% to
£30.0m. All divisions were ahead of their prior year EBITDA.
Earnings per Share
Earnings per share from underlying continuing operations were 5.0p
(2015: 2.6p).
Dividends and Share Disposals
Central function costs and eliminations have increased by 23.2%
partially due to a higher amount of internal profit elimination in the
Rail division.
Depreciation
Depreciation has increased by 24.9% to £8.4m after a full year’s
charge for vehicles, purchased under finance leases, mainly used
to transport biomass products and new plant and machinery at
our processing sites.
Finance Costs
Finance costs (net) reduced by 43.9% to £1.0m after an increase in
finance income from loans to energy plant associates.
Non-Underlying Items
Stobart Group:
– Amortisation of brand
– Transaction costs/contract set up
– Restructuring costs
– Finance costs
Share of post-tax profits of associates and JVs:
– Amortisation of contracts
– Restructuring/deal costs
2016
£m
2015
£m
3.9
1.6
–
–
3.9
0.8
1.7
8.1
2.9
–
2.6
1.6
8.4
18.7
The charges in relation to the non-cash amortisation of the brands
and contracts are expected to continue in future periods. We incurred
£1.2m of direct support costs in connection with obtaining long-term
airline contracts at London Southend Airport.
Taxation
The tax charge on continuing activities of £1.2m (2015: £1.4m credit)
reflects an effective rate of 12.0% (2015: 14.8%). The effective rate is
lower than the standard rate of 20.1% mainly due to income in respect
of the Group’s post tax share of joint venture results being treated as
non-taxable, and the effect of the change in corporate tax rate on
deferred tax balances.
Business Segments
The business segments reported in the financial statements are
unchanged from those reported in the prior year. The segments are
Energy, Aviation, Rail, Infrastructure and Investments, representing
the operational and reporting structure of the business.
2016
2015
Interim per share
Final per share
2.0p
4.0p
2.0p
4.0p
Total per share
6.0p
6.0p
The Board is proposing to maintain the dividend level with a final
dividend of 4.0p per share which, subject to approval of shareholders,
will be payable to investors on the record date of 17 June 2016, with
an ex-dividend date of 16 June 2016, and will be paid on 8 July 2016.
During the year, the Group sold 16.4 million of its treasury shares for a
net amount of £17.4m to fund the purchase of an investment property
at Speke. At the year-end there were 10.0 million shares held
in treasury.
Balance Sheet
2016
£m
Non-current assets
Current assets
Non-current liabilities
Current liabilities
453.3
109.3
(94.4)
(54.5)
Net assets
413.7
2015
£m
427.7
101.6
(70.8)
(52.3)
406.2
The net asset position has increased by £7.5m to £413.7m.
Non-Current Assets
Property, plant and equipment of £218.0m (2015: £221.9m) has
decreased following the sale and leaseback of the distribution centre
at Carlisle Airport and the transfer of an owner occupied site to assets
held for sale.
During the year £49.1m (2015: £20.6m) of asset investment has
been made, comprising the cash purchases of property, plant and
equipment and net advances to biomass plant investments. Our
expectation, in order to reach our target plan, is to restrict material
future investment to the biomass supply chain and other airport
works. Based on our current plans, cash funded asset investment
should be in the region of £30m over the next three years.
Investment in associates and joint ventures of £62.7m (2015: £57.8m)
include the Group’s 49% share of the Eddie Stobart Logistics
business and 33.3% share of Propius Holdings Limited. Investment
property of £47.0m (2015: £20.9m) represents the holding of four
(2014: three) properties.
Strategic Report
Governance
Amounts owed by associates and joint ventures of £13.4m
(2015: £10.8m) represent interest bearing loans to renewable
energy plant investments in which we also hold equity interests.
The Group received £3.2m of overpaid corporation taxes in respect
of prior years.
Intangible assets of £112.3m (2015: £116.2m) include the Stobart and
Eddie Stobart brands, and goodwill which principally relates to the
Energy division.
Current Assets and Current Liabilities
Current assets include £44.4m (2015: £43.9m) of development land
assets. Excluding these assets, the net current assets at year-end total
£10.3m (2015: £5.4m).
Debt and Gearing
Net debt:
– asset finance
– other
Underlying EBITDA/underlying interest
Gearing
Operating lease commitments as lessee
Operating lease rentals receivable as
lessor
2016
2015
£31.4m
£16.6m
31.2
11.6%
£48.0m
£24.8m
(£5.7m)
10.3
4.7%
£24.8m
£41.5m
£31.4m
The Group has drawn £27.0m of the £50.0m variable rate committed
revolving credit facility with Lloyds Bank plc with an end date of
January 2019.
Operating lease commitments have increased in the year, mainly due to
a new lease that was signed on a distribution centre at Carlisle Airport,
with 83% of the annual rental cost offset by income from third party
sublease agreements.
Cash Flow
Operating cash flow
Investing activities
Financing activities
2016
£m
3.4
(13.6)
14.3
37
2016
2015
£m
(10.8)
200.1
(193.1)
Increase/(decrease) in the year
At beginning of year
4.1
5.7
(3.8)
9.5
Cash at end of year
9.8
5.7
Net cash outflow from investing activities included the Speke
investment property acquisition (£17.6m), loans advanced to energy
plant associates and joint ventures (£3.8m), capital expenditure at
Carlisle Airport distribution centre development (£11.6m) and biomass
processing site at Pollington (£9.0m). These outflows were offset
by net proceeds from the disposal of two properties (£7.4m), net
proceeds from sale and leaseback of the Carlisle Airport development
(£16.8m) and dividends from our joint venture interest in Propius
Holdings (£4.3m).
Net cash flow from financing activities included the net drawn down
of £26.8m from Lloyds RCF, £8.4m repayment of finance leases,
dividends paid of £19.7m and net proceeds from the disposal of
treasury shares of £17.4m.
38
Strategic Report
Governance
2016
A Responsible
Business
Safety and
Compliance
Stobart Group is committed to working with our stakeholders to
understand their expectations of the Group in all areas of corporate
social responsibility and this guides our business decisions.
Safety Management
We have now completed our first full year as the new Safety and
Compliance department, after the partial realisation of Eddie Stobart
Limited, which encompasses all internal Quality, Environmental, Safety
and Compliance audits. During this period, we have covered a total of
131 audits across all departments and divisions along with a significant
review and overhaul of all Company procedural documentation in line
with the new Company structure.
Our credentials in these areas are increasingly influencing our ability
to attract and retain customers, employees and investors. This also
underpins our licences to operate, by strengthening our relationships
with local communities, industry partners and regulators.
Governance
Detailed policy statements, including Health and Safety, Equality
and Diversity, Anti-Bribery and Corruption, Quality, Ethics, CSR,
Whistleblowing, Learning and Development and Use of auditors for
Non-Audit Services policies are available on the Group’s website at
www.stobartgroup.com.
The Board takes an active role in approving any significant changes
to Group policies. The Board also monitors any employees’ concerns
through our confidential whistleblowing procedure. Our policies
are managed by our document control team in our Safety and
Compliance department. Each policy is reviewed on an annual,
three-year or five-year basis and updated when required. All policies
are clearly communicated to every member of staff via our internal
induction programme and on an ongoing basis via our intranet portal,
Stobart Central.
Performance in the Year
A Just Culture
This year we launched our new safety communication strategy
for a Just Culture campaign across all divisions and throughout
all departments.
The main aim of the initial campaign was to implement an open
reporting culture where employees are not disciplined for actions,
omissions or decisions taken by them and that are commensurate
with their experience and training. However, gross negligence, wilful
violations and destructive acts are not tolerated by the Group and
action is taken when necessary. This campaign will embrace a new
positive reporting culture with the belief that instilling this culture
within the Company will ensure every employee is an active part
of the strategic plan and solution is the goal.
The CSR Committee
The Group’s CSR Committee (CSRC) which was established in
2012, comprises a number of senior managers from across the Group
including representatives from each of our operating divisions. Each
committee member has a specific area of expertise and clearly
defined responsibilities. The Committee is chaired by Chief Financial
Officer, Ben Whawell. As an Executive Director, he also holds
Board-level responsibility for CSR.
S I N E S
B
U
Y
I
N
S
RONMENT
ENVI
AL
LITY
IBI
S
ON
T
ST
T
E G R I
OBAR
T PEOPL
E
ITY
UN
MM
CO
RE
SP
The Committee meetings are held quarterly covering Stobart People,
Environmental Responsibilities and Community.
A Just Culture company identifies
three types of behaviour that need
to be managed.
1
2
3
Human Error
An inadvertent action.
A slip, lapse or mistake.
At Risk Behaviour
Choosing to do something in a way that
unintentionally can impose a chance for
harm to occur.
Reckless Behaviour
Choosing an action that knowingly puts
themselves or others in harm’s way. The
risk is identified but ignored.
Strategic Report
Governance
Statistics
RIDDOR
Number of Incidents
Year ended
February
2016
Year ended
February
2015
Year ended
February
2016
Year ended
February
2015
Energy
Rail
Aviation
0.00
0.00
0.35
0.17
0.00
0.00
0
0
3
1
0
0
Total
0.13
0.05
3
1
Division
The above table shows the Accident Frequency Rate (AFR) for Group
site RIDDORs. The AFR is the way of measuring the accidents we
have based on the category of accident which is reported to the
Health and Safety Executive (HSE). The AFR is calculated by dividing
the number of RIDDORs by the number of hours worked multiplied
by 100,000.
In the current year, the Group has seen an increase in the number
of RIDDOR reportable accidents. However, the number of significant
injuries has decreased by 60% over the year. The need to improve
safety in a proportionate and cost-effective way will always remain
a priority and challenge which continues to link directly to our
safety strategy.
Safety Strategy
The strategic objective for enhancing safety is: To manage our
risks and enhance our safety performance by targeting risks
and instilling a Just Culture throughout the Group.
Phase one of the implementation of our new Stobart Information
Management System (SIMS) is complete which has enabled greater
visibility and control of our identified risk areas for each division
in line with our Business Risk Management Framework process.
This process links directly to our safety strategy and SIMS system,
ensuring both through continuous monitoring and review, where
potential new hazards are identified which could emerge within
our business.
Governance of the Safety Strategy
The implementation of SIMS has enabled the Group to record
and monitor all accidents, incidents, airfield occurrences and near
misses. The system actively provides real-time visibility of all events
to management. The system provides us with the tools to analyse
any trends and identify areas of risk, with reports reviewed by the
Safety and Compliance team on a weekly basis. Trends are also
analysed at Board meetings.
39
2016
The system will continue to grow and has recently integrated with the
new Stobart employee portal known as Stobart Central. This provides
all employees with a direct link between the two systems for timely
event reporting, access to all divisional documents, the Stobart Group
website and as a central location for all notices and news items.
As part of the system implementation all Company documents have
been subject to audit and complete review in line with the changes
within the business.
Focus for the Year Ending February 2017
We will continue to maintain Health, Safety and Compliance as a
priority looking for continuous improvement, focusing on areas of risk.
The Safety and Compliance team will be incessant in being a proactive
department and integral to the instances which require a reactive
approach. Through initiatives such as Just Culture we are able
to minimise the need for reactive measures. We will endeavour
to improve our safety record and drive cultural change within
the business.
This year we have aimed even higher, looking to build on the lessons
learnt last year. We have put together a robust Executive Board
approved internal audit programme which has been designed to
focus on business and system continual improvement.
We have also continued to build and focus on our safety strategy and
as part of this we have now fully implemented Just Culture throughout
the business and have even begun to introduce it to our site operating
third parties and Group tenants.
40
2016
Strategic Report
Governance
Corporate Social Responsibility continued
Our People
It is our people who continue to deliver the strategy for the business. Through our Stobart Values,
they drive the high performance culture that’s vital for our future success.
Overview of the Year
Key Priorities
–– Employee communication.
–– Leadership development.
–– Performance management.
–– Continuous learning and development.
–– Save As You Earn employee share scheme.
–– Equality and diversity.
Employee
Communication
964
Employees
Female/Male %
32,198 27%
Training hours invested
Employees with 5+ years’ service
Energy
Products &
Office staff
Rail
Office staff
Group
It is important that our people have a voice within our business.
By sharing knowledge, ideas and feedback, we can create a more
successful business and a more worthwhile and better place to work.
Our people are able to influence what happens within our business
through our new divisional employee forums. Led by our Executive
Director Richard Butcher, quarterly meetings take place to discuss
ideas and ways to improve what we do. Our model and philosophy is
simple: ‘You Said, We Did’.
5+
‘You Said, We Did’
24/76
Aviation
Energy
Drivers
Rail
Site operatives
Summary to HR
Headlines to Executive Board
You Said
We Did
You asked if it would be possible to
communicate out to the division all new
starters and new roles.
We have included a new section on
our employee portal Stobart Central
for new starters, new roles and employee
achievements for all divisions.
You suggested training more employees
to be Marshalls so that the airport can
run more efficiently at peak times.
Training has been carried out and we
now have more Marshalls at the airport.
You requested that safety statistics are
distributed to site employees so that
all employees can understand how
we are performing.
A monthly dashboard has been created
and rolled out to our sites via the employee
representatives.
Strategic Report
Governance
41
2016
Stobart Central
“Being an employee representative is a great
way of getting opinions and thoughts from the
people you work with every day. My colleagues
see it as a great way of being heard and their
ideas acted upon. The employee forums make
presenting people’s thoughts and ideas easy as
they are well structured and members have the
chance to give feedback.”
George Corden
Stobart Energy Employee Representative
January 2016 saw the introduction of the bespoke employee
intranet site ‘Stobart Central’. Designed with employees in mind,
this platform helps to improve the engagement between staff on a
Group-wide basis whilst increasing the ease and effectiveness of
communication. It provides up-to-date news and features, information
on employee benefits, training videos, useful information to help
with day-to-day activities as well as access to the Stobart Information
Management System (SIMS) where staff can obtain the latest version
of a policy, procedure or form. Stobart Central is accessible remotely
and provides the opportunity for two-way communication so that we
can hear from our people 24/7 with any queries or feedback they
may have. Our mission is to communicate effectively with all of our
employees and Stobart Central is a big step towards achieving that.
‘Tink Talk’
“As an employee representative I am able to be
the voice for my colleagues, which means they
feel as if they are part of the decisions that are
made within the Company. It’s an important role
because we are the communicators so all our
colleagues know what is happening in and
around the different divisions.”
Samantha Swinglehurst
Stobart Group Employee Representative
‘Tink Talk’ is the monthly message from the CEO which updates
employees on what is happening across all divisions of the business.
This message is emailed to both office and remote based employees
and comes directly from Andrew Tinkler. Tink Talk focuses on news
stories and developments that have been happening in each of our
divisions over the past month. It also promotes new initiatives that the
Company is introducing that we would like our employees to get
involved in, with the aim of promoting employee engagement.
42
2016
Strategic Report
Governance
Our People continued
Leadership
Development
Our Management and Leadership Development programmes have
been redesigned to ensure they fit perfectly with our diverse business.
All programmes are delivered in-house in a way that enables our
people to easily apply the learning back to the workplace. Our focus
over the year has been on the Developing Effective Management and
the Fast Track to Leadership programmes.
The Fast Track to Leadership programme is designed to cover
the essential skills and qualities that will produce highly effective
leaders. It will help our managers discover practical and straightforward
ways to lead, organise and motivate in order to achieve outstanding
performance and results. We have 21 delegates on this programme
from across the Group.
The Developing Effective Management programme is aimed at
first time managers, supervisors and team leaders who are new to the
role or perhaps have no previous experience of people management.
Training courses range from better communication skills at work to
effective people management skills. We have 55 delegates on the
programme from all parts of our business.
“I have found the Developing Effective
Management course really interesting and it
has given me the tools to help develop within
my role as a supervisor. It has also been a
great opportunity to work with staff from other
departments and learn their best practices so
that I can adapt them to help our department
continue to develop.”
Amy Such
Front of House Supervisor and delegate on the
Developing Effective Management programme
“I am particularly enjoying the structure of the
Fast Track to Leadership course. It has been
extremely beneficial to explore different styles
of leadership and discover different ways to
approach everyday situations which arise when
leading a team. The course is helping me to
understand the differences between managing
and leading a team and the ways in which I can
better motivate, enthuse and build respect from
my colleagues. Since starting the course I have
implemented the setting of SMART objectives for
everyone within the maintenance and innovation
department. It has encouraged both personal and
professional development for my team, as well as
myself. I feel extremely privileged to have been
chosen to participate in this programme and I am
confident the skills I am learning will help me in
leading my team and to further my professional
development within the Group.”
Richard Errington
Plant Maintenance and Innovation Manager and
delegate on the Fast Track to Leadership programme
Strategic Report
Governance
Performance
Management
Our Performance Management process ‘You Make a Difference’
provides our people with the opportunity to gain and provide
feedback on their performance and set objectives aligned with the
overall business strategy whilst enabling them to grow and develop to
reach their full potential. A review of this process has been carried out
by a steering group representing the various parts of our business to
ensure this process works for everyone. Underpinned by the Stobart
Values, the performance appraisal process encourages openness,
honesty and respect, while at the same time helping us to capture
our employees’ aspirations and identify aspiring leaders of the future.
Continuous Training
and Development
We pride ourselves with continually improving our training and
development offering. Over the last year, we have designed a number of
new courses and programmes including a year-two Drivers Certificate
of Professional Competence (DCPC) for our Energy division, ensuring
drivers receive fit-for-purpose training on the division they work in.
Number of training hours per division
207
Central Functions
2,663
Energy
16,101 13,227
Aviation
43
2016
Rail
“After 34 years working as a professional driver
I didn’t think there was anything else to learn
about the industry but the CPC training provided
by Stobart Biomass Transport has completely
changed my outlook. It is important to recognise
that biomass transport is still a relatively new sector
and the bespoke courses offered by the Company
provide significant learning opportunities for even
the most experienced drivers.”
Stephen Thompson
Stobart Biomass Driver based at Chelford
At London Southend Airport, we delivered the Customer Service
Excellence Programme to 88 employees. The training focused on
enhancing the skills that our employees already possess to ensure
we maintain first class levels of customer service. Upon completion, all
employees were awarded with an intermediate apprenticeship in
Customer Service, Level 2 NVQ and Level 2 BTEC in Customer Service.
Our Rail division’s training team has been playing an active part in
shaping the training of the future for the rail sector. Working alongside
Network Rail’s training and development specialists, they have been
writing new training and assessment material to be used in the
industry by all suppliers under the On-Track Plant Framework.
“Being a young driver I have always been eager
to learn new things. I sought a role within the
Biomass Transport business and the chance
to operate a different and specialist type of
equipment. The tailored training through
induction and CPC refresher courses provided
me with a great platform and an opportunity
to develop my skills in what is a very
challenging role.”
Dominic Greatley
Stobart Biomass Driver based at Chelford
44
2016
Strategic Report
Governance
Our People continued
Save As You Earn
Employee Share Scheme
To align our employees with the success of the business, a Save As
You Earn employee share scheme has been introduced. The scheme
is for three years and offers the full 20% discount on the share price at
the time the options were awarded.
Total employees %
Equality and Diversity
Male 76%
Female 24%
964
We are committed to eliminating discrimination and encouraging
diversity amongst our workforce. We provide an environment where
every employee’s contribution is welcomed and everyone feels
valued, respected and empowered.
Gender Equality
Central Functions %
Senior Management Team %
Male 63%
Female 37%
Aviation %
Board %
Male 90%
Female 10%
Energy %
Male 60%
Female 40%
Next Steps and Priorities for 2016/17
–– We will carry out an employee survey to establish
employee engagement.
–– We will continue to develop our in-house training and
development programmes.
–– We will continue to encourage diversity amongst our workforce.
Male 100%
Female 0%
Rail %
Male 90%
Female 10%
Male 82%
Female 18%
Strategic Report
Governance
45
2016
Engagement with
Local Communities
Our businesses are part of their communities
and our workforces are drawn from these local
environments. We actively engage with these
communities to ensure that our impact is positive
and to provide further employment.
Support for Communities Affected by Storm Desmond
In December 2015 the extreme weather and flooding of Storm
Desmond hit Cumbria. Home to Carlisle Lake District Airport, Stobart
Rail and Stobart Group offices, each division showed support to the
Cumbria flood appeal.
Carlisle Lake District Airport opened out-of-hours for evacuees who
were airlifted via helicopters from their flood-affected homes. The
airport initiated its Emergency Orders and set up a Survival Reception
Centre for the flood victims who were given dry clothing, food and
shelter. During the following five days, 23 refuels of three search and
rescue helicopters were completed.
Stobart Rail donated 1,000 litres of red diesel to volunteers operating
their own machines to dredge the river in flood-affected Glenridding.
Staff at Stobart were deployed to assist with the clean-up efforts
which involved delivering refreshments and equipment.
Employees of London Southend Airport organised a tombola event
during their Santa flight weekend which raised a total of £540. This
was donated to a Kids Club in Carlisle which had been affected by the
flooding. Employees of the Stobart Rail division raised a further £286
for the flood appeal.
Santa Flights
Over the weekend of Saturday 12 December 2015 London Southend
airport held its annual ‘Santa Flight Experience’ which raised over £8,000
delivering an enchanting experience in the skies for local children.
Four non-profit flights donated by JOTA Aviation took off from
the airport taking 169 children along with their friends and family
members on a flying adventure over the county. Upon its return, each
flight’s guests disembarked to join an exclusive party in the airport’s
terminal, including a visit to Santa in his grotto.
£6,000 was equally divided and donated to three local charities –
the Southend University Hospital Keyhole Cancer Appeal, Turning
Tides/SAVS and Fair Havens/Little Havens.
The 2015 Santa Flights were organised by London Southend Airport
and also kindly sponsored by JOTA Aviation, WHSmith, Moneycorp,
British Airways and Air BP.
School Engagement
Stobart Group has been actively generating interest and enthusiasm
in local schools, colleges and universities regarding career
opportunities and gaining experience for young people.
Stobart Rail continued to show their support for Brathay Trust (a
networking organisation to help improve the life chances of children,
young people and families by inspiring them to engage positively
in their communities) by taking part in their first ‘World of Work
Challenge’ day in July. The event provided hands on experience and
the opportunity for students to ask about careers within Stobart Rail.
The Rail division also presented to second and third year students of
the University of Cumbria explaining the importance of maximising
the potential of media and graphics when promoting our business.
Further down the country, London Southend Airport offered South
Essex College students a chance to carry out work experience at
LSA in the form of ‘Here to Help Assistant’. This involved 25 students
sending their CV, having a mini interview, receiving on-site training
and finally being rostered to work in the Easter period. From this work
experience, six of the 25 students went on to work at the airport either
in check-in or security roles.
Biomass Stakeholder Engagement
Stobart Energy engaged the local community, the Environment
Agency (EA), the waste industry and the Chief Fire Officers
Association as part of its hosting of fire tests at Pollington. These
tests were undertaken by London Fire and Rescue Service, to obtain
scientific data on preferred stockpiles sizes and separation distances
for storage of waste. Stobart Energy hope that this information will be
used to revise the EA’s Fire Prevention Plan guidance and help to
protect local communities from the risk and effects of waste fires.
London Southend Airport Becomes First Dementia Friendly
Airport in the UK
In October 2015 London Southend Airport became a member of
the Southend Dementia Action Alliance (SDAA) which was launched
in March 2015 to help Southend-on-Sea become a ‘DementiaFriendly’ town.
The airport devised an action plan that includes a commitment to
ensuring Dementia awareness training is given to all front-of-house
staff, including check-in staff and security. After this, training will be
rolled out among all other staff that may need to directly deal with
customers. At present around 60 members of staff from the airport,
hotel and train station have completed this training and it is expected
to continue throughout 2016.
Stobart Group does not make financial or other donations to any
political parties.
46
2016
Strategic Report
Governance
Environmental Efficiency and
Responsibility
Whilst it is not compulsory for Stobart Group
to report on emissions of greenhouse gases,
we follow guidance detailed within the Companies
Act 2006 (Strategic and Directors’ Reports
Regulations 2013) as we are committed to
reducing the environmental impact of our
operations. We regularly review and investigate
ways to reduce our energy, waste and water usage.
Stobart Group Carbon Emissions
Our total CO2 emissions
CO2 per £m of revenue (tonnes)
16
206.6
15
243.4
14
15.1%
reduction
Scope 1 and 2 CO2 emissions
2015/16 Total
2014/15 Total
Our Achievements in 2016
–– Reduction of 15.1% in CO2 emissions per £m revenue.
–– Established a baseline and target for CO2 reduction.
–– Implementation of new vehicle efficiency
management tool.
–– Further accreditation of biomass products
at Shoreham.
–– Completion of new solar farm at London Southend
Airport producing around 20% of the airport’s
electricity requirement.
–– Recycling of 84% of our general waste.
Our Next Steps and Priorities for 2017
–– Review of our environmental KPIs.
–– Continue to monitor overall CO2 emissions vs target.
–– Monitoring fleet performance to look for further
efficiencies in transport and logistics.
–– Further accreditations for biomass products.
–– Explore further opportunities for reduction of energy
and water usage, and for reduction of general waste.
–– Review our approach to environmental impacts to
ensure they are aligned with our business strategy
and consider stakeholder requirements.
29,769
Scope 1 – 88.4%
Scope 2 – 11.6%
30,089
Scope 1 – 89.4%
Scope 2 – 10.6%
1 The Group emissions data has been adopted and prepared using an operational
control approach following voluntary and mandatory guidance issued by both DEFRA
and The Greenhouse Gas Protocol. Under this guidance the Company is considered
responsible for the day-to-day operations of the assets and resource consumption
over which the business has effective operational control. The data presented
represents the businesses consistent with those which are included in the Group
revenue in the consolidated financial statements. The revenue amount used for the
‘CO2 per £m of revenue’ is before the elimination of intercompany revenue capitalised.
2 The CO2 figures above are for CO2e being the equivalent amounts of CO2 for
greenhouse gases.
3 The Group is unable to report comparable CO2 emissions for earlier periods due
to the part-disposal of the Transport & Distribution business in early 2014.
We have established a target of reducing scope 1 and 2 CO2
emissions by 25% by 2020, from our 2015 baseline. Set out below
are some of the emission reduction initiatives that the Group has
implemented during the year.
Our Well-Managed and Up-To-Date Vehicle Fleet
Stobart Energy operates a fleet of around 200 trucks to transport
waste to customers.
Vehicle Emissions Standards
2015/16
2014/15
Euro VI compliant
83%
45%
Euro V compliant
17%
55%
Strategic Report
Governance
The Energy division has in place a stringent vehicle replacement
programme which ensures that nearly all vehicles are less than three
years old. The remaining Euro V compliant vehicles are expected to
be replaced by Euro VI models over the coming year.
Euro V and VI vehicles also come with the additional benefit of the Ad
Blue engine treatment which further reduces the emission of harmful
exhaust gases.
During the year significant developments have been introduced
including the brand new transport planning system known as
Mandata. Mandata is a sophisticated planning and tracking tool which
provides efficient and immediate information such as vehicle location,
drivers’ hours, idling, fuel usage and driver behaviour.
The driver training via the SAFED (Safe and Fuel Efficient Driving)
programme encourages the drivers to drive in a safe and efficient
style reducing fuel costs and CO2 emissions. This programme was
introduced in 2011 and, throughout 2016, all Biomass Transport
drivers will receive a training update.
Sustainable Biomass – Contributing to the UK’s
Renewable Energy
Stobart Energy continues to be at the forefront in the UK of the
sourcing, processing and supply of renewable biomass fuels to
industry and the energy sector. Making a contribution towards
helping the UK meet its target of 15% of all energy to be provided by
renewable sources by 2020 is one of the Energy division’s long-term
objectives. During 2014, 7.2% of the UK’s overall energy requirements
was provided by renewables, of which 31.8% was supplied by waste,
industrial wood and plant biomass (i.e. the types of biomass currently
supplied by Stobart Energy).
During the year, Stobart Energy supplied 979.3kt of biomass, comprising
507.4kt of virgin timber, 446.2kt of recycled wood and 25.7kt of refuse
derived fuel (RDF). These tonnages represent a total 3.75% contribution
towards the UK’s renewable bioenergy effort, or 2.7% of the UK’s total
renewable energy contribution, as tonnes of oil equivalent, based on
available DECC data.
A total of 637 tonnes of metal waste was removed from raw material
during processing and sent for recycling. A total of 78 tonnes of
residual waste was produced by sites, which included waste from staff
canteens and offices, and that removed during processing and final
sorting of product. This residual waste material was sent to off-site
processors for recycling.
Our new solar farm
generates around
20% of our electricity
requirement at London
Southend Airport.
47
2016
Producing Our Own Solar Energy
During November 2015 the installation of a £2m solar farm at London
Southend Airport began and was officially registered with Ofgem on
31 December 2015. The 2.5MW ‘Solar Photovoltaic Array’ is located
on 3.2 hectares of unused grassland at the north of the airport site.
The array consists of 9,500 individual solar panels across 37 rows.
The solar farm is expected to generate around 20% of the airport’s
electricity requirement with capability for excess power to be exported
to the national grid. Over its 25-year life span, the solar farm is
predicted to save approximately 28kt of CO2e.
The solar farm is an addition to the 496 solar panels previously
installed during 2014 when London Southend Airport invested £10m
in a terminal expansion. These solar panels now supply the terminal’s
shops, cafés and restaurants with solar electricity via the airport’s
private electricity network.
Water Recycling
London Southend Airport utilises two 60,000 litre underground water
reservoirs that hold rainwater collected from the terminal roof for
use on site. The harvested water is fed through a series of filters in
a Stormsaver rainwater recovery system, making it suitable for use.
The Group is also looking to incorporate similar water harvesting
initiatives into new sites that are being developed throughout the next
financial year.
Waste Recycling
84% of our waste
was recycled
or converted
to energy
Tonnes recycled
Tonnes recycled – 84.2%
Tonnes to landfill – 14.2%
Tonnes converted to
energy – 1.6%
Our divisions evaluate their waste management and act on
initiatives to reduce their landfilled waste. In December 2015
London Southend Airport commenced a new waste-to-energy
(WTE) contract. The airport’s waste is now disposed of at a local
incineration plant where the waste is burnt and a connected
steam turbine produces electricity. Modern incineration plants
are capable of reducing the volume of waste by over 95 to 96%
and also reduce the cost of separating higher risk waste.
48
2016
Strategic Report
Governance
Governance
Board of Directors
Name and Position
Andrew Tinkler
Ben Whawell
Richard Butcher
Executive Director, CEO Stobart
Energy and Stobart Infrastructure
Following an apprenticeship in
cabinet making and glazing,
Andrew embarked on his
entrepreneurial career almost
immediately, establishing W.A.
Tinkler Building Contractor as his
first business in the late 1980s.
After nine years as a Chartered
Accountant with Grant Thornton,
Ben joined Stobart in 2004 after
advising on the acquisition of the
Group by W.A. Developments
International Limited and became
Chief Financial Officer in 2007 after
leading the Group’s merger with
the Westbury Property Fund.
Richard joined the Eddie Stobart
business in 1997 after 14 years
with HSBC Corporate Finance.
He has been closely involved in
a wide range of Stobart business
activities, holding a number of
key positions within the business
including Managing Director
of Eddie Stobart. Richard was
appointed as CEO Stobart Energy
and Stobart Infrastructure in
2014 and joined the Board as
an Executive Director on 1 July
2014 when he stepped down as
Company Secretary.
The Company quickly found
success and grew to become
W.A. Developments International
Limited (WADI), which focused on
delivering skilled civil engineering
contracts for the railway
infrastructure maintenance and
improvement sector, establishing
a highly regarded name for itself
in the UK and beyond, throughout
the 1990s.
In 2004, and joined by new
business partner William Stobart,
WADI acquired Eddie Stobart
Limited, immediately setting about
transforming the iconic company’s
fortunes and driving a new era of
multimodal logistics. Andrew later
led the Eddie Stobart merger with
Westbury Property Fund Limited
in a move which saw the birth of
Stobart Group. Andrew became
Chief Executive of Stobart Group
and powered the business through
a period of organic growth and
strategic diversification, which
continues today with the Group’s
five divisions of Stobart Energy,
Stobart Aviation, Stobart Rail,
Stobart Investments and Stobart
Infrastructure leading the way in
their respective sectors.
Committee Membership
Not a member of any
Committee.
In his role, Ben has been
instrumental in planning and
executing the organic and
acquisitive growth of the Group
and developed key external
relationships to secure funding
to deliver the strategic plan
and objectives.
In 2014, Ben led the partial
divestment of the Eddie Stobart
transport business and remains
a Non-Executive Director on
that Board.
Richard focuses on driving the
Biomass Supply and Transport
business as well as being
responsible for the Group’s
investments within the renewable
energy sector. He continues
to work on maximising returns
from the Group’s extensive
property portfolio.
More latterly, in addition to his
role as CFO, Ben assumed interim
responsibility for the Investments
and Aviation divisions, in particular
spending 12 months as the interim
CEO of London Southend Airport
developing and facilitating a
platform for future growth.
Ben has achieved external
recognition in the business
community and has received
the North West Financial Director
of the Year Award in 2009, 2012
and 2013.
Not a member of any
Committee.
Not a member of any
Committee.
Strategic Report
Governance
49
2016
Iain Ferguson CBE
Non-Executive Chairman
John Coombs
Non-Executive Director
John Garbutt
Andrew Wood
Senior Independent Director
Iain Ferguson joined the
Stobart Group as Chairman
on 1 October 2013. He brings
a wealth of experience to the
Group, and also serves as
Chairman of Berendsen plc,
Chairman of Hallmarq Veterinary
Imaging Ltd and as a NonExecutive Director on the Board
of Balfour Beatty plc.
John Coombs joined the
Stobart Group Board on
1 July 2014. He has been the
Managing Director of Unilever
Ventures for the past 14 years,
during which time he has sat
on 13 Boards, four as Chair.
Currently he is also NonExecutive Chair of The Federal
Retail and Trading Services
Limited which coordinates
purchasing for Co-operative
retailers in the UK, Innovate
UK’s Emerging Technologies
& Industries Advisory Board,
and The Big Innovation Centre
Governing Board.
During his executive career,
John worked at a number of
major City and industrial firms
including Kleinwort Benson,
Schroders, Touche Remnant,
ICI and Rowe and Pitman. This
covered a wide variety of senior
roles in marketing and client
servicing, fund management
and stock broking. He retired
in 2013 as a Director at HSBC,
after almost 23 years in their
investment businesses, during
which time he headed up
various departments including
corporate governance, property
and ecommerce.
Andrew holds Non-Executive
Directorships and the positions
of Audit Committee Chairman
at Berendsen plc, Lavendon
plc (also Senior Independent
Director) and Air Partner plc. He
was previously Group Finance
Director of BBA Aviation plc,
a position he held from 2001
until 2011, when he retired
from the role.
Iain’s experience includes a
26-year career with Unilever,
which he joined following his
graduation from the University
of St Andrews. In the June 2003
Queen’s Birthday Honours list,
Iain was awarded a CBE for
services to the food industry.
He served as CEO of Tate & Lyle
plc from May 2003 until the end
of 2009.
John is a Fellow of the
Chartered Institute of Securities
and Investment, and a member
of the Society of Investment
Professionals and the Chartered
Financial Analysts Institute.
He is also an Alderman in the
City of London and a Justice
of the Peace.
Iain has also been a member
of the PWC (UK LLP) Advisory
Board (2009–2011), President of
the Food and Drink Federation
(FDF) and of the Institute of
Grocery Distribution (IGD), a
member of the Council of Food
Policy Advisors (Defra) and
The Foresight Global Food
and Farming Project and a
Non-Executive Director on the
Boards of Companies House,
Rothamsted Research, Sygen
plc and Greggs plc.
Throughout his career,
Andrew has held numerous
finance director and financial
controller positions across the
electronics and aviation sectors
and he has been a member
of the Chartered Institute of
Management Accountants
since 1975.
Outside of the City, Iain is
Chairman of Wilton Park
(FCO Agency) and a Governor
Emeritus of the British Nutrition
Foundation. He was the Lead
Non-Executive Director for Defra
(2010–2015) and a member of
the Better Regulation Strategy
Group (2010–2015).
Chairman of the Nomination
Committee and a member of
the Remuneration Committee.
A member of the Audit,
Remuneration and Nomination
Committees.
Chairman of the Remuneration
Committee and a member of
the Audit and Nomination
Committees.
Chairman of the Audit
Committee and a member
of the Nomination and
Remuneration Committees.
50
2016
Strategic Report
Governance
Chairman’s Introduction
Board Committee
Overview
The Board is primarily there to ensure that the
Group provides long-term and sustainable growth
for its shareholders.
Good corporate governance assists in the
promotion of growth by ensuring that there
is effective authority and accountability
throughout the organisation. A new version
of the UK Corporate Governance Code
(the ‘Code’) was introduced in September
2014, and the revised provisions apply to
Stobart Group for the first time in respect
of the year ended 29 February 2016.
The Directors consider that the
Company was fully in compliance with
the UK Corporate Governance Code
in relation to Board composition and
committee membership for the financial
year ending 29 February 2016.
Printed copies of the UK Corporate
Governance Code can be obtained free of
charge from the Financial Reporting Council
(FRC Publications) by emailing customer.
services@lexisnexis.co.uk or by telephoning
0845 370 1234.
Financial year 2014/15 saw significant
changes to the Group following the disposal
of a controlling interest in the Transport and
Distribution division. Now benefiting from a
fresh streamlined structure, the Group is
ideally positioned to accelerate sustainable
growth, deliver shareholder value and
provide ongoing attractive investment
returns. The current Board has now been in
place for nearly two years and shows strong
skills and expertise to support its strategy.
Iain Ferguson CBE
Chairman
Audit Committee
Chairman – Andrew Wood
55–57 for the Audit
Committee Report
Remuneration Committee
Chairman – John Garbutt
58–70 for the Remuneration
Committee Report
Chairman – Iain Ferguson
54 for the Nomination
Committee Report
Strategic Report
Governance
51
2016
The Board believes that it and its Committees have an appropriate
composition and blend of backgrounds, skills and experience to fulfil
their duties effectively and importantly, to comply with the Corporate
Governance Code. No one individual or small group dominates
decision making.
Senior Independent Director
Andrew Wood is the Senior Independent Director of the Group and
assumed this role on 1 November 2013. His role is to:
–– Provide a sounding board for the Chairman and to serve as an
intermediary for other Directors where necessary.
–– Be available to shareholders if they have concerns which cannot
be dealt with by the Chairman, Chief Executive Officer or Chief
Financial Officer.
–– Be available to other Directors if they have any concerns regarding
the Chairman, or the relationship between the Chairman and
Chief Executive.
–– Attend institutional and analyst briefings, in addition to the
Chairman and the Chief Executive Officer and his team.
–– Attend sufficient meetings with shareholders to obtain a balanced
understanding of their issues and concerns.
–– Meet with the Non-Executive members of the Board at least
once a year without the presence of the Chairman or the Executive
Directors in order to review the Chairman’s performance in his
role and also the Chairman’s relationship with the Chief
Executive Officer.
The Board keeps its membership, and that of its Committees, under
review to ensure that an acceptable balance is maintained, and that
the collective skills and experience of its members continue to be
refreshed. It is satisfied that all Directors have sufficient time to devote
to their roles and that undue reliance is not placed on any individual.
Executive Directors
The Executive Directors are responsible for the day-to-day
management of the business. They are accountable for developing the
Group’s strategy and budget for Board approval and for monitoring the
financial, operational and service performance of the Group.
As at 29 February 2016, the Board consisted of seven individuals; a
Non-Executive Chairman, three independent Non-Executive Directors
and three Executive Directors. Over the past year this Board has had
the appropriate balance and skillset to advise on Group strategy. The
biographies of all members of the Board outlining the experience they
bring to their roles are set out on pages 48 to 49.
Executive Management meetings comprise the Executive Directors
and senior management from across the divisions and are held
monthly to discuss business activity.
The Board – Chairman and Chief Executive Officer
The positions of Chairman and Chief Executive Officer are held
by different individuals in order to provide segregation of roles.
The Chairman is responsible for leading the Board, ensuring its
effectiveness and looking after shareholders’ interests. The Chief
Executive Officer’s role is to implement strategy laid down by the Board
of Directors and to manage the Group and its operations. The Board of
Directors is collectively responsible for the success of the Group.
Board Composition and Independence
There were no changes to the Board during the year. On 15 December
2015, Kate Willard stood down as Company Secretary and the Board
welcomed Richard Laycock, Group Finance Director, to be appointed
Company Secretary.
Non-Executive Directors
The Non-Executive Directors provide a breadth of experience
and independent judgement to Board discussions. Their role is to
challenge and support the Executive team whilst being ultimately
responsible for overseeing corporate governance and protecting
shareholder interests.
Each Director has some specialist knowledge that helps provide the
Board with valuable insights and in some situations, key contacts in
related industries.
The appointment letters of the Non-Executive Directors are available
for inspection at each Annual General Meeting, and at its registered
office during normal business hours.
Company Secretary and Independent Advice
The Company Secretary’s role is to act as advisor to the Board on
matters relating to Corporate Governance and, in conjunction with the
Chairman, to ensure good information flows between the Board, its
various committees, the Non-Executive and Executive Directors and
senior members of the Executive team.
The Non-Executive Directors have access to his advice and services
in addition to independent, professional advice if required (at the
Group’s expense).
Matters Reserved for the Board and How it Operates
In accordance with the Code, the Board has agreed a formal
schedule of matters requiring its decision. In summary, those matters
reserved to the Board include:
52
2016
Strategic Report
Governance
Corporate Governance continued
Group Strategy and Risk Management
–– Approval of the Group’s long-term objectives and
commercial strategy.
–– Approval to changes relating to the Group’s capital structure.
–– Approval of changes to the Company’s management and
control structure.
–– Approval of the Group’s risk management framework.
Financial and Internal Controls
–– Approval of all financial statements and results announcements.
–– Recommendation and approval of all dividends.
–– Monitoring the Group’s operating and capital expenditure
budget and business plan.
–– Approval of major capital expenditure or disposals.
Board Membership and Committees
–– Approval of changes to the structure, size and composition
of the Board.
–– Appointments to and removals from the Board.
–– Approval of remuneration of Board members.
–– Ensuring adequate succession planning for the Board and
senior management team.
–– Approval of terms of reference and membership of Board
Committees.
Principal Committees of the Board
The main Committees established by the Board are
the Audit Committee, the Remuneration Committee and the
Nomination Committee.
New Directors receive appropriate induction on joining the Board,
typically including meeting members of the senior management team
and visits to operational sites. All Directors have access to the advice
and services of the Company Secretary, who is responsible to the
Board for ensuring that Board procedures are complied with.
Board Attendance
The Board has held nine scheduled meetings during the course of
the 12 months under review and attendance at Board and Committee
meetings by individual Directors is set out below. In addition, there
were three special Board meetings to discuss the purchase of
the Speke property, investment in the renewable energy fund,
annual budgets and approval of the interim and final dividends.
Sub-Committees were formed for two of these meetings whereby
not all of the Board were present. This is reflected in the Board
attendance table below. The agenda and relevant briefing papers
are distributed by the Company Secretary on a timely basis, one
week in advance of each Board meeting.
Nomination Remuneration
Committee
Committee
(max 5)
(max 2)
Board
(max 9)
Special
Board
(max 3)
Executive
Directors
Andrew Tinkler
Ben Whawell
Richard Butcher
9/9
9/9
9/9
2/3
3/3
2/3
n/a
3/31
n/a
1/21
1/21
1/21
1/51
2/51
n/a
Non-Executive
Directors
Iain Ferguson
Andrew Wood
John Coombs
John Garbutt
9/9
9/9
9/9
9/9
1/3
1/3
1/3
1/3
3/31
3/3
3/3
3/3
2/2
2/2
2/2
2/2
5/5
5/5
5/5
5/5
1 Not a member of the Committee – attendance by invitation.
All meetings of the Board and its Committees have minutes recorded
by the Company Secretary. In the first instance, minutes are reviewed
by the Chairman of that meeting and then tabled for approval at the
next meeting. Any concerns raised by Directors are clearly recorded
in the minutes of each meeting.
Information, Induction and Professional Development
The Chairman is responsible for ensuring all Directors receive
comprehensive information on a regular basis to enable them to
perform their duties properly.
–– Review of the Group’s overall corporate governance
arrangements.
–– Determining the independence of Directors.
–– Reviewing reports from the Company’s major shareholders.
Audit
Committee
(max 3)
Board meetings are an opportunity for the Non-Executive Directors
to challenge performance of the various divisions against targets
and KPIs set, to review transactions which have taken place since
the preceding meeting and to receive reports from the
Board’s Committees.
Board and Governance Evaluation
An independent external evaluation of the Stobart Group Board was
conducted from October 2014 to January 2015. The findings of the
Board evaluation made recommendations which we believe will be
helpful in further enhancing the effectiveness of the Board. The Board
has looked at the recommendations during the year and some of the
areas addressed are listed below:
–– Ongoing review of Board packs and introduction of a Board portal.
–– Discussions around a Group risk register including strategic,
commercial and operational risks.
–– Consideration and implementation of financial internal audit.
–– Developing a Board Succession Plan.
–– Defining the Senior Independent Director role.
Progress against the Action Plan will be reviewed periodically by the
Board during the year ahead. In accordance with the requirements of
the Code, an external evaluation will continue to be carried out every
three years. The next such evaluation will therefore be carried out in
2017. The Board proposes to carry out an internal evaluation during
this financial year.
Strategic Report
Governance
53
2016
The Chief Executive Officer conducts annual appraisals with
Executive Directors and has regular one-to-one discussions about
their performance with them, as does the Chairman with the Chief
Executive Officer. The Board undertakes a regular cycle of training
on corporate governance matters.
Internal Control and Risk Management
The Directors’ responsibilities in connection with the financial
statements are set out in the Directors’ Report on page 73. The
Board, through the Audit Committee, is responsible for the Group’s
system of internal control and for reviewing its effectiveness.
The Chief Financial Officer, Ben Whawell, takes Board level
responsibility for developing and implementing the Group’s policy
and approach for Corporate Social Responsibility. This includes
its arrangements for matters in relation to people, communities and
the environment.
The Board considers risk assessment, implementation of mitigating
actions and internal control to be fundamental to achieving the
Group’s strategy. Internal control gives the Board reasonable but
not absolute assurance. The Board has an ongoing process for
identifying, evaluating and managing significant risks faced by the
Group and maintains a risk register.
Whistleblowing Policy
The Board has prepared and approved a Whistleblowing Policy
which is available on the Group website and intranet. This policy
includes arrangements for employees to raise concerns about
possible improprieties in financial or other matters. Arrangements
include independent investigation of such matters and appropriate
follow-up action.
The system of internal control is based upon:
–– The Board’s overall responsibility.
–– The Group’s organisational structure, with established lines
of accountability, as well as clearly defined levels of authority.
–– Regular, and at least annual, review by the Board and the Audit
Committee.
–– Support by Company policies in other areas such as finance.
–– Management rather than elimination of the risk of failure to achieve
strategic objectives. Systems of internal control can only provide
reasonable and not absolute assurance against material
misstatement or loss.
Shareholder Relations
The Company is committed to maintaining good communications
with shareholders. Senior executives, including the Chairman,
Chief Executive Officer and Chief Financial Officer, have ongoing
dialogue with individual institutional shareholders in order to develop
an understanding of their views. These views are periodically fed
back to the Board.
During the year, shareholders are kept informed of the progress of the
Group through regular corporate communications; the annual results
announcement, the interim statement, trading updates and press
releases regarding other important developments as well as the
distribution of regulated information.
Twice a year, general presentations are given to analysts and
investors covering the annual and half year results. In addition,
members of the Board meet with institutional investors and analysts
on a periodic basis.
The Company Secretary generally deals with enquiries from
individual shareholders. The website www.stobartgroup.com
contains published information and press releases.
The Audit Committee and the Board have reviewed the effectiveness
of internal control (including financial, operational and compliance
controls together with risk management in accordance with the
Code) over the period of this report, and to the date of its publication
and confirm that no significant failings or weaknesses have been
identified. Stobart Group has a robust process of internal control.
Systems compliance and confirmation of corrective actions are
the subject of a detailed report which is submitted to the Board at
each meeting.
The Audit Committee reviews the independence of the auditors at
the interims and at year end. The Audit Committee has a policy of
reviewing the status of the auditing firm and its lead engagement
partner after five years from initial appointment and each
year thereafter.
Stobart Group has a business systems’ internal audit function
which reviews performance against the agreed policies and
procedures. The Board has recently approved a two-year internal
audit programme to cover all aspects of financial controls and
procedures. Further details can be found in the Audit Committee
Report on page 57.
54
2016
Strategic Report
Governance
Nomination Committee Members
Iain Ferguson CBE, Group Chairman
Andrew Wood, Senior Independent Director
John Coombs, Non-Executive Director
John Garbutt, Non-Executive Director
Overview and Role of Committee
The Board has established a Nomination Committee which is
required to meet at least once a year or more often if so required, in
order to make recommendations to the Board on the composition,
balance and membership of the Board.
Iain Ferguson CBE
Chairman
The Nomination Committee met twice during the period of this
report. The Nomination Committee leads the process for Board
appointments and makes recommendations to the Board on the
structure, size and composition of the Board and succession
planning for Directors and Senior Executives.
The Committee’s members are the Non-Executive Directors. For new
potential Non-Executive Board members, the Nomination Committee
meets and agrees on a shortlist of potential Non-Executive Directors.
Once this shortlist is agreed, the Nomination Committee meets and
undertakes a formal, rigorous and transparent procedure for the
appointment of new Directors to the Board. Careful consideration is
given by the Nomination Committee to ensure that any appointees to
the Board have enough time available to devote to the role and that
the balance of skills, knowledge and experience on the Board is
maintained. When dealing with the appointment of a successor to the
Chairman, the Senior Independent Director will Chair the Committee
instead of the Chairman. When the Committee has found a suitable
candidate, the Chairman of the Committee will make the proposal to
the full Board and the appointment is the responsibility of the full
Board following recommendation from the Committee.
Stobart Group recognises the importance of a fully diverse workforce
in the successful delivery of strategy. The Nomination Committee will
keep under regular review the issue of diversity including at Board
level, senior management level and throughout the entire workforce,
taking into account amongst other things, Lord Davies’ review of
Women on Boards. Over the coming year and as opportunities arise,
we will continue to seek candidates who have both the appropriate
skills and who will help achieve the Board’s gender and diversity
aspiration which is underpinned by the Equal Opportunities Policy.
Main Activities During the Year
–– Succession Planning.
–– AGM and re-election of Directors.
Strategic Report
Governance
55
2016
Audit Committee Report
Audit Committee Members
Andrew Wood, Chairman
John Garbutt, Non-Executive Director
Dear Shareholder
On behalf of the Audit Committee (the ‘Committee’) I am pleased
to present our Audit Committee Report for the year ended
29 February 2016.
Having conducted careful reviews, the Committee concluded
that the 2016 Annual Report is fair, balanced and understandable
and advised the Board accordingly.
The Committee has written terms of reference, which have been
updated during the year and are available on the Company’s
website at www.stobartgroup.com.
Details of the membership of the Committee, the main activities
of the Committee during the year, the matters related to the
engagement of the external auditor and an overview of our risk
management and internal control framework are set out in this
report. In addition, we include in the report details of the
significant accounting matters considered by the Committee,
with details of how these have been addressed during the year.
Andrew Wood
Chairman of the Audit Committee
12 May 2016
Audit Committee Membership During the Year
The Audit Committee is chaired by Andrew Wood and its other
members are John Garbutt and John Coombs, all of whom have
been members for the full year. All members of the Committee
during the year were fully independent Non-Executive Directors.
The Company Secretary acts as the Committee’s secretary. Andrew
Wood is a qualified accountant and is considered by the Board and
the Nomination Committee to hold the requisite recent and relevant
financial experience, having been Finance Director of public
companies for a number of years. Andrew Wood is Chairman of the
Audit Committee at three other public companies.
Other Directors, including the Chairman and Chief Financial Officer,
and the Group’s external auditors, attended meetings by invitation.
At least once a year, the Committee will meet with the external
auditors without the Chief Financial Officer or any other Executive
Directors present. In addition, the Chairman of the Committee has
regular discussions with the external auditors outside of the formal
Committee meeting.
Under the terms of reference of the Committee there should be
three members, with a quorum of two. Throughout the current year
membership was three Directors with a quorum being present
for all meetings. The Committee was able to discharge its duties
adequately at all times and was in compliance with the UK Corporate
Governance Code provision that the Committee should comprise at
least three members for the full year.
56
2016
Strategic Report
Governance
Audit Committee Report continued
Activities During the Year
During the year the Committee met three times and a summary of
the main areas dealt with by the Committee during the year is set
out below:
–– Findings from the external audit for the year ended 28 February 2015.
–– Findings from the external review of the interims to 31 August 2015
by the auditors.
–– Approval of the audit plan and strategy for the year ended
29 February 2016.
–– Review of the significant judgements applied in preparation of the
Annual Report.
–– Review of the Annual Report to ensure it is fair, balanced and
understandable.
–– Review of the Viability Statement.
–– Establishment of a financial internal audit function to review
financial controls and procedures across all divisions.
–– Approval of a financial Internal Audit Plan for financial year ending
February 2017.
–– Confirmation of the independence of the auditors.
–– Review of the Group risk register.
–– Review of the implications of the revised UK Corporate Governance
Code on risk management, internal control and going concern.
–– Consideration of the terms of reference of the Audit Committee.
Engagement of the External Auditor
The external auditor is engaged to express an opinion on the Group’s
financial statements. The audit includes the review and testing of the
systems of internal financial control and the data contained in the
financial statements to the extent necessary for expressing an audit
opinion on the truth and fairness of the financial statements.
KPMG LLP (KPMG) has been the Company’s auditor since their
appointment in September 2012. KPMG provides the Committee
with relevant reports, reviews and advice throughout the year,
as set out in their terms of engagement.
In accordance with UK regulations, the Company’s auditor adheres
to a partner rotation policy based on best practice. This was the
fourth year since appointment and is the penultimate year before the
requirement to rotate the Group lead engagement partner.
During the year the performance of the auditor was formally assessed
by the Committee in conjunction with the senior management team.
In making this assessment the Committee focused on the robustness
of the audit, the quality of delivery of audit services and the quality of
the auditor’s staff. The Committee is satisfied that the audit continues
to be effective and provides an appropriate independent challenge of
the Group’s senior management.
Whilst it will continue to review this annually, the Committee does
not plan to carry out another tender process until KPMG have been
auditors for at least five years, as the cost and disruption that would
be caused to the Group’s businesses by an audit tender process
outweighs any benefit to shareholders from a more frequent change.
The Committee has a policy for the use of auditors for non-audit
services. The Committee is responsible for considering the following
prior to engaging the auditors for non-audit work:
–– the scope of the work to be undertaken;
–– whether the skills and experience of the audit firm make it a
suitable supplier of the non-audit service;
–– whether there are safeguards in place to ensure that there is no
threat to objectivity and independence in the conduct of the audit
resulting from the provision of such non-audit services by the
external auditor, the nature of the non-audit services, the related
fee levels and the fee levels individually and in aggregate relative
to the audit fee; and
–– the criteria which govern the compensation of the individuals
performing the audit.
In addition to this, the policy states in detail a number of additional
controls. A full copy of this policy is available on the Stobart Group
website www.stobartgroup.com.
Non-audit fees charged by the auditors in the year were £34,000
compared with an audit fee of £219,000. The non-audit fee relates
to tax advisory work and the half year review.
The objectivity and independence of the auditors has been reviewed
and considered to be safeguarded.
Significant Accounting Matters
As part of their monitoring of the integrity of the financial statements,
the Committee reviews whether suitable accounting policies have
been adopted, whether management has made appropriate
estimates and judgements and also seeks support from the external
auditors to assess them.
The main issues reviewed for the year ended 29 February 2016 are
set out below:
Impairment Testing of Goodwill, Other Intangible Assets,
Property, Plant and Equipment and Inventory
The Committee considered the carrying values of goodwill, other
intangible assets, property, plant and equipment and inventory
together with the assumptions underlying the impairment reviews.
The judgements in relation to the impairment testing largely relate to
the assumptions underlying the value-in-use and net realisable value
calculations for businesses being tested for impairment, primarily
the achievability of long-term business plans and macroeconomic
assumptions underlying the valuation process, together with the
appropriateness of the discount factors used. This is a prime area
of audit focus and accordingly the external auditor provided
detailed reporting to the Committee. The Committee challenged the
assumptions made both by management and by the auditors, by
reference to those used in previous years and to changes in business
performance and outlook. The Committee discussed the sensitivities
to key assumptions. The Committee concluded that no impairment
charges were necessary in the year.
Strategic Report
Governance
Investment Property Valuations
The Group holds a significant value of property, classified as
investment property or held for sale, including new acquisitions
made in the year. The Committee assured itself that appropriate
independent valuations had been obtained for the investment
portfolio and that, where necessary, provisions had been made
against properties held for sale, where it was felt that market
conditions required them.
Related Party Transactions
The Group has transactions with a number of related parties
including its associates and joint ventures. The Eddie Stobart
Logistics transport business remains a significant associate in
the year and there are material transactions with the Group. The
Committee reviewed the appropriateness and the completeness
of the disclosures for the material related party transactions.
Classification of Investments in Subsidiary Undertakings,
Joint Ventures and Associates
The Group holds investments in a number of companies and
a small number of other entities. The Committee reviewed
the accounting treatment of these investments proposed by
management categorised as either subsidiary undertakings, joint
ventures or associates by reference to accounting standards. The
Committee is satisfied that the accounting treatments appropriately
follow the levels of control or influence available to the Group.
Fair, Balanced and Understandable Information
The Committee acknowledges that, taken as a whole, the Annual
Report and Accounts need to be fair, balanced and understandable
in order to provide the information necessary for shareholders to
assess the Group’s position and performance, business model and
strategy. The Committee advises the Board on whether it believes
that the Annual Report and Accounts meet this requirement. In order
for the Committee to make this assessment it considers reports
from management received during the year, monitoring financial
performance, and at the year end in support of the financial
statements, and also reports from external auditors on the
findings of their annual audit. Formal review processes are in place
to ensure that the Annual Report and Accounts are factually accurate.
Following a detailed review, the Committee concluded that the Annual
Report was fair, balanced and understandable and advised the
Board accordingly.
The responsibility statement of the Directors in respect of the Annual
Report is on page 73.
57
2016
Risk Management and Internal Control
The Committee is responsible for reviewing the effectiveness of the
Group’s system of internal control. The system of internal control is
designed to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss.
The Board has established a clear organisational structure with
defined authority levels. The day-to-day running of the Group’s
business is delegated to the Executive Directors of the Company.
The Executive Directors visit all of our operational sites on a regular
basis and meet with both operational and financial management
and staff. The Company has an extensive programme of employee
engagement and communication which enables Executive Directors
to ensure that they have a fully rounded, well informed and robust
view of operations and management on an ongoing basis.
Key financial and operational measures are reported on a weekly
and/or monthly basis and are measured against forecasts that have
been reviewed and approved by the Board. Each business unit
reviews risk and continually updates the risk register, ensuring that
budgetary, strategic and resource capabilities are in place to mitigate
and manage risk.
The Board continually monitors the Group’s risk register, reviewing
in detail the principal risks affecting the Group’s performance. The
risks and uncertainties which are currently judged to have the most
significant impact on the Group’s long-term performance are set out
on pages 8 to 12.
Internal Audit
The Company operated throughout the year without a dedicated
financial internal audit department. However, the Group’s Safety and
Compliance team perform audits against documented processes
and Group finance staff undertake risk-based internal control visits.
Reports summarising the findings and key actions arising from the
reviews are produced for circulation to the Chief Financial Officer
and divisional management. After the year end, the Company has
appointed a firm to act as a dedicated financial internal audit function.
The scope of work over a two-year period has been approved and
the first project began in April 2016.
58
2016
Strategic Report
Governance
Remuneration Report
Remuneration Committee Members
John Garbutt, Chairman
Iain Ferguson CBE, Group Chairman
Andrew Wood, Non-Executive Director
Contents of the Remuneration Report
1.1 Annual Statement by the Remuneration Committee Chairman
1.2 Remuneration Policy Report
1.3 Annual Report on Remuneration
1.1 A
nnual Statement by the Remuneration
Committee Chairman
I am pleased to present our Remuneration Policy and Report for the
year to 29 February 2016.
Following the approval of the Remuneration Policy by shareholders in
October 2014 there have been no changes to the policy in the year,
and the policies have been followed in setting the fixed and variable
remuneration of the Directors during the year. The Remuneration
Policy is set out on pages 59 to 64.
There were no changes in base salaries during the year. The
Remuneration Committee have recently reviewed the Executive
salaries and in line with the Directors’ Remuneration Policy have
made changes to the salaries in line with market median. Andrew
Tinkler has been awarded an increase of 3% and Ben Whawell an
increase of 5% with effect from 1 July 2016. Richard Butcher’s salary
remains unchanged. Further details can be found in the Annual
Report on Remuneration on pages 64 to 70.
The structure of the annual bonus is designed to reward achievement
of the Group’s short-term strategic objectives, which are set to be
relevant for each year, and to reward the ongoing achievement of our
stretching profit goals. As a result, bonuses for 2015/16 and 2016/17
are based 70% on Group EBITDA and 30% on personal/strategic
measures and can be up to a maximum of 100% of salary for all
Executive Directors. As the Chief Financial Officer notes in his
Financial Review on page 35, the Group has recorded a strong
underlying EBITDA performance for the year ended 29 February
2016, 69.8% ahead of the previous year. The Committee has reviewed
the performance of the Group and of the Executive Directors against
the personal/strategic objectives set at the beginning of the year, and
this review has resulted in total payouts to the Executive Directors of
between 87.5% and 96.6% of salary. Further details of the annual
bonus are set out on pages 65 and 66.
During the year, the Executive Directors were granted shares under
the approved 2014 Long-Term Incentive Plan (LTIP) amounting to
150% of their salaries in accordance with the Remuneration Policy.
See page 67 for details of the performance conditions and page 66
for further details of the number of shares awarded. Following review
and discussion, the Committee has determined that Executive
Directors will be granted LTIP awards of 150% of salary for the year
2016/17, subject to the same performance conditions. Further details
of the Long-Term Incentive Plan are set out on pages 66 to 68.
In December 2015, all outstanding shares under the one-off 2011
Long-Term Incentive Plan lapsed as the challenging performance
conditions were not met. Further information is set out on page 68.
During the year the Committee approved the introduction of a Save
As You Earn scheme to allow all employees to choose to grow an
interest in the shares of the Group. This was approved at the AGM in
June 2015 and was introduced in August 2015.
The terms of reference of the Committee have been reviewed and
updated and are available on the Group’s website.
We take an interest in shareholders’ views and hope to receive your
support at the Annual General Meeting where the Chairman of the
Board will be available to respond to any questions shareholders may
have on this report or in relation to any of the Committee’s activities.
John Garbutt
Chairman of the Remuneration Committee
12 May 2016
Strategic Report
Governance
59
2016
1.2 Remuneration Policy Report
Activities During the Year
During the year the Committee met five times and a summary of
the main areas dealt with by the Committee during the year is set
out below:
–– Consideration and approval of the Executives’ bonuses for the
year to 28 February 2015.
–– Consideration and approval of levels of basic salaries
for Executives.
–– Consideration and approval of fees for the Chairman.
–– Consideration and approval of bonus targets for the Executives
for the year to 29 February 2016.
–– Consideration and approval of targets in relation to the LTIP
awards for the year to 29 February 2016.
–– Appointment of remuneration advisors.
–– Annual review of the Group remuneration and expenses policies
including for other staff.
–– Review of the terms of reference of the Remuneration Committee.
–– Review of the Remuneration Report.
–– Consideration of employee Save As You Earn (SAYE) scheme.
Introduction
Although, as a Guernsey registered company, we are not required to
do so, the Remuneration Report has been prepared in accordance
with the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2013, as amended. The Policy has also
been developed taking into account the principles of the UK
Corporate Governance Code 2014 and shareholders’ executive
remuneration guidelines.
With effect from shareholder approval at a General Meeting held on
24 October 2014, this Policy Report sets out the framework for how
the Company’s remuneration strategy will be executed for three years
from 1 November 2014 through to our AGM in 2017, when the
Committee will present a renewed Policy Report to shareholders
for approval.
The remuneration of Non-Executive Directors is determined by the
Group Executive Directors in consultation with the Group Chairman.
The Policy reflects the Group’s objectives for good corporate
governance and is designed to support our business vision and the
implementation of our strategy.
Full terms of reference for the Remuneration Committee, which have
been recently reviewed and updated, are available on the Stobart
Group website www.stobartgroup.com.
Overview
Stobart Group Remuneration Principles, Policy
and Structure
What are Stobart Group Remuneration Principles?
The key principle which underpins our Executive Director
Remuneration Policy is to pay fairly for performance and align senior
executive and shareholder interests.
Following significant changes to the Group structure in early 2014,
it provided the new Remuneration Committee with an opportunity to
review the Directors’ Remuneration Policy and to introduce modern
overall packages for the Executive Directors and formulate
challenging but realistic performance targets that would be
appropriate to the new Group structure.
The Directors’ Remuneration Policy also aims to:
–– Provide a mix of rewards balanced between fixed and variable
pay, and between short and longer-term performance.
–– Take into account the skills and experience of the Directors,
the nature and complexity of their responsibilities, and relevant
comparative market data.
–– Recognise and reward stretching performance.
60
2016
Strategic Report
Governance
Remuneration Report continued
Directors’ Remuneration Policy
Summary of Remuneration Policy for Executive and Non‑Executive Directors
The table below summarises the elements of Executive and Non-Executive Directors’ remuneration. For notes to this table see page 62.
Executive Directors’ Remuneration
Element
Basic salary
(Fixed pay)
Purpose and link to short
and long‑term strategy
Operation, performance
measures and periods
Maximum
opportunity
To ensure the total package
for Executive Directors is
competitive versus the
relevant market.
Salaries are paid monthly in cash, and are subject to
continued good performance.
Salaries will remain around
market median.
To help us attract and retain
executives of suitably high
calibre to execute the Board’s
agreed strategy and lead
the management team.
Fringe benefits
(Fixed pay)
To provide a range of market
competitive benefits to
encourage retention and which
enable an Executive Director
to perform his or her duties.
The Company currently provides fringe benefits such as
standard executive medical cover and death in service
cover. Executives are also entitled to a company car or
cash in lieu.
n/a
Pension
(Fixed pay)
Provides a basic level of
Company contribution, which
employees can supplement
with their contributions.
Company contributions are made, either to a pension plan
or in the form of an equivalent cash allowance taken in the
form of an additional salary supplement of the same value
rather than as pension contributions.
Up to 20% of salary.
Annual bonus
(Variable pay)
Rewards achievement of
short-term strategic objectives
and motivates Executive
Directors to achieve stretching
profit goals.
Performance conditions for annual bonus awards will be
based primarily on a profit measure, initially 70% of basic
salaries on Group EBITDA for Group CEO and other
Group-only roles. For year ends 2015/16 and 2016/17,
all Executive Directors’ bonuses are based 70% on
Group EBITDA.
Up to 100% of salary.
Vesting of the profit element will be nil at or below
threshold performance, increasing on a straight-line basis
between nil and 50% for achievement of target, and on a
straight-line basis between 50% and full vesting for
stretch performance.
The remainder of the award (a maximum of 30% of basic
salaries) will be based on specific, relevant personal/
strategic objectives, set by the Remuneration Committee
prior to the beginning of the financial year.
The Remuneration Committee will retain discretion to claw
back any awards made under the annual bonus in the
event of material misstatement and/or gross misconduct.
Strategic Report
Governance
Element
Long-Term
Incentive Plan
(Variable pay)
61
2016
Purpose and link to short
and long‑term strategy
Operation, performance
measures and periods
Maximum
opportunity
Rewards longer-term value
creation and aligns Executive
Director interests with those of
shareholders through use of
performance shares.
Awards vest subject to the achievement of performance
conditions at the end of a three-year performance period,
based on a combination of relevant performance
measures, which will include both EPS and TSR. These
two measures will initially account for the overall weighting
and be weighted 50% each.
Normal LTIP maximum; face value at
grant of 150% of salary, up to 300%
with maximum 2x multiplier.
Each metric will vest on a straight-line basis between 25%
and 100% between threshold and stretch performance
levels, with nil vesting for performance below threshold.
In exceptional circumstances, as
determined at the discretion of the
Remuneration Committee, awards
may be made up to a face value at
grant of 200% of salary (400% with
maximum 2x multiplier).
Dividends will accrue over the vesting period on shares
that vest.
If all elements of the long-term incentive plan exceed
stretch performance levels for any grant at the end of the
three-year performance measurement period, participants,
i.e. the Executive Directors, will be eligible to receive a
multiplier of the LTIP award based on the following
performance levels:
–– No multiplier if three-year TSR outperforms the FTSE 250
Index by less than 15% p.a.
–– A stepped multiplier between 15% and 40% p.a.
outperformance, rising by 0.167x for each additional
5% p.a. outperformance.
–– A multiplier of 2x (the cap) if three-year TSR outperforms
the FTSE 250 Index by 40% p.a. or more.
The Remuneration Committee will retain discretion to
claw back any vested and/or unvested LTIP awards in the
event of material misstatement and/or gross misconduct.
The Committee has decided to impose an additional
holding period to shares of up to two years, following
the end of the three-year performance period.
Shareholding
requirements
Aligns Executive Director
interests with those of
shareholders.
Executive Directors are expected to build a shareholding equal to 200% of their annual salary
within the later of five years of their appointment to the Board or the introduction of the Directors’
Remuneration Policy.
Non-Executive Directors’ Remuneration
Fees
To remunerate Non-Executive Directors
to reflect their level of responsibility
and anticipated workload.
The Chairman is paid a fee determined by the Remuneration Committee.
Fees for other Non-Executive Directors are determined by the Chairman and the Executive
Directors at a Board Meeting. The fees paid comprise a base fee and additional fees for the
roles of Senior Independent Director, Chairman of the Audit Committee and Chairman of the
Remuneration Committee.
Non-Executive Directors do not have any pension payable in respect of their services, and they
are not entitled to any benefits. Details can be found in the Annual Report on Remuneration.
62
2016
Strategic Report
Governance
Notes to the Policy Table
Differences in the Remuneration Policy Between Executive
Directors and Other Employees
Salaries across the Group are set at appropriate market rates
and reflect the skill, expertise and experience of individual
staff members.
Changes to the Remuneration Policy
As discussed in last year’s Remuneration Report, the Executive
Directors’ Remuneration Policy saw significant changes in 2014.
The changes to the Policy brought remuneration structures
broadly into line with the market for a company of Stobart’s size,
while retaining the capacity to incentivise truly exceptional
performance. The Policy has remained unchanged for year
ended 29 February 2016.
Choice of Performance Measures for the Annual Bonus and
LTIP and Approach to Target Setting
Annual bonus targets are set at the beginning of the financial year.
Profit (EBITDA) is a key indicator of Stobart Group’s short-term
performance. Targets are set in line with budget, while the range
between threshold and stretch performance is considered
annually by the Remuneration Committee in order to ensure that
it represents a stretching but achievable performance range. The
remaining annual bonus is based on specific, relevant personal/
strategic metrics, which are selected by the Remuneration
Committee at the beginning of each financial year and reflect
the most pertinent strategic goals for the year ahead.
Regarding the LTIP, the Remuneration Committee feels that relative
TSR continues to be the best measure of the long-term success of
Stobart Group and that the FTSE 250 total return index remains a
robust and relevant benchmark. Supplementing this with an EPS
measure helps focus management on growing Stobart’s profit in
the following three years and aligns with common market practice
to balance internal and external measures.
In setting targets for relative TSR outperformance of the FTSE 250
Index, the Remuneration Committee aims to align the vesting
schedule of the TSR element of the LTIP with common market
practice, with threshold vesting of 25% of the TSR proportion
initially awarded for median performance (in line with Index),
increasing on a straight-line basis to full vesting initially awarded
for outperformance of the Index by 10% p.a.
When considering the vesting schedule for the LTIP multiplier, the
Remuneration Committee also sets targets which are designed to
be beyond upper quartile for threshold vesting. The application of
the multiplier also does not apply unless the EPS condition is met
in full. Three-year cumulative earnings per share targets are set
based on a range of internal and external forecasts, including
broker forecasts, internal strategic plan, etc. A similar process for
target-setting would be applied in the event that any additional
financial performance metric was included. The Remuneration
Committee may adjust EPS targets during the performance period
if it feels that external factors outside of the control of management,
for example changes in tax regime, accounting rules and so on,
have affected the achievability and hence motivation of those
targets. All long-term incentive targets are set at the beginning
of the three-year performance period.
Approach to Remuneration for New Director Appointments
The remuneration package for the appointment of a new Executive
Director would be set in accordance with the terms and maximum
levels of the approved Remuneration Policy in force at that time.
In addition, the Remuneration Committee may offer additional cash
and/or benefits when it considers these to be in the best interests of
the Company and its shareholders taking into account remuneration
relinquished when leaving their former employer. This would reflect
(as far as possible) the nature and time horizons attached to that
remuneration and the impact of any performance conditions. To
facilitate this, the Remuneration Committee may need to avail itself
of the discretion provided under Listing Rule 9.4.2R. The Company
does not intend to use Listing Rule 9.4.2R for any other purpose.
Shareholders will be informed of any such payments at the time
of appointment.
For an internal appointment, any variable pay element awarded in
respect of the previous role will be honoured, adjusted as relevant
to take into account the appointment.
For the appointment of a new Chairman or Non-Executive Director,
the fee would be set in accordance with the approved
Remuneration Policy in force at that time.
Service Contracts and Loss of Office Payments
The Remuneration Committee’s policy on service contracts is that
they be limited to a maximum notice period of one year. All current
Director contracts comply with this policy.
The Remuneration Committee is also under a duty to ensure
contractual terms on termination, and any payments made, are fair
to the individual and to the Group, that failure is not rewarded, and
that liabilities of the Group are mitigated. If the Group terminates
the employment of an Executive Director without giving the period
of notice required under the contract, the Executive Director would
be entitled to claim recompense for up to one year’s remuneration
as follows:
Notice period
12 months
Remuneration-related provisions Payments in lieu of notice of
salary and benefits including
health cover, a company car or
car allowance, life and health
insurance and pension.
Payments in lieu of notice are
not pensionable.
Change of control
There are no enhanced
provisions on a change
of control.
In some circumstances, the Remuneration Committee may also, at
its discretion, pay a bonus to the Director equivalent to the amount
that they would have been entitled to, pro-rated over the portion of
the year that they were in service.
Strategic Report
Governance
63
2016
Non-Executive Directors are engaged under letters of appointment
that set out their duties and responsibilities. They are appointed for an
initial period of one year, subject to annual shareholder re-election.
Their continued appointment is subject to the requirements of the
Company’s Articles (74) relating to the retirement of Directors
by rotation.
Under the LTIP, the default treatment is that any outstanding
awards will lapse on termination of employment. However, in
certain prescribed ‘good leaver’ circumstances, the awards remain
subject to performance conditions measured to the end of the
performance period, and reduced by reference to the portion of the
period they were employed. The Remuneration Committee retains
discretion to pay Directors’ legal fees for settlement agreements.
The terms and conditions of appointment of Non-Executive
Directors are available for inspection at the Company’s registered
office during normal business hours.
For the purposes of this Policy, the Committee interprets the term
‘good leaver’ to follow normal HMRC guidance which will also allow
them discretion in some circumstances where a Director leaves the
Company for reasons other than those outlined by HMRC but
whose performance merits such award as determined by the
Remuneration Committee.
The Non-Executive Directors’ letters of appointment are dated as
follows: Iain Ferguson: 1 October 2013, Andrew Wood: 1 November
2013, John Garbutt and John Coombs: 1 July 2014.
Reward Scenarios
The chart below gives an indication of the level of remuneration
which could be receivable at different levels of performance under
the Remuneration Policy.
The Executive Directors’ service contracts for Andrew Tinkler, Ben
Whawell and Richard Butcher are dated 21 September 2007.
Service contracts are available for inspection at the Company’s
registered office during normal business hours.
Illustration of Potential Reward Opportunities for the Executive Directors
Ben Whawell (£’000)
Andrew Tinkler (£’000)
Richard Butcher (£’000)
£2,271
£1,622
57%
£1,496
£1,374
40%
£1,070
£919
£541
18%
24%
100%
59%
Minimum
On-Target
Fixed pay
Annual bonus
27%
33%
Maximum
(without multiplier)
19%
£610
£362
17%
23%
26%
19%
24%
100%
60%
34%
Maximum
Minimum
On-Target
(with multiplier)
Long-term incentive plan
Fixed pay
£984
57%
40%
Maximum
Annual bonus
£561
57%
40%
£334
17%
23%
26%
19%
24%
100%
59%
34%
24%
Maximum
Minimum
On-Target
(with multiplier)
Fixed pay
Annual bonus
Maximum
Maximum
(with multiplier)
Assumptions:
Fixed pay = salary + benefits + pension.
Salary levels (on which other elements are calculated) are based on Executive Directors’ salaries as at 1 July 2016.
Benefits as paid for year ended 29 February 2016.
Pensions based on a cash supplement of 20% of salary.
Bonuses based on nil pay out for minimum scenario, 50% of salary for target and 100% of salary for maximum.
Long-term incentive based on nil vesting at minimum, 25% vesting of normal awards of 150% of salary (i.e. 37.5% of salary) for on-target performance, normal opportunity of
150% of salary for maximum scenario without multiplier and normal opportunity of 300% of salary for maximum performance scenario with maximum multiplier.
Note: Where percentages do not sum to 100% in the chart above, this is due to rounding.
64
2016
Strategic Report
Governance
Views of Shareholders
We are committed to engaging appropriately with our shareholders
and our aim is to have an open dialogue with our major shareholders.
Each year there are structured meetings with major shareholders to
review the Company’s performance and financial position. Executive
pay is on the table for discussion at such meetings and we believe
that it is better to do so as part of an overall review that puts pay in the
context of Company overall performance.
Consideration of Others Such as Employees
We have a comprehensive employee engagement and
communication programme where knowledge, ideas and feedback
are shared. Communication is encouraged through various methods
including our divisional employee forums which are led by Executive
Director, Richard Butcher. ‘Stobart Central’ was introduced in January
2016 to improve the engagement of staff and the popular ‘Tink Talk’
monthly messages from Andrew Tinkler, CEO, provide updates to
employees on what’s happening across the business and allows them
to provide feedback on matters of importance to them. Currently there
is no formal consultation with employees on Board remuneration.
Legacy Arrangements
For the avoidance of doubt, this Policy Report includes authority for
the Company to honour any commitments entered into with current
or former Directors that have been disclosed to shareholders in
previous Remuneration Reports. Details of any payments to former
Directors will be set out in the Annual Report on Remuneration as
they arise.
1.3 Annual Report on Remuneration
Remuneration Committee Membership and Advisors
Committee Members
John Garbutt, Chair (appointed 1 July 2014)
Iain Ferguson (appointed 1 October 2013)
Andrew Wood (appointed 1 November 2013)
John Coombs (appointed 1 July 2014)
The above Directors were members of the Remuneration
Committee when matters relating to the Directors’ remuneration for
the year were considered.
During the year, the Committee also invited the following
individuals to attend on certain occasions to provide advice to the
Committee to enable it to make informed decisions:
–– Chief Executive Officer.
–– Chief Financial Officer.
–– Head of HR.
–– Kepler Associates (independent advisors to the Remuneration
Committee).
–– Hill Dickinson.
No individual was present when their own remuneration was
being discussed.
The Company Secretary attended meetings as secretary to
the Committee.
Overview and Role of Committee
The role of the Committee is to determine and recommend to the
Board a fair and responsible remuneration framework for ensuring
that the Company’s Executives are appropriately rewarded and
incentivised for their contribution to Company performance.
The membership of the Remuneration Committee is determined
by the Group Board and is confined to independent Non-Executive
Directors, with the Company Secretary acting as secretary to the
Remuneration Committee. While no others have rights of attendance
or voting, the Remuneration Committee may invite the Chief
Financial Officer, external advisors and others holding key
positions to attend some or all of its meetings.
The Remuneration Committee has responsibility for determining
the terms of service and remuneration for Executive Directors,
senior employees and the Group Chairman. It also reviews the
framework for the remuneration for all other employees.
The Committee conducts an annual review of its terms of reference
and periodically reviews the performance of each of its Committees.
The Remuneration Committee is due to conduct its next
performance evaluation in 2016/17.
Remuneration Committee Activities During the Year
A summary of the main activities of the Committee during the year
is set out on page 59.
All members of the Committee are independent Non-Executive
Directors, as defined under the Corporate Governance Code,
with the exception of the Group Chairman who was independent
on appointment.
Remuneration Committee Attendance for the Year Ending
29 February 2016
Number of
meetings
Meetings
attended
John Garbutt
5
5
John Coombs
5
5
Andrew Wood
5
5
Iain Ferguson
5
5
External Advisors
During the year ended 29 February 2016 the Remuneration
Committee received external legal advice from Hill Dickinson
and specialist remuneration advice in connection with drafting
of the Directors’ Remuneration Report, reviewing market trends
and developments in UK corporate governance, benchmarking
Executive Directors’ remuneration and Non-Executive Directors’
and Chairman fees, and setting short and long-term performance
targets, from Kepler, a brand of Mercer Limited. Kepler was appointed
by the Committee to provide ongoing independent remuneration
advice following a competitive appointment process during the year.
As part of this process the Committee satisfied itself that the advice
that it receives from Kepler is objective and independent. Kepler is a
signatory of the Remuneration Consultants’ Code of Conduct, which
can be found on the Remuneration Consultants Group website at
www.remunerationconsultantsgroup.com. Their fees for the year
ending 29 February 2016 were £15,050. They do not provide other
services to the Group.
65
Strategic Report
Governance
2016
Single Figure of Total Remuneration for Directors
The table below sets out the single figure of total remuneration received by each Director employed by Stobart Group in the years ending
28 February 2015 and 29 February 2016.
Salary & fees
Taxable benefits1
Pensions
Long-term
incentives vesting 3
Bonus 2
Total
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
Andrew Tinkler
420.0
346.7
21.5
21.4
84.0
76.0
405.8
865.2
–
–
931.3 1,309.3
Ben Whawell
270.0
246.7
21.3
24.9
54.0
46.0
253.8
789.2
–
–
599.1 1,106.8
Richard Butcher
(appointed 1 July 2014)
260.0
173.3
21.9
13.3
52.0
34.7
227.5
524.2
–
–
561.4
745.5
150.0
–
–
–
–
–
–
–
–
150.0
150.0
63.7
–
–
–
–
–
–
–
–
70.0
63.7
2015
£’000
Executive Directors
Iain Ferguson
150.0
Andrew Wood
70.0
John Coombs
50.0
33.3
–
–
–
–
–
–
–
–
50.0
33.0
John Garbutt
60.04
40.0
–
–
–
–
–
–
–
–
60.0
40.0
4
1 Andrew Tinkler, Ben Whawell and Richard Butcher opted to take additional salary supplement of £20,000 in lieu of an equivalent car benefit. Healthcare and death in service
is also included as a taxable benefit.
2 Annual bonus payable in cash for performance over the relevant financial period. Further information is set out on pages 65 and 66.
3 The 2011 share awards lapsed during the year as the challenging performance conditions were not met. Further information is set out on page 68.
4 Includes base fee of £50,000 plus additional fees of £10,000 for chairing the Audit (Andrew Wood) and Remuneration (John Garbutt) Committees and fulfilling the role of
Senior Independent Director (Andrew Wood).
Salary
The salaries for the Executive Directors which became effective
1 July 2014 are as follows: Group CEO £420,000; Group Chief
Financial Officer £270,000; and Group Executive Director and
CEO, Energy and Infrastructure £260,000. As mentioned in the
Chairman’s Statement, with effect from 1 July 2016 Andrew Tinkler
will be awarded a salary increase of 3% equating to an annual
salary of £432,600. Ben Whawell will be awarded an increase of 5%
from 1 July 2016 equating to an annual salary of £283,500. Richard
Butcher’s salary will remain at £260,000. Following a review by the
Remuneration Committee and input from our remuneration
advisors, the new salaries were considered appropriate for the size
of the Group and to keep salaries in line with market median.
The Remuneration Committee will review Executive Directors’
salaries annually to ensure that they remain appropriate and
commensurate with equivalent roles at companies of a similar
size and industry sectors. Any salary increases will take account
of general increases throughout the wider workforce.
Benefits
The Company currently provides fringe benefits of standard
executive medical cover and death in service cover to Executive
Directors. Executives are also entitled to a company car of a
size and type deemed appropriate for the proper performance of
their duties. During this period, the Executives opted to take an
additional salary supplement of £20,000 in lieu of an equivalent car
benefit. The Group does not envisage any adjustments to benefits
for the financial year ending 28 February 2017, except as necessary
to reflect the market cost of providing the benefits described.
Pension
For the financial year ending 29 February 2016, Andrew Tinkler
opted to receive a cash supplement in lieu of pension. Company
contributions to a pension plan remained at 20% of salary for the
Executive Directors for 2015/16. No changes in pension are
proposed for 2016/17.
Annual Bonuses
Prior to the introduction of the new policy on annual bonuses
at the General Meeting in October 2014, short-term incentive
arrangements provided for unlimited bonuses to be paid for
exceptional individual performance, as determined at the discretion
of the Remuneration Committee. Discretionary bonuses were paid
to Executive Directors for the period prior to 1 November 2014,
full details of which are provided in the 2014/15 Annual Report on
Remuneration. From 1 November 2014 annual bonuses have been
awarded under a new, more conventional, Remuneration Policy
based 70% on Group EBITDA and 30% on personal/strategic
objectives and can be up to a maximum of 100% of salary for all
Executive Directors.
It is the intention of the Committee, for reasons of commercial
sensitivity, to disclose actual targets for the annual bonus in the
Annual Report on Remuneration for the year in which the bonus
is actually paid (i.e. after one full year), subject to the Committee
being satisfied that the information is no longer commercially
sensitive at this time. Therefore, set out overleaf are the actual
targets for the 2014/15 annual bonus, performance against targets
for the 2015/16 annual bonus and the relevant performance
conditions for the 2016/17 annual bonus.
66
2016
Strategic Report
Governance
For the annual bonus for the period from 1 November 2014 to 28 February 2015, Group EBITDA performance was measured against
targets for 2014/15 based on the following sliding scale:
Group EBITDA
% of Group EBITDA element payable
Threshold
Target
Stretch
£15.3m
£16.1m
£18.5m
0%
50%
100%
The actual adjusted EBITDA for the period was £17.1m, which was between target and stretch, resulting in bonus payments to each
Executive Director of 50% of their maximum opportunity.
The remaining 30% of the annual bonus opportunity was based on specific personal/strategic objectives set by the Remuneration
Committee, which included:
Achievement
against
targets
Executive Director
Personal/strategic objectives for 2014/15
Andrew Tinkler
Complete partial disposal of Transport and Distribution business and pay down debt; finalise
Group structure and individual divisional strategies; work with the Board to create the Investor
Relations (IR) proposal and Group IR strategy.
87.5%
Ben Whawell
Separation of Transport and Distribution business; implementation of new debt structure to deliver
strategic plan; restructure London Southend Airport and establish a platform for growth; deliver
new airline volume into London Southend Airport.
87.5%
Contract future biomass supply of 2m tonnes by 2017/18; disposal of identified assets to support
dividend; delivery of EBITDA target for energy and infrastructure; restructure of Energy Supply and
Energy Transport businesses.
87.5%
Richard Butcher
All three Executive Directors received 26.3% of their maximum opportunity for this element of the bonus. This resulted in each Director
receiving a total bonus payment of 76.3% of their basic salary for the period from 1 November 2014 to 28 February 2015.
For annual bonuses paid for the full 2015/16 financial year, performance targets for the 70% of the annual bonus determined by Group
EBITDA were set on a sliding scale with no bonus paid for achieving threshold performance, increasing on a straight-line basis to 50% of
the EBITDA element for achieving target and 100% for stretch. As discussed above, actual targets for 2015/16 bonuses are commercially
sensitive at this time and will be disclosed, subject to them no longer being commercially sensitive, in next year’s Annual Report on
Remuneration. Actual Group EBITDA performance was above stretch, resulting in bonus payments to each Executive Director of 70%
of salary.
The remaining 30% of the bonus opportunity was based on specific personal/strategic objectives set by the Remuneration Committee,
concerning their key responsibilities in connection with delivering the Group’s strategy. Achievement of these personal/strategic
objectives resulted in bonus payments of 26.6% of salary for Andrew Tinkler, 24% of salary for Ben Whawell and 17.5% of salary for
Richard Butcher. This resulted in overall bonus payments of 96.6% of salary for Andrew Tinkler, 94.0% of salary for Ben Whawell and
87.5% of salary for Richard Butcher.
Annual bonuses for Executive Directors for 2016/17 will again be based 70% on Group EBITDA and 30% on personal/strategic objectives.
Specific performance measures will be disclosed in the Annual Report on Remuneration following the year in which these annual
bonuses are paid, subject to them no longer being commercially sensitive at that time.
Long-Term Incentive Schemes
During the year ended 29 February 2016, Executive Directors were awarded a grant of performance shares under the 2014 Long-Term
Incentive Plan, with a face value equal to a maximum opportunity of 150% of salary calculated based on the average share price for the
three days preceding the grant date of 112.33p, as set out in the table below.
Scheme interests awarded during the financial year:
Executive Director
Type of award
Date of award
Number
of shares
awarded
Andrew Tinkler
2014 LTIP
6 November 2015
560,831
Ben Whawell
2014 LTIP
6 November 2015
360,534
£405,000
28 February 2018
Richard Butcher
2014 LTIP
6 November 2015
347,181
£390,000
28 February 2018
Face
value
End of the
performance period
£630,000
28 February 2018
67
Strategic Report
Governance
For these awards, cumulative EPS threshold and stretch targets
were set at 23.5p and 27.5p respectively. Relative TSR targets,
for the purpose of both the TSR element and the multiplier, are
in accordance with the Remuneration Policy (and illustrated
below). Both performance measures will be measured over
the period from 1 March 2015 to 28 February 2018 (covering
three full financial years). These awards will vest after the third
anniversary of the date of grant on 6 November 2018.
For the financial year ending 28 February 2017, the Committee
intends to make grants of 150% of salary to each of the
Executive Directors. These awards will vest following the end
of the three-year performance measurement period, which will
run from 1 March 2016 to 28 February 2019, in accordance
with the rules of the new LTIP as set out in the Remuneration
Policy. EPS and TSR performance conditions will remain equally
weighted and cumulative EPS threshold and stretch targets
will be set at 20.0p and 28.0p respectively. These awards may
be subject to a multiplier of up to 2x their LTIP grant if both of
these performance conditions are met and, in addition, truly
exceptional (in excess of upper quartile) outperformance of
the FTSE 250 Index is achieved. If three-year TSR outperforms
the FTSE 250 Index by less than 15% p.a. no multiplier will be
applied. A stepped multiplier will be applied between 15% and
40% p.a. outperformance, rising by 0.167x for each additional
5% p.a. outperformance. A multiplier of 2x (the cap) if three-year
TSR outperforms the FTSE 250 Index by 40% p.a. or more.
2016
Relative TSR-Based Awards (50% of an award)
% vesting
100%
25%
0%
Index
Index +10% p.a.
Stobart Group’s three-year TSR % outperformance
of the FTSE 250 Index (p.a.)
Multiplier
Multiplier on LTIP Award
2.00x
1.83x
1.67x
1.50x
Illustrations of LTIP Vesting Schedules
1.33x
EPS-Based Awards (50% of an award)
1.17x
% vesting
1.00x
100%
+20%
+25%
+30%
+35%
+40%
Stobart Group’s three-year TSR % outperformance
of the FTSE 250 Index (p.a.)
25%
0%
+15%
Threshold
Stretch
Stobart Group’s three-year cumulative EPS
Non-Executive Directors’ Fees
During the financial year ending 29 February 2016, the base fee for
Non-Executive Directors remained the same at £50,000 p.a. A fee
of £10,000 is paid for chairing a Board Committee or fulfilling the
role of Senior Independent Director. For the role of Group
Chairman, a fee of £150,000 p.a. is paid.
For the financial year ending 28 February 2017, it is not anticipated
that any changes will be made to Non-Executive Director or Group
Chairman fees.
68
2016
Strategic Report
Governance
Outstanding Share Awards
The table below sets out details of Directors’ outstanding share awards including those interests awarded during the financial year.
Number
of shares at
1 March 2015
Granted
during the
year
Vested
during
the year
Lapsed during
the year
7 Dec
2011
£1.20
16,335,088
–
–
16,335,088
2014 LTIP
1 Nov
2014
99.25p
211,943
–
–
–
211,943
3 years
1 Nov 2017
2014 LTIP
6 Nov
2015
£1.09
–
560,831
–
–
560,831
3 years
6 Nov 2018
16,547,031
560,831
–
16,335,088
772,774
– 3–4 years
Lapsed
Type of award
Executive Directors
Andrew Tinkler 2011 LTIP
Ben Whawell
Number of
shares at
29 February
2016
Market price
on date of
award
Date
of award
Performance
period
Vesting/
lapse date1
– 3–4 years
Lapsed
2011 LTIP
7 Dec
2011
£1.20
2,000,000
–
–
2,000,000
2014 LTIP
1 Nov
2014
99.25p
136,249
–
–
–
136,249
3 years
1 Nov 2017
2014 LTIP
6 Nov
2015
£1.09
–
360,534
–
–
360,534
3 years
6 Nov 2018
2,136,249
360,534
–
2,000,000
496,783
– 3–4 years
Lapsed
Richard Butcher 2011 LTIP
7 Dec
2011
£1.20
2,000,000
–
–
2,000,000
2014 LTIP
1 Nov
2014
99.25p
131,203
–
–
–
131,203
3 years
1 Nov 2017
2014 LTIP
6 Nov
2015
£1.09
–
347,181
–
–
347,181
3 years
6 Nov 2018
2,131,203
347,181
–
2,000,000
478,384
1 The vesting date may be a short period after the end of term date to allow any consideration and discretion by the Remuneration Committee as well as administrative matters
to take place.
2011 LTIP Scheme
Some Executive Directors retained shares under the previous incentive plan, which was approved by shareholders in 2011 and intended to
operate on a one-off basis and to reward Executive Directors for top quartile performance only, with vesting starting at approximately upper
quartile performance against the FTSE 250. Awards were made on 7 December 2011 in the form of nil-cost options as detailed in the table
above. These options were eligible to vest based on the percentage by which the Group TSR exceeds the FTSE 250 Index TSR according to
the performance percentages set out below and were measured at the end of each month in the fourth year after the date of grant, i.e. monthly
from 7 December 2014 to 7 December 2015. The Group TSR performance for this award was based on a starting share price of 155p.
Group TSR exceeds the FTSE 250 Index TSR by the following percentage
Proportion of options vesting
Less than 40%
Nil
40% or more but less than 64%
25%
50%
75%
120% or more
100%
These options lapsed in December 2015 as performance conditions were not met. No options vested and no awards were made under
the 2011 LTIP Scheme.
Directors’ Shareholding and Share Interests
Details of the Directors’ interests in shares are shown in the table opposite. There is now a formal shareholding requirement whereby
Executive Directors are expected to hold shares to the value of 200% of their salary, to be achieved within five years of the later of their
appointment to the Board or the introduction of the Directors’ Remuneration Policy on 24 October 2014. Based on the share price at
29 February 2016, Andrew Tinkler has satisfied this requirement. Ben Whawell and Richard Butcher are still to meet the requirement,
but have adequate time within the Policy.
69
Strategic Report
Governance
Share Interests of Directors and Connected Persons at 29 February 2016
Beneficially
owned
2016
Outstanding under
share award
arrangements1
Total
interest
in shares
Executive Directors
28,476,811
772,774
29,249,585
Ben Whawell
Andrew Tinkler
305,884
496,783
802,667
Richard Butcher
240,173
478,384
718,557
Iain Ferguson
200,000
–
200,000
Andrew Wood
34,500
–
34,500
John Coombs
52,208
–
52,208
John Garbutt
25,000
–
25,000
1 Executive Directors’ outstanding shares are held under the 2014 Long-Term Incentive Scheme and are subject to performance conditions as set out in principal in the
Remuneration Policy above, and in detail for each grant in the Annual Report on Remuneration for the year of grant.
Percentage Change in the Remuneration of the Chief Executive Officer
Comparable group of all employees
Salary
Benefits
Bonus
+21.1%
+0.5%
–53.1%
+5.7%
+25.8%
+2.8%
The above table shows the percentage year-on-year change in salary, benefits and bonus earned between the year ended 28 February
2015 and the year ended 29 February 2016 for the Chief Executive Officer compared to the change for all employees, based on a
consistent employee population, i.e. excluding leavers and joiners.
There was no change in the Chief Executive Officer’s salary during the year. During the period ending 28 February 2015, the CEO’s
salary was increased from the level at which it had been frozen since May 2011 (£200,000), a level which fell well below lower quartile
for comparable roles at equivalent companies. His new salary (£420,000) was around median for comparable roles and became effective
1 July 2014. This was part of a package of changes to bring Stobart pay practices into line with market norms.
Payments for Loss of Office
There were no payments in relation to loss of office during the period.
Payments to Previous Directors
There were no payments in relation to previous Directors for the period.
Performance Chart
The chart below shows the Group’s TSR performance (with dividends reinvested) against the performance of the relevant indices for
the last seven years. FTSE 250 is the index used for TSR performance condition in the LTIP and FTSE SmallCap is the index of which
Stobart is currently a member.
Stobart Group
400
FTSE 250 (excl. Investment Trusts)
FTSE SmallCap (excl. Investment Trusts)
350
300
250
200
150
100
28 Feb
2009
28 Feb
2010
28 Feb
2011
29 Feb
2012
28 Feb
2013
28 Feb
2014
28 Feb
2015
The chart shows the value, by 29 February 2016, of £100 invested in Stobart Group on 28 February 2009 compared with the value of £100 invested in the FTSE 250 Index
(excluding Investment Trusts) and the FTSE SmallCap (excluding Investments Trusts). The other points plotted are the values at intervening financial year ends.
29 Feb
2016
70
2016
Strategic Report
Governance
The table below shows the total remuneration figure for the Chief Executive Officer from 28 February 2010 to 29 February 2016. The total
remuneration figure includes the annual bonus and any long-term incentives which vested based on performance in those years.
For the year ending 28 February
Chief Executive
2009/10
2010/11
2011/12
2012/13
2013/14
CEO’s total single figure of remuneration £’000
220.5
183.2
253.6
259.9
251.2
Bonus paid % of maximum
–
–
–
–
LTIP vesting % of maximum
–
–
–
–
2014/15
2015/16
1,309.311
931.3
–
76.3%
96.6%
–
–
–
1 CEO’s total single figure of remuneration in the prior year includes discretionary bonuses of £758,246 and £107,000 paid under the new remuneration policy introduced
during 2014/15. Bonus paid as a percentage of maximum is based on the percentage of maximum paid under the new remuneration policy.
Relative Importance of Spend on Pay
The table below shows the relative movements in profits, total staff costs and dividends to shareholders, year-on-year.
2016
2015
% change
Remuneration paid to or receivable by all employees of the Group (including Directors)
£33.1m
£30.2m
+9.6%
Distributions to shareholders
£19.7m
£19.8m
-0.5%
Headcount was included in this table last year to assist in explaining the change in remuneration arising from the partial realisation of
the Transport and Distribution division in April 2014 and has been removed as an item in the table for this year as this explanation is no
longer relevant.
Statement of Shareholder Voting
At last year’s AGM on 25 June 2015, the Directors’ Remuneration Report received the votes listed in the table below. The Directors’
Remuneration Policy was approved at the General Meeting on 24 October 2014, votes received were as listed below.
Item for approval
Votes for
(% total votes cast)
Votes against
(% total votes cast)
Votes withheld
25 June 2015
Approval of the Directors’
Remuneration Report
84.75%
15.25%
101,739
24 October 2014
Approval of the Directors’
Remuneration Policy
86.96%
13.04%
2,883,537
Date of General Meeting
Approval
The Directors’ Remuneration Report, including both the Directors’ Remuneration Policy and the Annual Report on Remuneration,
have been approved by the Board of Directors.
Signed on behalf of the Board of Directors.
John Garbutt
12 May 2016
Strategic Report
Governance
71
2016
Directors’ Report
Principal Activities
Stobart Group is one of the UK’s leading infrastructure and support
service businesses operating in the biomass energy, aviation and
railway maintenance sectors as well as having investments in a
national property and logistics portfolio.
Emissions
While not compulsory, as best practice Stobart Group reports
on emissions of greenhouse gases (GHG) as required under the
Companies Act 2006 (Strategic and Directors’ Reports Regulations
2013). The organisational boundaries for Group emissions data has
been adopted and prepared using an operational control approach
in line with statutory requirements and voluntary guidance issued
by both DEFRA and The Greenhouse Gas Protocol. Under this
framework, the Company is considered to be responsible for all
emissions and resources consumed during day-to-day operations
in control of the business. This is consistent with the structure of
the Company’s consolidated financial statements. Stobart Group
emissions data is shown in the table below. This includes both
absolute and intensity tonnes of CO2e, with a financial intensity
measure based on tonnes per £m revenue. Total Group CO2
emissions for the year to 29 February 2016 were 29,769 tonnes CO2e.
A carbon dioxide equivalent figure is displayed (CO2e) to represent
the six Kyoto-defined GHGs. The emissions represented here
comprise data for Stobart Group and do not include the Group’s
former Transport and Distribution division figures.
CO2 Emissions
CO 2 e 2016 (tonnes)
Group Total
Scope 1
Scope 2
26,313
3,456
Tonnes per £m Revenue
206.6
Data has been generated utilising emissions conversion factors supplied by Defra
(2015) for all capture periods above.
For further information on environmental reporting and carbon
emissions please refer to pages 46 and 47.
Stobart People
Stobart Group recognises that our people are key to the continued
success of our business. Through our people strategy we aim
for employees to feel motivated and engaged in their job roles
and are given equal opportunities to reach their full potential
regardless of their race, sex, religion, belief, age, sexual orientation
or disability. As a company we are fully compliant with the Disability
Discrimination Act 1995 and this is demonstrated through the
implementation of our Equality and Diversity Policy which can be
viewed at www.stobartgroup.com. The Company is committed to
actively opposing all forms of unlawful discrimination. We therefore
encourage full contribution from our diverse community.
Should any employees become disabled whilst in our employment
they will be assessed and reasonable adjustments will be made
to ensure that their employment and subsequent training can
continue. Where an employee is unable to continue the duties of
their role the Company will look to reallocate to a suitable position
within the Company. As a company we are also committed to
ensuring that our employees have a healthy work-life balance
and to assist with this we have our family-friendly policies and
procedures formed around flexible working, capability, maternity,
paternity leave and the new shared parental leave.
Stobart Group recognises that two-way communication is key
to the successful growth of our business and the continued
engagement of our employees. We have a number of initiatives
which facilitate and encourage this open communication. Our
employee forums, introduced in January 2015, are chaired by
divisional senior managers and provide employee representatives
with updates on business performance, strategy and plans and
they also allow them to voice their feedback, ideas, suggestions
and questions from the wider team that they represent. On the first
Friday of each month, every employee receives a monthly email
from our CEO, Andrew Tinkler, which provides our people with
regular updates on how each area of the business is performing
and any business updates. In addition, we have recently launched
our new employee portal, Stobart Central. This portal provides
our employees with up-to-date news and information and also
allows them to provide feedback on matters of importance to
them. As this is a web-based portal, it can be accessed anywhere,
anytime, making it even more user-friendly for our high number
of remote employees.
For further details regarding ‘Our People’ please refer to pages
40 to 44.
In order to further enhance and encourage the engagement of
our employees in the Company’s performance, Stobart Group has
introduced a Save As You Earn employee share scheme. This is a
three-year scheme and offers the full 20% discount from the share
price at the time the options were awarded.
Financial Instruments
The financial risk management objectives and policies of the Group
and Company, along with the exposure to credit risk, interest rate
risk and liquidity risk, are set out in note 23.
Results and Dividends
The financial statements set out the results of the Group for the
year ended 29 February 2016 and are shown on pages 77 to 82.
An interim dividend of 2.0p per share was paid on 4 December
2015. Subject to shareholders’ approval at the AGM to be held
on Thursday 30 June 2016 at 10.30am, at the St Pierre Park Hotel,
Rohais, St Peter Port, Guernsey, GY1 1FD, a final dividend of
4.0p per share will be paid on 8 July 2016 to shareholders on the
register at 17 June 2016. The ex-dividend date is 16 June 2016.
72
2016
Strategic Report
Governance
Directors’ Report continued
Directors
Biographies of the Board of Directors are shown on pages 48 to 49.
There have been no changes to the Board during the year.
On 15 December 2015, Kate Willard stood down from her role as
Company Secretary and Richard Laycock, Group Finance Director,
was appointed as Company Secretary.
Directors’ and Officers’ Insurance
The Group maintains an appropriate level of Directors’ and
Officers’ insurance whereby Directors are indemnified against
liabilities to third parties to the extent permitted by Guernsey
Company Law.
Directors’ Responsibilities
The Directors are responsible for preparing the annual financial
statements in accordance with applicable Guernsey Law and
International Financial Reporting Standards applicable in the EU.
Our Guernsey registration dates back to January 2002, the days
of the Westbury Property Fund. We have looked at options to
reregister in the UK and have found it to be too complicated and
costly to enact at this time. Guernsey Company Law requires the
Directors to prepare financial statements for each financial period
which give a true and fair view of the state of affairs of the Group
and of the profit or loss of the Group for that period and are in
accordance with applicable laws.
In preparing those financial statements the Directors are required
to:
–– Select suitable accounting policies and apply them consistently.
–– Make judgements and estimates that are reasonable
and prudent.
–– Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
–– State whether applicable accounting standards have been
followed subject to any material departures disclosed and
explained in the financial statements.
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 (Guernsey) Law 2008.
They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention of fraud
and other irregularities.
The Board and senior Executives of the Group are accountable to
the shareholders and communicate with them on a regular basis in
a number of ways. Communication methods and channels include:
–– Annual general and extraordinary meetings.
–– Announcements on the London Stock Exchange.
–– Regular briefings on the Group’s website.
–– Bi-annual presentations to institutional shareholders.
Directors’ Interests in Shares
The Directors and their immediate families had the following
beneficial interests as at 29 February 2016 and 15 April 2016 in the
Group’s ordinary shares.
Number of ordinary shares:
Director
Andrew Tinkler
Ben Whawell
Richard Butcher
Iain Ferguson
Andrew Wood
John Coombs
John Garbutt
29 February 2016
15 April 2016
28,476,811
305,884
240,173
200,000
34,500
52,208
25,000
28,476,811
305,884
240,173
200,000
34,500
52,208
25,000
The individual interests of the Directors in share awards under the
2014 Long-Term Incentive Plan are shown below with further details
to be found in the Remuneration Report on pages 58 to 70.
Number of
shares
Director
Andrew Tinkler
Ben Whawell
Richard Butcher
772,774
496,783
478,384
Substantial Shareholdings
At 29 February 2016 and 15 April 2016, the Directors were aware
that the following shareholders owned 3% or more of the issued
ordinary shares of the Group.
Substantial shareholdings, excluding treasury shares were:
Name
Number of
ordinary shares
29 February 2016
%
Invesco Perpetual
Asset Management
97,153,248 28.22
M&G Investment
Management
36,610,648 10.63
Woodford Investment
Management
33,066,532 9.60
Mr WA Tinkler
28,476,811 8.27
Mr AW Jenkinson
17,694,647
5.14
Miton Asset
Management
10,260,085 2.98
Number of
ordinary shares
15 April 2016
%
97,153,248 28.22
36,183,207
10.51
34,983,171
28,476,811
17,694,647
10.16
8.27
5.14
10,866,304
3.16
Share Capital
Details of the authorised and issued share capital and reserves
of the Group are shown in note 28 to the financial statements. The
share capital of Stobart Group Limited at the year end was made
up of 354,328,831 ordinary shares of 10p. The ordinary shares are
listed on the London Stock Exchange. On 16 December 2015,
the Group sold 16,396,300 treasury shares at 110p per share.
At 29 February 2016 the Group held 10,006,700 treasury shares.
Strategic Report
Governance
Going Concern
The Group’s business activities, together with factors likely to affect
its future performance and position, are set out in the Strategic
Report on pages 1 to 47 and the financial position of the Group,
its cash flows and funding are set out in the Financial Review on
pages 35 to 37.
In addition, note 23 to the financial statements includes details
of the Group’s loans and borrowings at the year end together
with the Group’s objectives, policies and processes for managing
its capital, its financial risk management objectives, details of its
financial instruments and its exposure to credit risk and liquidity
risk. The Group actively manages its short and long-term funding
requirements through various forecasting procedures (see note 23).
The Group has considerable financial resources, significant
property assets, and contracts with a number of customers and
suppliers. The financial forecasts show that borrowing facilities are
adequate such that the Group can operate within these facilities
and meet its obligations when they fall due for the foreseeable
future. As a consequence, the Directors believe that the Group is
well placed to manage its business risks successfully. After making
enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for at least 12 months. Accordingly, the financial statements have
been prepared on a going concern basis.
Responsibility Statement of the Directors in Respect of the
Annual Report and Group Financial Statements
The Directors confirm to the best of their knowledge that:
–– The financial statements, prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted
by the EU, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group.
–– The Annual Report includes a fair view of the development and
performance of the business and the position of the Group and
the undertakings included in the consolidation taken as a whole,
together with a description of the principle risks and
uncertainties that the Group faces.
–– The Directors consider the Annual Report and Accounts, taken
as a whole to be fair, balanced and understandable and contain
the information necessary for shareholders to assess and
provide the Group’s position and performance, business model
and strategy.
–– A robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency and liquidity has taken place.
73
2016
Auditor
Resolutions to reappoint KPMG LLP as auditor of the Company
and for the approval of their remuneration are to be proposed at
the 2016 AGM.
The Directors who held office at the date of the approval of
this Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Group’s auditor is
unaware; and each Director has taken all the steps that he ought to
have taken as Director to make himself aware of any relevant audit
information and establish that the Group’s auditor is aware of
that information.
By order of the Board.
Richard Laycock
Company Secretary
12 May 2016
74
2016
Strategic Report
Governance
Independent Auditor’s Report
To the Members of Stobart Group Limited only
Opinions and conclusions arising from our audit
1. Our opinion on the Group financial statements is unmodified
We have audited the Group financial statements (the ‘financial
statements’) of Stobart Group Limited (the ‘Company’) for the year
ended 29 February 2016 which comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated Statement of Financial Position, the Consolidated
Statement of Changes in Equity, the Consolidated Statement of Cash
Flows and the related notes.
In our opinion the Group financial statements:
–– give a true and fair view, in accordance with International Financial
Reporting Standards as adopted by the European Union, of the
state of the Group’s affairs as at 29 February 2016 and of its profit
for the year then ended; and
–– comply with the Companies (Guernsey) Law 2008.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the
risks of material misstatements that had the greatest effect on our
audit, in descending order of audit significance, were as follows:
Impairment of goodwill (£59.0m), intangible assets (£53.3m) and
property plant and equipment (‘PPE’) (£218.0m).
Refer to page 55 (Audit Committee Report), page 85 (Accounting
Policy) and pages 96 and 100 (Financial Disclosures).
The Risk: The Group’s assets include a significant amount of
goodwill, intangible assets and PPE, including £149.4m in relation to
London Southend Airport (LSA). The key operating businesses, Energy
and Aviation, are both at an early stage in their trading lifecycle and the
valuation of the non-current assets held by these businesses depends
on the Group’s ability to achieve trading forecasts which include high
levels of revenue and profit growth.
If the businesses do not meet these forecasts there is a risk that the
current carrying value of the cash generating units (CGUs) in which
these assets are included will exceed their recoverable amount and
therefore an impairment will be required.
The recoverable amount for each CGU requires the Directors to make
judgements over certain key inputs in the discounted future cash flow
models, in particular:
–– Passenger numbers and income per passenger at LSA;
–– Contract profitability within the Energy business; and
–– External revenue within the Rail business.
In addition, the Group’s market capitalisation at the year-end date was
materially below the net asset value attributable to shareholders, which
may provide an indication of impairment.
Due to the high level of judgement involved, and the significant
carrying value of the Group’s non-current assets, this is the most
significant area which our audit is focussed on. In our view, this risk has
remained at a similar level to the prior year, principally as the Group
continues to forecast significant growth at LSA.
Our Response: Our audit procedures included evaluation of the
Group’s budgeting procedures (upon which forecasts are based) and
detailed testing of the principles, integrity and accuracy of calculation
within the Group’s discounted future cash flow models. We assessed
inputs in the calculations and discount rates by reference to Board
approved divisional forecast models, data external to the Group
and our own views developed through our knowledge of the Group.
We analysed the sensitivity of the cash flow models by changing the
key assumptions to understand the impact of such changes on levels
of headroom.
In addition, we utilised our own valuation specialists to estimate
discount rates, based on their view of appropriate inputs and forecast
risk, in order to assess the reasonableness of those applied by the
Group in their calculations. We also reviewed the historical accuracy of
forecasts by comparing the actual results for the year with the original
forecasts, taking these observations into account in the sensitivity
analysis performed.
We considered the adequacy of the Group’s disclosures in respect of
impairment testing, and whether disclosures in relation to the sensitivity
of the outcome of the impairment assessment to changes in key
assumptions properly reflected the risks inherent in the valuations.
Property Related Risks
Risk 1 – Classification and valuation of investment property
(£47.0m), own-use properties (£169.3m), assets classified as held
for sale (£5.4m) and inventory (£44.4m):
Refer to page 55 (Audit Committee Report), page 88 (Accounting
Policy) and pages 95, 99 and 101 (Financial Disclosures).
The Risk: The Group has a significant property portfolio and the
classification of properties as own use, investment property, held for
sale (HFS) or inventory is based on how the property is initially, and
subsequently, used and intentions for future use or disposal, which
can change periodically, leading to a risk that properties may not
be appropriately classified. The classification of property has a
consequential effect on the required accounting basis: own-use
properties are depreciated, HFS properties are written down to fair
value less costs to sell, investment properties are marked to fair value
and property held as inventory is carried at the lower of cost and net
realisable value.
Further, the valuation of investment property, HFS properties and
inventory requires significant judgement and estimation around market
pricing, demand and timing of development for disposal.
Due to the significant carrying amount of these properties, this is one
of the key areas that our audit is concentrated on. In our view, the risk in
this area has reduced during the year due to the reduction in the value
of the Group’s estate as it continues its strategy of disposals.
Our Response: Our audit procedures included cross comparison
of own-use records against rental income by property, obtaining
evidence of marketing of properties held for sale, observing
evidence of development for sale of properties held as inventory
and comparison of the classification of individual properties
with the minutes of the Group’s Property Operating Board.
Investment property was subject to an independent valuation by
an external valuer. We evaluated the competence, capabilities and
objectivity of this external valuer. We utilised our real estate specialists
to challenge the appropriateness of the assumptions and valuation
methods used by the Directors and by the external valuer, comparing
the Group’s assumptions to externally derived data as well as to our
own assessment in relation to yield rates, on a geographical basis as
well as on a property type basis. In particular, we considered the
Strategic Report
Governance
valuation of the Speke property, where a significant uplift was
recognised, with reference to the lease and option terms agreed with
Ford post year-end as well as the status of these negotiations at the
balance sheet date.
For the property classified as HFS we compared the carrying amount
to the value at which the property is currently being marketed for sale.
For properties classified as inventory (Carlisle Airport and Westlink
development land), the net realisable value is based on the intended
development and future sale of these properties. We used our own real
estate specialists to challenge the assumptions for the amounts and
timing of forecast capital expenditure and sales proceeds, including
the level of rental income and exit yields underlying the calculation of
the sales proceeds. In addition, we assessed the sensitivity of these
forecasts to changes in the timing of forecast cash flows.
We have considered the adequacy of the Group’s disclosures in
respect of the classification and carrying value of investment property,
HFS properties and inventory to confirm that the key judgements
taken in arriving at the appropriate classification and valuation are
adequately disclosed.
Risk 2 – Classification of Sale and Leaseback Transactions
Refer to page 89 (Accounting policy).
The Risk: The Group has undertaken a sale and leaseback
transaction during the year, which has been accounted as a sale
generating a profit of £1.9m. It is inherently judgemental as to whether
the lease is an operating lease or a finance lease, if an operating lease,
whether the sales proceeds and subsequent lease rental payments
represent market value (if not then adjustments to the profit on sale and
the ongoing rentals would be required). Accordingly there is a risk that
this transaction is incorrectly accounted for.
Our Response: Our audit procedures included examination of the
legal agreements to determine the key terms of the transaction and
assessing these against the accounting requirements for an operating
lease, in particular whether the lease transferred ownership or contains
any purchase options, the length of the lease relative to the property’s
economic useful life and the present value of minimum lease payments
compared with the fair value of the property. Using our real estate
specialists, we critically assessed the Group’s assessment of whether
the sales proceeds and the subsequent lease rental payments were
consistent with market values, as evidenced by similar transactions.
We also considered the adequacy of the Group’s disclosures in
respect of the sale and leaseback transaction.
Classification and valuation of Investments in Subsidiaries,
Joint Ventures and Associates (£62.7m)
Refer to page 57 (Audit Committee Report), pages 88 and 89
(Accounting Policy) and pages 97 and 99 (Financial Disclosures).
The Risk: The Group holds investments in a number of investees.
The risk of inappropriate classification of an investment as a subsidiary,
joint venture or associate, both on acquisition or in subsequent reporting
periods, can have a material effect and involves judgement as to
whether the Group controls the investee particularly where the Group’s
ownership interest is not a decisive factor. The risk of inappropriate
valuation of investments in associates and joint ventures arises as the
Group’s assessment of realisable value will be dependent on future
75
2016
trading performance of each individual investment, and hence on the
Group’s estimates of likely future dividend streams, repayment of loan
balances and disposal value. The overall level of risk in respect of
classification of investments has reduced compared to prior years, as
there have been no changes during the year, however the level of risk in
relation to valuation is consistent with previous years.
Our Response: Our audit procedures in relation to the classification
of investments included examining the legal documents associated
with investments, to determine the key terms, including rights of the
investors, terms of shareholders’ agreements, dispute resolution
provisions, termination provisions, governance structures and
profit-sharing arrangements, and then assessing these against
currently effective accounting standards to evaluate classification of
the investment. Where there have been changes to the shareholder
agreements or governance structures since acquisition, we have
critically assessed whether these change the initial analysis.
Our audit procedures in relation to valuation included a consideration
of material investee’s performance to date with reference to the most
recent audited accounts and management accounts at the yearend date, assessment of relevant external indicators over valuation
including offers for sale and third party valuation reports, and reviews
of future trading forecasts. Where valuation models have been
considered, we have utilised internal valuation specialists to consider
the discount rates and cash flow projections used within the models.
We have considered the adequacy of the Group’s disclosures in
respect of the classification and valuation of subsidiaries, associates
and joint ventures.
Related party transactions
Refer to page 56 (Audit Committee Report) and pages 110 and 111
(Financial Disclosures).
The Risk: There have been numerous related party transactions
with companies in which the Group or key management personnel of
the Group have interests and/or are Directors. As such, there is a risk
that not all related party transactions are disclosed in the financial
statements, and therefore that insufficient information is provided
to understand the nature and effect of the various related party
relationships and transactions. The number of related parties and the
volume of associated transactions has decreased during the year, and
is expected to decrease further, primarily due to the changes arising
from the partial disposal of the Transport and Distribution division in
2014. This has caused a reduction in the level of risk from the prior year.
Our Response: Our audit procedures included assessment of the
Group’s controls to identify and disclose related party relationships
and transactions in accordance with the relevant accounting standard.
We compared the list of related parties provided by the Directors with
internal sources, including quarterly submissions to the Directors from
each trading business, and external sources, specifically Companies
House searches for external directorships held by Board members,
to evaluate whether all related party relationships and transactions
had been appropriately identified and disclosed. In addition, for both
transactions with key management personnel and with associates
and joint ventures, we inspected sales and purchase ledgers and/or
relevant agreements for arrangements or other information that may
indicate the existence of related party relationships or transactions
that the Group had not previously identified or disclosed.
76
2016
Strategic Report
Governance
Independent Auditor’s Report continued
To the Members of Stobart Group Limited only
For each class of related party transaction we compared the financial
statements disclosures against the underlying transactions and the
accounting requirements.
3. Our Application of Materiality and an Overview of the Scope
of our Audit
The materiality for the Group financial statements as a whole was set at
£1.0m, determined with reference to a benchmark of Group revenue of
which it represents 0.8%. We consider Group revenue to be the most
appropriate benchmark as it provides a more stable measure year-onyear than Group profit before tax or other alternatives. This methodology
is consistent with the previous year’s audit.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £50,000, in addition to other
identified misstatements that warranted reporting on qualitative grounds.
The Group audit team performed audits on six of the group’s
seven reporting components including for the remaining interest
in the Transport and Distribution business. The Group audit team
determined the materiality for each component to be £750,000,
having regard to the mix of size and risk profile of the Group across
the components. These audits covered 99.0% of Group revenue;
99.1% of Group profit before taxation; and 99.9% Group total
assets. The remaining 1.0% (2015: 1.5%) of total group revenue,
0.9% (2015: 0.8%) of group profit before tax and 0.1% (2015: 0.1%)
of total group assets is represented by one reporting component,
which individually represented no more than 1% of any of total
group revenue, group profit before tax or total group assets.
4. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
–– the directors’ Viability Statement on page 12, concerning the
principal risks, their management, and, based on that, the directors’
assessment and expectations of the group’s continuing in operation
over three years to February 2019; or
–– the disclosures in note 1 of the financial statements concerning the
use of the going concern basis of accounting.
5. We have nothing to report in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
–– We have identified material inconsistencies between the knowledge
we acquired during our audit and the Directors’ statement that they
consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy; or
–– The Audit Committee Report does not appropriately address
matters communicated by us to the Audit Committee.
Under the Companies (Guernsey) Law 2008 we are required to report
to you if, in our opinion:
–– the Company has not kept proper accounting records, or
–– the financial statements are not in agreement with the accounting
records; or
–– we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose
of our audit.
Under the Listing Rules we are required to review the part of the
Corporate Governance Statement on pages 50 to 53 relating to the
Company’s compliance with the 11 provisions of the 2014 UK
Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Respective Responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 73, the Directors are responsible for the preparation
of Group financial statements which give a true and fair view. Our
responsibility is to audit, and express an opinion on, the financial
statements in accordance with applicable law and International
Standards of Auditing (UK and Ireland). Those standards require
us to comply with the UK Ethical Standards for Auditors.
Scope of an Audit of Financial Statements Performed in
Accordance with ISAs (UK and Ireland)
A description of the scope of an audit of financial statements is
provided on our website at www.kpmg.com/uk/auditscopeother2014.
This report is made subject to important explanations regarding our
responsibilities, as published on that website, which are incorporated
into this report as if set out in full and should be read to provide an
understanding of the purpose of this report, the work we have
undertaken and the basis of our opinions.
The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with section 262 of the Companies (Guernsey) Law, 2008.
Our audit work has been undertaken so that we might state to the
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 Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
Nicola Quayle
For and on behalf of KPMG LLP
Chartered Accountants and Recognised Auditor
1 St Peter’s Square
Manchester
M2 3AE
12 May 2016
77
Strategic Report
Governance
2016
Consolidated Income Statement
For the year ended 29 February 2016
Year ended 29 February 2016
Continuing operations
Revenue
Gain in value/profit on disposal of investment properties
(Loss)/gain on diesel swap
Other
Total operating expenses
Share of post-tax profits of associates and joint ventures
116,642
–
116,642
3
126,730
–
16
6
8,441
(2,184)
(124,785)
–
8,441
–
(2,184)
(5,547) (130,332)
1,365
104
(113,819)
–
1,365
–
104
(6,403) (120,222)
15
(118,528)
11,130
(5,547)
(2,835)
(124,075)
8,295
(112,350)
6,697
(6,403)
(4,190)
19,332
(8,382)
10,950
10,989
10
9
(2,302)
1,343
18,373
11
Profit/(loss) from continuing operations
Discontinued operations
(Loss)/profit from discontinued operation, net of tax
Total
£’000
Underlying
£’000
Profit/(loss) before tax
Tax
Underlying
£’000
Nonunderlying
(note 7)
£’000
Notes
Operating profit/(loss)
Finance costs
Finance income
Nonunderlying
(note 7)
£’000
(2,124)
16,249
4
–
16,249
–
–
(8,382)
927
(7,455)
Total
£’000
126,730
(2,302)
1,343
(2,356)
646
9,991
9,279
(1,197)
8,794
–
(7,455)
–
8,794
(652)
(118,753)
2,507
(10,593)
396
(8,090)
–
(10,446)
646
(18,683)
(9,404)
2,045
1,393
8,627
(16,638)
(8,011)
(3,713)
10,563
6,850
4,914
(6,075)
(1,161)
Notes
Underlying
Total
Underlying
Total
Earnings/(loss) per share – Continuing operations
Basic
Diluted
12
12
4.95p
4.94p
2.68p
2.68p
2.61p
2.61p
(2.43)p
(2.43)p
Earnings/(loss) per share – Total
Basic
Diluted
12
12
4.95p
4.94p
2.68p
2.68p
1.49p
1.49p
(0.35)p
(0.35)p
78
2016
Strategic Report
Governance
Consolidated Statement of Comprehensive Income
Notes
Cash flow hedge
Cash flow hedge – items recycled to income statement
Foreign currency translation differences – equity accounted joint ventures
Pension valuation – equity accounted associates
Interest rate swap – equity accounted associates
Foreign currency translation differences – equity accounted associates
Foreign currency translation differences – items recycled to income statement
Discontinued operations, net of tax, relating to exchange differences
Year ended
29 February
2016
£’000
Year ended
28 February
2015
£’000
8,794
–
–
1,564
–
–
(727)
–
–
(1,161)
120
207
(406)
(254)
(779)
(610)
458
48
Other comprehensive income/(expense) to be reclassified to profit or loss in subsequent years, net of tax
837
(1,216)
Remeasurement of defined benefit plan
Tax on items relating to components of other comprehensive income
(681)
60
(98)
20
(621)
(78)
Other comprehensive expense not being reclassified to profit or loss in subsequent years, net of tax
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income/(expense) for the year
15
15
15
15
24
25
216
(1,294)
9,010
(2,455)
Of the total comprehensive income attributable to owners of the Company in the year, a profit of £9,010,000 (2015: loss £9,353,000) is in respect
of continuing operations and profit of £nil (2015: £6,898,000) is in respect of discontinued operations.
79
Strategic Report
Governance
2016
Consolidated Statement of Financial Position
As at 29 February 2016
Non-current assets
Property, plant and equipment
– Land and buildings
– Plant and machinery
– Fixtures, fittings and equipment
– Commercial vehicles
Investment in associates and joint ventures
Investment property
Intangible assets
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Notes
29 February
2016
£’000
28 February
2015
£’000
14
14
14
14
169,327
28,246
705
19,689
179,401
23,411
1,001
18,102
217,967
221,915
62,699
46,965
112,296
13,401
57,828
20,926
116,234
10,828
453,328
427,731
45,083
48,950
9,858
5,354
46,152
42,421
5,716
7,375
109,245
101,664
562,573
529,395
15
16
17
19
18
19
23
20
Total assets
Non-current liabilities
Loans and borrowings
Defined benefit pension scheme
Other liabilities
Deferred tax
Provisions
Current liabilities
Trade and other payables
Corporation tax
Provisions
Total liabilities
Net assets
23
24
22
25
26
21
23
26
(48,892)
(2,708)
(19,786)
(18,290)
(4,699)
(17,497)
(2,332)
(24,903)
(20,362)
(5,720)
(94,375)
(70,814)
(38,239)
(8,958)
(7,090)
(242)
(43,853)
(7,282)
(713)
(485)
(54,529)
(52,333)
(148,904) (123,147)
413,669
406,248
80
2016
Strategic Report
Governance
Consolidated Statement of Financial Position continued
Notes
Capital and reserves
Issued share capital
Share premium
Foreign currency exchange reserve
Reserve for own shares held by employee benefit trust
Retained earnings
Group shareholders’ equity
28
29 February
2016
£’000
35,434
301,326
(179)
(330)
77,418
413,669
28 February
2015
£’000
35,434
301,326
(1,016)
(330)
70,834
406,248
The financial statements were approved and authorised for issue by the Board of Directors on 12 May 2016 and were signed on its behalf by:
Iain FergusonBen Whawell
ChairmanDirector
81
Strategic Report
Governance
2016
Foreign
currency
exchange
reserve
£’000
Retained
earnings
£’000
Consolidated Statement of Changes in Equity
Notes
Balance at 1 March 2015
Profit for the year
Other comprehensive income/(expense) for the year
Total comprehensive income/(expense) for the year
Share-based payment credit
Tax on share-based payment credit
Sale of treasury shares
Dividends
27
28
13
Balance at 29 February 2016
Issued
share
capital
£’000
Share
premium
£’000
35,434
–
–
301,326
–
–
–
–
–
–
–
–
–
–
–
–
35,434
301,326
Reserve for
own shares
held by EBT
£’000
Hedge
reserve
£’000
(1,016)
–
837
837
–
–
–
–
(179)
Reserve for
own shares
held by EBT
£’000
(330)
–
–
–
–
–
–
–
70,834
8,794
(621)
8,173
648
79
17,360
(19,676)
Total
equity
£’000
406,248
8,794
216
9,010
648
79
17,360
(19,676)
(330)
77,418
413,669
Total
£’000
Noncontrolling
interest
£’000
Total
equity
£’000
Notes
Loss for the year
Other comprehensive
(expense)/income for the year
Total comprehensive
(expense)/income for the year
Employee benefit trust shares
granted
Share-based payment credit
Tax on share-based payment
credit
Purchase of treasury shares
Disposal of minority interest
Dividends
27
28
13
Foreign
currency
exchange
reserve
£’000
Issued
share
capital
£’000
Share
premium
£’000
35,434
–
301,326
–
(506)
–
–
–
(510)
–
–
–
(510)
–
–
–
–
–
–
–
–
–
–
–
–
35,434
301,326
125,606
(1,161)
461,125
(1,161)
13
–
461,138
(1,161)
327
(1,111)
(1,294)
–
(1,294)
–
327
(2,272)
(2,455)
–
(2,455)
–
–
78
–
–
–
–
1,966
78
1,966
–
–
78
1,966
–
–
–
–
–
–
–
–
–
–
–
–
106
(34,764)
–
(19,808)
106
(34,764)
–
(19,808)
–
–
(13)
–
106
(34,764)
(13)
(19,808)
–
70,834
(1,016)
(408)
–
(330)
(327)
–
Retained
earnings
£’000
406,248
–
406,248
82
2016
Strategic Report
Governance
Consolidated Statement of Cash Flows
Notes
Cash generated from continuing operations
Cash outflow from discontinued operations
Income taxes refunded/(paid)
31
4
Net cash inflow/(outflow) from operating activities
Purchase of property, plant and equipment and investment property
Proceeds from grants
Proceeds from the sale of property, plant and equipment and investment property
Proceeds from disposal of assets held for sale
Proceeds from disposal of subsidiary undertaking (net of fees)
Proceeds from sale and leaseback (net of fees)
Proceeds from issue of licence premium
Equity investment in joint ventures
Distributions from joint ventures
Net amounts advanced to joint ventures
Other loans advanced
Interest received
Cash inflow from discontinued operations
4
Net cash (outflow)/inflow from investing activities
Dividend paid on ordinary shares
Repayment of capital element of finance leases
Proceeds from new borrowings
Repayment of borrowings
Net drawdown from revolving credit facility
Sale/(purchase) of treasury shares, net of costs
Interest paid – underlying
Interest paid – non-underlying
Cash outflow from discontinued operations
Net cash inflow/(outflow) from financing activities
Year ended
29 February
2016
£’000
Year ended
28 February
2015
£’000
159
–
3,246
5,832
(16,669)
(10)
3,405
(10,847)
(45,283)
–
7,340
7,359
–
16,769
–
–
4,264
(3,768)
(300)
29
–
(10,145)
607
15,660
12,830
175,894
–
13,700
(1,439)
2,874
(10,444)
(300)
549
349
(13,590) 200,135
13
4
(19,676) (19,808)
(8,402)
(4,939)
–
14,332
– (143,589)
26,812
–
17,360
(34,764)
(1,767)
(2,105)
–
(1,278)
–
(907)
14,327 (193,058)
Increase/(decrease) in cash and cash equivalents
4,142
(3,770)
Cash and cash equivalents at beginning of year
5,716
9,486
9,858
5,716
Cash and cash equivalents at end of year
Restricted cash movements
Cash and cash equivalents at beginning of year
Repayment of borrowings
Interest paid – non-underlying
–
–
–
68,130
(64,130)
(4,000)
Decrease in cash and cash equivalents
–
(68,130)
Restricted cash at end of year
–
–
9,858
5,716
Total cash and cash equivalents at end of year
Strategic Report
Governance
83
2016
Notes to the Consolidated Financial Statements
1 Accounting Policies of Stobart Group Limited
Basis of Preparation and Statement of Compliance
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.
These Group financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs and IFRIC
interpretations) as adopted by the European Union (‘adopted IFRSs’).
The financial statements of the Group are also prepared in accordance
with the Companies (Guernsey) Law 2008.
Stobart Group Limited is a Guernsey registered company. The
Company’s ordinary shares are traded on the London Stock Exchange.
Measurement Convention
The financial statements are prepared on the historical cost basis except
that the following assets and liabilities are stated at their fair value:
derivative financial instruments and investment property. Non-current
assets and assets held for sale are stated at the lower of previous
carrying amount and fair value less costs to sell.
Going Concern
The Group’s business activities, together with factors likely to affect its
future performance and position, are set out in the Chief Executive’s
Statement on pages 16 to 17 and the financial position of the Group,
its cash flows and funding are set out in the Financial Review on pages
35 to 37.
Note 23 on page 102 of the financial statements includes details of
the Group’s loans and borrowings at the year end together with the
Group’s objectives, policies and processes for managing its capital,
its financial risk management objectives; details of its financial
instruments and its exposure to credit risk and liquidity risk.
The Group has considerable financial resources, together with
contracts with a number of customers and suppliers. The financial
forecasts show that the Group’s remaining borrowing facilities are
adequate such that the Group can operate within these facilities and
meet its obligations when they fall due for at least 12 months.
After making enquiries, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the financial
statements have been prepared on a going concern basis.
Changes in Accounting Policy and Disclosures
The accounting policies adopted are consistent with those of the
previous financial year except as follows:
a) New Standards, Amendments to Existing Standards and
Interpretations to Existing Standards Adopted by the Group
Amendments arising from the Annual Improvement Project 2011–
2013 were endorsed by the EU for periods on or after 1 January 2015.
There were separate transitional provisions for each amendment.
The adoption of the amendments did not have any material impact
on the financial position or performance of the Group.
Amendments to IAS 19 Defined Benefit Plans relating to Employee
Contributions were adopted in the year but had no material effect on
the Group’s financial statements.
b) New Standards and Interpretations Not Applied
The following standards and amendments have an effective date
after the date of these financial statements:
International Accounting Standards
and amendments (IAS/IFRSs)
IFRS 9: Financial
Instruments
IFRS 15: Revenue from
Contracts with Customers
IFRS 16: Leases
IAS 1: Presentation of
IAS 16: Property, plant and
equipment
IAS 19: Employee Benefits
Annual Improvement Project
2010–2012
Annual Improvement Project
2012–2014
Effective for accounting
periods commencing
on or after
Proposed adoption
in the year ending
1 January 2018
28 February 2019
1 January 2018 28 February 2019
1 January 2019 29 February 2020
1 January 2016
28 February 2017
1 January 2016
1 January 2016
28 February 2017
28 February 2017
1 January 2016
28 February 2017
1 January 2016
28 February 2017
IFRS 16: Leases was issued in January 2016 and will have a significant
impact on the Group’s consolidated Financial Statements although,
given the timing of the issue of this standard, at this stage it has not
been practicable to quantify the full effect this standard will have on the
Group’s consolidated Financial Statements upon transition. IFRS 16,
with certain exceptions, requires the Group, where the Group is a
lessee, to recognise right of use assets and lease liabilities for all
leases, there no longer being a distinction between operating and
finance leases for lessees. Finally, the profile of the Group Income
Statement impact for items previously accounted for as operating
leases is likely to change for the Group, where the Group is a lessee,
with a higher periodic expense in the earlier periods of a lease.
A project to oversee the implementation of this standard will be
set up in due course.
The adoption of all the other standards, amendments and
interpretations is not expected to have a material effect on the net
assets, results and disclosures of the Group.
Summary of Significant Accounting Policies
Revenue
Revenue for services rendered by Stobart Aviation and the transport
element of the Stobart Energy business segments (including revenue
within discontinued operations) is recognised in the Consolidated
Income Statement on the delivery of those services, based on the
proportion of the total delivered at the Consolidated Statement of
Financial Position date. It is recognised at the fair value of the
consideration received or receivable, net of returns, contracted trade
discounts, volume rebates and VAT. The principle sources of revenue
within the Aviation division are aviation income, retail and catering
income, surface access income and fuel sales income.
Revenue from Stobart Infrastructure and the supply element of the
Stobart Energy business segment is recognised in the Consolidated
Income Statement at the fair value of the consideration received or
receivable, net of returns, contracted trade discounts, volume rebates
and VAT. Revenue is recognised when significant risks and rewards
of ownership have been transferred to the customer, recovery of the
consideration is probable, the associated costs and possible return of
goods can be estimated reliably, there is no continuing management
involvement with the goods and the amount of revenue can be
84
2016
Strategic Report
Governance
Notes to the Consolidated Financial Statements continued
measured reliably. If it is probable that contracted discounts will be
granted and the amount can be measured reliably, then the discount
is recognised as a reduction of revenue as the sales are recognised.
Stobart Infrastructure also recognises rental income from investment
property. This revenue is recognised on a straight-line basis over the
term of the lease. Lease incentives granted are recognised as an
integral part of the total rental income, over the term of the lease.
Stobart Rail contract revenue includes the initial amount agreed in the
contract plus any variations in contract work, claims and incentive
payments, to the extent that it is probable that they will result in revenue
and can be measured reliably. This contract revenue is recognised by
stage of completion. Contract expenses are recognised as incurred
unless they create an asset related to future contract activity. An
expected loss on a contract is recognised immediately in profit or loss.
Revenue is analysed by segment in note 3 on pages 90 to 91.
Presentation of Consolidated Income Statement
The presentation of the Consolidated Income Statement shows the
underlying results and non-underlying results, including non-underlying
items included in the Group’s share of profits of associates and joint
ventures, in separate columns. These non-underlying items are
material incomes and expenses, which because of their nature,
infrequency or occurrence, or the events giving rise to them, merit
separate presentation to allow shareholders to better understand the
financial performance for the period. Underlying operating profit and
underlying profit before tax are non-GAAP measures which comprise
operating profit and profit before tax respectively before non-underlying
items. The columnar format is considered to be the clearest method of
presentation of this information.
Functional and Presentation Currency
The Company’s functional currency is GBP and it has adopted GBP as
its presentational currency.
Basis of Consolidation
Where the Company has the power, either directly or indirectly, to
control the relevant activities of another entity or business, has
exposure, or rights, to variable returns from its involvement with the
entity, and has the ability to use its power over the entity to affect the
amount of the returns to the Company, it is classified as a subsidiary.
The consolidated financial statements present the results of Stobart
Group Limited and its subsidiaries (the ‘Group’) as if they formed a
single entity. Intercompany transactions and balances between Group
companies are therefore eliminated in full.
Discontinued Operations
The post tax results of discontinued operations, along with any gain
or loss recognised on the measurement to fair value less costs to
sell, or on the disposal of the assets or disposal groups constituting
the discontinued operation, are disclosed as a single amount in the
Consolidated Income Statement. Further analysis of the results and
cash flows from discontinued operations is set out in note 4 on pages
91 to 92.
Business Combinations
Business Combinations from 1 March 2010
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, measured at acquisition date fair
value, and the amount of any non-controlling interest in the acquiree.
Acquisition costs are expensed and included in transaction costs
which are reported below underlying profit.
When the Group acquires a business, it assesses the financial assets
and liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date.
Any contingent consideration payable to be transferred by the acquirer
is recognised at fair value at the acquisition date.
Goodwill is initially measured at cost being the excess of the aggregate
of the acquisition-date fair value of the consideration transferred and
the amount recognised for the non-controlling interest (and where the
business combination is achieved in stages, the acquisition-date fair
value of the acquirer’s previously held equity interest in the acquiree)
over the net identifiable amounts of the assets acquired and the
liabilities assumed in exchange for the business combination.
Identifiable intangible assets, meeting either the contractual-legal
or separability criterion, are recognised separately from goodwill.
Contingent liabilities representing a present obligation are recognised
if the acquisition-date fair value can be measured reliably.
If the aggregate of the acquisition-date fair value of the consideration
transferred (and where the business combination is achieved in stages,
the acquisition-date fair value of the acquirer’s previously held equity
interest in the acquiree) is lower than the fair value of the assets,
liabilities and contingent liabilities and the fair value of any pre-existing
interest held in the business acquired, the difference is recognised in
profit and loss below underlying profit.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating
units (or groups of cash-generating units) that are expected to benefit
from the combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units. Each unit or group of units
to which goodwill is allocated shall represent the lowest level within the
entity at which goodwill is monitored for internal management purposes
and not be larger than an operating segment before aggregation.
Business Combinations prior to 1 March 2010
Business combinations were accounted for using the purchase
method. Transaction costs directly attributable to the acquisition
formed part of the acquisition costs. The minority interest is accounted
for using the Parent-entity extension method, whereby the difference
between the consideration paid and the book value of the share in net
assets acquired is recognised as goodwill.
Goodwill was initially measured at cost, being the excess of the cost
of business combination over the Group’s interest in the net fair value
of the identifiable assets, liabilities and contingent liabilities. Where
the net fair value of the acquired entity’s identifiable assets, liabilities
and contingent liabilities was greater than the cost of investment, the
difference was recognised in profit and loss.
Strategic Report
Governance
Goodwill
Goodwill represents the excess of the cost of a business combination
over the interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired. Cost comprises the fair values of assets
given, liabilities incurred and equity instruments issued.
Goodwill is capitalised as an intangible asset with any impairment in
carrying value being charged to the Consolidated Income Statement.
Where the fair value of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid, the excess is
credited in full to the Consolidated Income Statement.
Impairment of Non-Financial Assets (Excluding Investment
Properties and Deferred Tax Assets)
Impairment tests on goodwill and intangible assets with indefinite
useful lives are undertaken at least annually at the financial year end
and also if there are indicators of impairment. Other non-financial
assets are subject to impairment tests whenever events or changes
in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its
recoverable amount (i.e. the higher of value in use and fair value
less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an
individual asset, the impairment test is carried out on the asset’s
cash-generating unit (i.e. the lowest group of assets in which the
asset belongs for which there are separately identifiable cash inflows).
Goodwill is allocated on initial recognition to each of the Group’s
cash-generating units that are expected to benefit from the synergies
of the combination giving rise to the goodwill.
Impairment charges are included in the Consolidated Income
Statement, except to the extent they reverse gains previously
recognised in the Consolidated Statement of Other Comprehensive
Income. Impairment losses except losses relating to goodwill can be
reversed in certain circumstances.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists, the
recoverable amount is estimated. A previously recognised impairment
loss is reversed only if there has been a change in the estimates used
to determine the asset’s recoverable amount since the last impairment
loss was recognised. If that is the case the carrying amount of the
asset is increased to its recoverable amount. That increased amount
cannot exceed the carrying amount that would have been determined,
net of depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss unless
the asset is carried at revalued amount, in which case the reversal is
treated as a revaluation increase. After such a reversal the depreciation
charge is adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over
its remaining useful life.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits, and highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
85
2016
Financial Instruments
The Group uses derivative financial instruments such as diesel swaps
to mitigate the risk of diesel price fluctuations. Derivative financial
instruments are initially recognised at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at
fair value at each reporting date. Derivatives are carried as assets when
the fair value is positive and as liabilities when the fair value is negative.
Forward contracts are entered into by the Group to purchase
and/or sell biomass related products, and management judge that
these forward commodity contracts are entered into for the Group’s
‘own use’ rather than as trading instruments. They continue to be held
in accordance with the Group’s expected purchase, sale and/or usage
requirements. Accordingly these contracts are not accounted for as
derivatives or other financial instruments.
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 Consolidated Statement of Financial
Position date.
Exchange differences arising on the retranslation of unsettled
monetary assets and liabilities are recognised immediately in the
Consolidated Income Statement.
The assets and liabilities of foreign operations are translated into GBP
at the rate of exchange prevailing at the Statement of Financial Position
date. The income statements are translated at the average rate. The
exchange differences arising on the translation are taken directly to a
separate component of equity.
Financial Assets
Unless otherwise indicated, the carrying amounts of the Group’s
financial assets are a reasonable approximation of their fair values.
Loans and Receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
They arise principally through the provision of goods and services to
customers (e.g. trade receivables), but also incorporate other types of
contractual monetary asset. They are initially recognised at fair value
plus transaction costs that are directly attributable to the acquisition or
issue and subsequently carried at amortised cost using the effective
interest rate method, less provision for impairment.
Impairment provisions are recognised when there is objective evidence
(such as significant financial difficulties on the part of the counterparty
or default or significant delay in payment) that the Group will be unable
to collect all of the amounts due under the terms receivable, the
amount of such a provision being the difference between the net
carrying amount and the present value of the future expected cash
flows associated with the impaired receivable.
For trade receivables, which are reported net, such provisions
are recorded in a separate allowance account with the loss being
recognised within operating expenses in the Consolidated Income
Statement. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off
against the associated provision.
86
2016
Strategic Report
Governance
Financial Liabilities
Unless otherwise indicated, the carrying amounts of the Group’s
financial liabilities are a reasonable approximation of their fair values.
Loans and borrowings are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the instrument.
Such interest-bearing liabilities are subsequently measured at
amortised cost using the effective interest rate method, which ensures
that any interest expense over the period to repayment is at a constant
rate on the balance of the liability carried in the Consolidated Statement
of Financial Position.
Trade payables and other short-term monetary liabilities are initially
recognised at fair value and subsequently carried at amortised cost
using the effective interest method.
Share Capital
Financial instruments issued by the Group are treated as equity only
to the extent that they do not meet the definition of a financial liability.
The Group’s ordinary shares are classified as equity instruments.
Own Shares Held by Employee Benefit Trust
Stobart Group shares held by the Employee Benefit Trust are
designated as own shares held, classified in shareholders’ equity and
recognised at cost. Consideration received for the sale of such shares
is also recognised in equity, with any difference between the proceeds
from sale and original cost taken to retained earnings.
Treasury Shares
When share capital recognised as equity is repurchased, the amount
of the consideration paid, which includes directly attributable costs,
net of any tax effects, is recognised as a deduction from equity.
When share capital held in treasury is subsequently disposed of, the
proceeds of sale, net of any directly attributable costs, are recognised
as an addition to equity.
Pension Arrangements and Other Post-Employment Benefits
The Group has pension schemes of both a defined benefit and
defined contribution nature. The Group’s defined benefit pension
liability, which is assessed each period by actuaries, is based on
key assumptions including return on plan assets, discount rates,
mortality rates, inflation, and future salary and pension costs. These
assumptions, individually or collectively, may be different to actual
outcomes. Other key assumptions for pension obligations are based
in part on current market conditions. Additional information is disclosed
in note 24 on page 104.
The liability in respect of defined benefit schemes is the present value
of the relevant defined benefit obligation at the Consolidated Statement
of Financial Position date less the fair value of scheme assets. The
trustees commission a full actuarial valuation triennially, and the
present value of the obligation is updated annually by external
professional actuaries using the projected unit method for financial
reporting purposes. The present value of the obligation is determined by
the estimated future cash outflows using interest rates of high quality
corporate bonds which have terms to maturity approximating to the
terms of the related liability. The current service cost, and gains and
losses on settlements and curtailments, are recognised in operating
costs in the Consolidated Income Statement.
Past service costs are included in operating costs where the benefits
have vested. The Group determines the net interest expense (income)
on the net defined benefit liability (asset) for the period by applying the
discount rate used to measure the defined benefit obligation at the
beginning of the annual period to the then-net defined benefit liability
(asset), taking into account any changes in the net defined benefit
liability (asset) during the period as a result of contributions and benefit
payments. Net interest expense and other expenses related to defined
benefit plans are recognised in profit or loss. Remeasurements of the
net defined benefit liability, which comprise actuarial gains and losses,
the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), are recognised immediately in the
Consolidated Statement of Comprehensive Income.
For defined contribution schemes, costs are charged to the
Consolidated Income Statement as they accrue.
Share-Based Payments
Where equity-settled share options are awarded to employees, the
fair value of the options at the date of grant is normally charged to the
Consolidated Income Statement over the vesting period. If the vesting
conditions are directly related to a capital asset then the charge is
debited to the cost of the related asset. Non-market vesting conditions
are taken into account by adjusting the number of equity instruments
expected to vest at each Consolidated Statement of Financial Position
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually vest.
Market vesting conditions are factored into the fair value of the options
granted. As long as all other vesting conditions are satisfied, a charge
is made irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to achieve
a market vesting condition.
At each Consolidated Statement of Financial Position date before
vesting, the cumulative expense is calculated, representing the extent
to which the vesting period has expired and management’s best
estimate of the achievement or otherwise of non-market conditions
and of the number of equity instruments that will ultimately vest or, in
the case of an instrument subject to a market condition, be treated as
vesting as described above. The movement in cumulative expense
since the previous Statement of Financial Position date is recognised
in the Consolidated Income Statement, with a corresponding entry
in equity.
The Group has share-based long-term incentive plans accounted for
as set out above.
Leased Assets
Leases in terms of which the Group assumes substantially all the risks
and rewards of ownership are classified as finance leases. Assets held
under finance leases are recorded in the Consolidated Statement of
Financial Position as tangible assets, initially at fair value or, if lower, at
the present value of the minimum lease payments and depreciated
over the shorter of their estimated useful lives or the lease term as
detailed in the depreciation policy below. The interest element of
leasing payments represents a constant proportion of the capital
balance outstanding and is charged to the Consolidated Income
Statement over the period of the lease.
Strategic Report
Governance
Where substantially all of the risks and rewards incidental to ownership
are not transferred to the Group (an ‘operating lease’), the total rentals
payable under the lease are charged to the Consolidated Income
Statement on a straight-line basis over the lease term. The aggregate
benefit of lease incentives is recognised as a reduction of the rental
expense over the lease term on a straight-line basis.
The land and buildings elements of property leases are considered
separately for the purposes of lease classification. Where the use of an
asset is provided or obtained in exchange for payment, consideration
is given as to whether in substance this is a lease.
Externally Acquired Intangible Assets (Excluding Goodwill)
Externally acquired intangible assets are initially recognised at cost
and are subsequently amortised on a straight-line basis over their
useful lives. The amortisation expense is included as ‘amortisation
of acquired intangibles’ and is included in non-underlying items in the
Consolidated Income Statement.
Intangible assets are recognised on business combinations if they are
separable from the acquired entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles are arrived at by using
appropriate valuation techniques (see section related to significant
accounting estimates, judgements and assumptions below).
The significant intangibles recognised by the Group and their useful
economic lives are as follows:
Intangible asset
Useful life
Brands
Term of licence agreement
or indefinite
Customer contracts and
related relationships
Term of contract
Where there is no foreseeable limit to the period over which a brand is
expected to generate cash flows for the Group it will be considered to
have an indefinite life.
Current Taxation
Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be recovered from or paid to the
taxation authorities. The tax rates and tax laws used to compute the
amount are those that are enacted or substantively enacted by the
Consolidated Statement of Financial Position date.
Deferred Taxation
Deferred tax assets and liabilities are recognised where the carrying
amount of an asset or liability in the Consolidated Statement of
Financial Position differs to its tax base, except for differences
arising on:
–– the initial recognition of goodwill;
–– the initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction
affects neither accounting or taxable profit; and
–– investments in subsidiaries and jointly controlled entities where the
Group is able to control the timing of the reversal of the difference
and it is probable that the difference will not reverse in the
foreseeable future.
87
2016
Recognition of deferred tax assets is restricted to those instances
where it is probable that taxable profit will be available against which
the difference can be utilised.
The amount of the asset or liability is determined using tax rates that
have been enacted or substantively enacted by the Consolidated
Statement of Financial Position date and are expected to apply when
the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a
legally enforceable right to offset current tax assets and liabilities and
the deferred tax assets and liabilities relate to taxes levied by the same
tax authority on either:
–– the same taxable Group company; and
–– different Group entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and
settle the liabilities simultaneously, in each future period in which
significant amounts of deferred tax assets or liabilities are expected
to be settled or recovered.
Pre-Contract Costs
Separately identifiable contract costs incurred prior to the
commencement of a long-term contract are recognised as assets and
presented within ‘Other receivables and prepayments’ from the date
that it becomes probable that the contract will be won. These costs are
amortised to the Consolidated Income Statement over the period of
the associated contract.
Government Grants
Government grants are recognised where there is reasonable
assurance that the grant will be received and all attached conditions
will be complied with. Where the grant relates to an expense item, it is
recognised as income over the period necessary to match the grant
on a systematic basis to the costs that it is intended to compensate.
Where the grant relates to an asset, it is credited to deferred income
and released to the Consolidated Income Statement to match the
depreciation on the related asset.
Dividends
Dividends are recognised when they become legally payable. In the
case of interim dividends to equity shareholders, this is when paid. In
the case of final dividends, this is when approved by the shareholders
at the AGM.
Property, Plant and Equipment
Freehold land and buildings and plant and equipment are stated at
cost less accumulated depreciation and any accumulated impairment
in value.
Depreciation is provided on items of property, plant and equipment,
other than land and assets under construction, to write off to their
residual value the carrying value of items over their expected useful
lives. Useful lives and residual values are reconsidered on an annual
basis. Depreciation is applied at the following rates:
Buildings
2% per annum straight line
Modular buildings
3%–10% per annum straight line
Plant and machinery
Commercial vehicles
Fixtures, fittings and equipment
88
2016
Strategic Report
Governance
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from its
use or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in profit or loss in the
period the asset is derecognised.
Borrowing costs attributable to qualifying assets are capitalised.
Investment Properties
Investment properties are measured initially at cost, including
transaction costs. The carrying amount includes the cost of replacing
part of an existing investment property at the time that the cost is
incurred if the recognition criteria are met and excludes the cost of
day-to-day servicing of an investment property. Subsequent to initial
recognition, investment properties are stated at fair value, which
reflects market conditions at the date of the Consolidated Statement
of Financial Position. Gains or losses arising from changes in the fair
values of investment properties are included in the Consolidated
Income Statement in the period in which they arise. The fair value
of the investment property portfolio is based on a valuation by an
independent valuer who holds a recognised and relevant professional
qualification and who has recent experience in the location and
category of the investment property.
Investment properties acquired as part of a business combination
are recognised initially at fair value and exclude transaction costs.
Investment properties are derecognised when either they have been
disposed of or when the investment property is permanently withdrawn
from use and no future economic benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment
property are recognised in the Consolidated Income Statement in the
period of retirement or disposal.
Investment properties are reclassified as ‘held for sale’ assets from
commencement of marketing for disposal, provided that the Directors
have a reasonable expectation that they will be sold within a period of
12 months.
When the classification of property is difficult the criteria set out in IAS 40 are used to determine the correct classification as either an
investment property or owner-occupied property.
Rental income arising from operating leases on investment properties
is spread on a straight-line basis over the period of the lease. Where an
incentive (such as a rent-free period) is given to a tenant, the carrying
value of the investment property excludes any amount reported as a
separate asset as a result of recognising rental income on this basis.
Self-Constructed Assets
The cost of a self-constructed asset is determined using the same
principles as for an acquired asset. Costs include any costs directly
attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management.
Costs include employee benefits, site preparation, delivery and handling,
installation and assembly, testing and professional fees. For assets
made for sale or similar to those made for sale then the cost is the
same as the cost of constructing an asset for sale including fixed and
variable overheads which are considered directly attributable. Internal
net profits are eliminated in arriving at such costs.
Inventories
Inventories are measured at the lower of cost and net realisable value.
The cost of inventories is based on the first-in first-out principle, and
includes expenditure incurred in acquiring the inventories, production
or conversion costs, and other costs incurred in bringing them to their
existing location and condition. In the case of manufactured inventories
and work in progress, cost includes an appropriate share of production
overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and estimated
costs necessary to make the sale.
Inventories include property assets which are held for development
and/or disposal, to the extent that they are not used in the Group’s
operations or held for investment purposes. The net realisable value
of these property inventory assets is determined by assessment of
fair value less costs to sell, using a similar method to that used in
impairment workings.
Non-Current Assets Held for Sale and Disposal Groups
Non-current assets are classified as held for sale when:
–– they are available for immediate sale;
–– management is committed to a plan to sell;
–– it is unlikely that significant changes to the plan will be made or that
the plan will be withdrawn;
–– an active programme to locate a buyer has been initiated;
–– the asset or disposal group is being marketed at a reasonable price
in relation to its fair value; and
–– a sale is expected to complete within 12 months from the date of
classification (or an extended period if the delay is caused by
circumstances beyond the entity’s control but the Group remains
committed to the plan to sell the asset).
Non-current assets classified as held for sale are measured at the
lower of:
–– their carrying amount immediately prior to being classified as held
for sale in accordance with the Group’s accounting policy; and
–– fair value less costs to sell.
Following their classification as held for sale, non-current assets are
not depreciated.
The results of operations disposed of during the prior year are included
in the Consolidated Income Statement up to the date of disposal.
Associates
The Group’s investments in its associates are accounted for using the
equity method of accounting unless the investment is classified as
held for sale.
An associate is an entity in which the Group has significant influence
and which is neither a subsidiary nor a joint venture.
Under the equity method, the equity investment in the associate is
carried in the Consolidated Statement of Financial Position at cost
plus post acquisition changes in the Group’s share of net assets of the
associate. Goodwill relating to the associate is included in the carrying
amount of the investment and is not amortised. Loans to associates
where the settlement is planned or expected to be repaid in the
foreseeable future do not form part of the equity investment and
Strategic Report
Governance
are included in other receivables or non-current amounts owed by
associates and joint ventures according to the expected repayment
terms. The Consolidated Income Statement reflects the share of the
results of operations of the associate but the loss is limited to the equity
investment made, plus any loans which form part of the net investment
in the associate, unless the Group has incurred legal or constructive
obligations or made payments on behalf of the associate. Where there
has been a change recognised directly in the equity of the associate,
the Group recognises its share of any changes and discloses this,
when applicable, in the Statement of Changes in Equity and the
Statement of Other Comprehensive Income. The Group’s share
of profits and losses resulting from transactions between the Group
and the associate are eliminated to the extent of the interest in
the associate.
After application of the equity method, the Group determines
whether it is necessary to recognise an additional impairment loss
on the Group’s investment in its associates. The Group determines
at each Consolidated Statement of Financial Position date whether
there is any objective evidence that the investment in the associate
is impaired. If this is the case and there is a resulting impairment,
the amount is recognised in the Consolidated Income Statement.
Joint Ventures
Investments in joint ventures, which are jointly controlled entities,
are included in the financial statements using the equity method
of accounting unless the investment is classified as held for sale.
Under the equity method, the equity interest in the joint venture is
initially recorded at cost and adjusted thereafter for the post-acquisition
change in the Group’s share of net assets of the joint venture but any
loss is limited to the equity investment made, unless the Group has
incurred legal or constructive obligations or made payments on behalf
of the joint venture. Goodwill relating to the joint venture is included in
the carrying amount of the investment and is not amortised. Loans to
joint ventures where the settlement is planned or expected to be repaid
in the foreseeable future do not form part of the equity investment and
are included in other receivables or non-current amounts owed by
associates and joint ventures according to the expected repayment
terms. The Consolidated Income Statement reflects the share of the
results of operations of the joint venture but the loss is limited to the
equity investment made, plus any loans which form part of the net
investment in the joint venture, unless the Group has incurred legal or
constructive obligations or made payments on behalf of the joint
venture. Where there has been a change recognised directly in the
equity of the joint venture, the Group recognises its share of any
changes and discloses this, when applicable, in the Statement of
Changes in Equity and the Statement of Other Comprehensive
Income. Profits and losses resulting from transactions between the
Group and the joint ventures are eliminated to the extent of the interest
in the joint venture, unless the Group has incurred legal or constructive
obligations or made payments on behalf of the joint venture.
After application of the equity method, the Group determines whether
it is necessary to recognise an additional impairment loss on the
Group’s investment in its joint ventures. The Group determines at each
Consolidated Statement of Financial Position date whether there is any
objective evidence that the investment in the joint venture is impaired.
If this is the case and there is a resulting impairment, the amount is
recognised in the Consolidated Income Statement.
89
2016
2Summary of Significant Accounting Judgements
and Estimates
The Group makes judgements and estimates in preparing the
financial statements. Judgements and estimates are continually
evaluated based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under
the circumstances. In the future, actual experience may differ from
these. The judgements and estimates that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Judgements
(a)Sale and Leaseback Transactions
The determination of the profit or loss on sale and leaseback
transactions includes judgement over the level of the lease
payments and overall lease package compared with the market
rates available. There is also judgement required as to whether the
leaseback is an operating lease or finance lease.
(b)Allocation of Goodwill in the Event of a Disposal of Part of a
Cash-Generating Unit
Where a part of a cash-generating unit (CGU) is disposed of and
that CGU contains goodwill, the goodwill associated with the
operation disposed of is measured on the basis of the relative
values of the operation disposed of and the portion of the cashgenerating unit retained, unless it is considered that some other
method better reflects the goodwill associated with the operation
disposed of.
(c)Treatment of Brand Licence
The accounting treatment of the licence of certain trademarks and
designs to an external party is based on judgements over who
bears the risk and rewards of ownership and assessments of the
likelihood of options under the licence being taken.
Estimates
(a)Impairment of Goodwill and Intangible Assets
The Group is required to test, on an annual basis, whether
goodwill and intangible assets have suffered any impairment. The
recoverable amount is determined based on value in use or fair
value less costs of disposal calculations. The use of this method
requires the estimation of future cash flows and discount rates in
order to calculate the present value of the cash flows. Intangible
assets subject to these judgements include brand assets, some
of which are licensed to third parties and assessments of their
values include judgements and estimates over whether the licence
agreement will be extended or the asset purchased by the licensor.
Actual outcomes may vary. Further information including carrying
values is set out in note 17 on page 99.
(b)Impairment of Property, Plant and Equipment
Where there is an indication that an asset may be impaired,
the Group is required to test whether assets have suffered any
impairment. The recoverable amount is determined based on value
in use or fair value less costs of disposal calculations. The use of
these methods requires the estimation of future cash flows and
discount rates in order to calculate the present value of the cash
flows. Actual outcomes may vary. Further information, including
carrying values and impairment charges during the year, is set out
in note 14 on page 95.
90
2016
Strategic Report
Governance
(c)Investment Property Valuations and Classifications
The determined fair value of the investment properties are in
accordance with independent valuations. The fair value is most
sensitive to the estimated yield as well as long-term vacancy rate.
Investment properties are reclassified as ‘held for sale’ assets from
commencement of marketing for disposal. Estimation is required to
assess the likelihood that a property will be sold within a period of
12 months.
The Stobart Aviation segment specialises in operation of commercial
airports and includes a joint venture investment in an airline.
(d)Determination of Fair Values of Intangible Assets Acquired in
Business Combinations and in Investments in Associates and
Joint Ventures
Determining the existence and the fair value of intangible assets on
business combinations and in investments in associates and joint
ventures involves judgements and estimates. Estimates include
determining future cash flows and discount rates.
The Stobart Infrastructure segment specialises in management,
development and realisation of a portfolio of property assets as well as
investments in energy plants.
(e)Taxation
The current and deferred tax balances are calculated making
certain estimates about the tax treatment of income and costs, and
the availability of certain losses for group relief.
3 Segmental Information
The reportable segment structure is determined by nature of
operations and services. The operating segments are Stobart Energy,
Stobart Aviation, Stobart Rail, Stobart Investments and Stobart
Infrastructure.
The Stobart Rail segment specialises in delivering internal and external
civil engineering development projects including rail network operations.
The Stobart Investments segment holds non-controlling interests in a
transport and distribution business and an aircraft leasing business.
The Executive Directors are regarded as the Chief Operating
Decision Maker. The Directors monitor the results of each business
unit separately for the purposes of making decisions about resource
allocation and performance assessment. The main segmental profit
measure is earnings before interest, tax, diesel swap, depreciation and
amortisation and is shown before non-underlying items. The airport
land and buildings, and associated depreciation, were included in the
infrastructure segment in the segmental note in the prior year’s Annual
Report but have been included in the Aviation segment in the segmental
analysis this year and the prior year figures restated to be consistent.
This is considered to better reflect the management of the business.
Income taxes, finance costs and certain central costs are managed on
a Group basis and are not allocated to operating segments.
The Stobart Energy segment specialises in supply of sustainable
biomass for the generation of renewable energy.
Adjustments
and
eliminations
£’000
Group
£’000
Energy
£’000
Aviation
£’000
Rail
£’000
Investments
£’000
Infrastructure
£’000
Revenue
External
Internal
66,009
7,439
22,864
11
28,783
17,374
–
–
4,090
219
Total revenue
73,448
22,875
46,157
–
4,309
Underlying EBITDA
9,085
2,300
3,393
11,145
10,459
(6,431)
29,951
Underlying profit/(loss) before tax
6,154
(1,837)
1,901
11,145
11,417
(10,407)
18,373
4,984
(25,043)
126,730
–
(20,059) 126,730
New business and new contract set up costs
Transaction costs
Amortisation of acquired intangibles
Non-underlying items included in share of post-tax profits of associates and joint ventures
(1,214)
(395)
(3,938)
(2,835)
Profit on continuing operations before tax
9,991
Strategic Report
Governance
91
2016
Adjustments
and
eliminations
£’000
Group
£’000
Energy
£’000
Aviation
£’000
Rail
£’000
Investments
£’000
Infrastructure
£’000
Revenue
External
Internal
61,894
6,476
23,627
–
21,086
6,946
–
–
4,657
330
5,378
(13,752)
Total revenue
68,370
23,627
28,032
–
4,987
(8,374) 116,642
Underlying EBITDA
7,765
1,439
2,826
6,792
4,032
(5,218)
17,636
Underlying profit/(loss) before tax
6,567
(2,634)
1,205
6,792
3,566
(6,217)
9,279
Restated year ended 28 February 2015
116,642
–
Restructuring costs
Non-underlying finance costs
Non-underlying items included in share of post-tax profits of associates and joint ventures
(779)
(1,685)
(3,939)
(8,090)
(4,190)
Loss on continuing operations before tax
(9,404)
No segmental assets or liabilities information is disclosed because
no such information is regularly provided to, or reviewed by, the Chief
Operating Decision Maker.
Inter-segment revenues are eliminated on consolidation.
Included in adjustments and eliminations are net central costs
of £10,257,000 (2015: £6,504,000) and an intra-group profit of
£150,000 (2015: loss £287,000). There is also external income within
adjustments and eliminations which comprises brand licence income,
merchandising income and income from other business services.
Revenue accounted for during the year can be categorised as follows:
Revenue from external customers
Sale of goods
Rendering of services
Royalties/commissions
Property rentals
Geographical Information
Revenue from external customers
UK
Europe and Ireland
2016
£’000
2015
£’000
5,447
112,521
3,783
4,979
5,837
102,405
3,717
4,683
126,730
116,642
2016
£’000
2015
£’000
112,716
14,014
105,852
10,790
126,730
116,642
The revenue from one customer amounted to more than 10% of the
Group’s total revenue. The revenue from that customer was £13,804,000
for the year ended 29 February 2016 (2015: £16,159,000) and this was
reported in the Energy segment.
4 Discontinued Operations
Partial Disposal of the Transport and Distribution Business
The Group disposed of a controlling interest in a substantial proportion
of its Transport and Distribution business on 10 April 2014. The Group
has retained a 49% interest in the business through its investment in
Greenwhitestar Holding Company 1 Limited, which is accounted for as
an associate. The environmental transport business unit, which was
previously part of the Transport and Distribution business, was also
retained and its results are now reported in the Energy segment.
The results of the disposed business have been reported separately as
a single amount presented within discontinued operations in the prior
year. The operation represented a separate major line of business.
The profit from discontinued operations of £nil (2015: £6,850,000) is
attributable to the owners of the Company. There was no loss recorded
on the remeasurement to fair value less costs to sell.
The consideration received for disposal of the business was
£239,700,000, comprising of cash of £190,600,000, including
£13,700,000 for the issue of a licence premium, loan notes of
£5,000,000, and the fair value of the remaining 49% of the business
of £44,100,000. The fair value was based on an enterprise value
calculation taking into consideration the significant new debt within the
business. The loan notes were repaid on 24 April 2014. The profit on
disposal recorded within discontinued operations was £10,563,000
after deducting fees and other costs directly related to the disposal.
92
2016
Strategic Report
Governance
The licence premium is being amortised over six years, being the
period over which Eddie Stobart Logistics has the right to use the
Eddie Stobart brand.
Results of discontinued operations
2016
£’000
Profit before interest and tax from continuing operations is stated after
charging/(crediting) the following:
2015
£’000
Revenue
Operating expenses – other
Net finance costs
Profit on partial disposal of business
–
–
–
–
–
46,845
(49,696)
(6)
(14)
10,563
Profit before tax
–
7,692
Tax
–
Profit for the year from discontinued
operations, net of tax
–
6,850
Basic earnings per share
Diluted earnings per share
–
–
2.08p
2.08p
2016
£’000
2015
£’000
Cash flows used in discontinued operations
(842)
Net cash used in operating activities
Net cash from investing activities
Net cash used in financing activities
–
–
–
(16,669)
349
(907)
Net cash flows for the year
–
(17,227)
The above profit on partial disposal of business of £10,563,000 is
calculated as proceeds of £239,700,000 less costs of disposal of
£8,642,000 less net assets disposed of £220,495,000.
The revenue from one customer amounted to more than 10% of
the Group’s discontinued revenue. The revenue from that customer
reported within discontinued operations was £nil in the year (2015:
£14,547,000).
The accounting for the Group’s share of the results of the remaining
49% of the business requires identification of the fair value of the
investee’s identifiable assets and liabilities including intangible assets.
The share of the post tax results of the associate for the year of
£6,945,000 (2015: £2,200,000), included in the Consolidated Income
Statement total of £8,295,000 (2015: £2,507,000), includes a share of
non-underlying items totalling a cost of £2,835,000 (2015: £4,190,000).
These non-underlying items are set out in note 7 along with the
related policies.
5 Business Combinations
There were no acquisitions in the current or prior year.
6 Operating Expenses and Other Operating Income
Operating expenses from continuing operations, excluding nonunderlying items, are after charging the following:
Employee benefits expenses excluding
share-based payments
Depreciation of property, plant and
equipment
Share-based payment
Other purchases and external expenses
Operating expenses – Other
equipment
Profit on disposal of property, plant and
equipment
Profit on sale and leaseback
Release of government grants
Operating lease expense
– Plant and machinery and commercial
vehicles
– Property
2015
£’000
36,537
33,622
8,435
648
79,165
6,751
488
72,958
124,785
113,819
2015
£’000
8,435
3,938
6,751
3,939
(183)
(1,893)
(302)
546
2,939
(166)
–
(277)
427
2,385
Amounts receivable by the auditor and their associates in respect of:
Remuneration receivable in respect of the
audit of the Company
The auditing of accounts of any subsidiary of
the Company
Audit related services
Taxation advisory services
2016
£’000
2015
£’000
78
158
141
23
11
133
26
43
253
360
In the prior year’s financial statements, £5,136,000 of driver wages
recharged from companies in the Group headed by Greenwhitestar
Holding Company 1 Limited were included as other purchases and
external expenses rather than employee benefits expenses excluding
share-based payments. This is because their employment transfer
under TUPE regulations was outstanding at 28 February 2015 and
completed on 4 April 2015. These costs have been included within
employee benefits expenses excluding share-based payments in the
comparative column.
7 Non-Underlying Items
Non-underlying items included in the Consolidated Income Statement
comprise the following:
Operating expenses – other
Transaction costs
Restructuring costs
Share of post-tax profits of associates and joint ventures
2016
£’000
2016
£’000
Transaction costs
Restructuring costs
2016
£’000
2015
£’000
1,214
395
–
3,938
779
–
1,685
3,939
5,547
6,403
2016
£’000
2015
£’000
–
–
2,835
704
886
2,600
2,835
4,190
New business and new contract set up costs comprise costs of
investing in major new business areas or major new contracts to
commence or accelerate development of our business presence.
These costs include marketing costs, establishment costs, legal and
professional fees, losses and certain staff and training costs. The costs
in the current year were in relation to the development of business at
London Southend Airport.
Strategic Report
Governance
Transaction costs comprise costs of making investments or costs of
financing transactions that are not permitted to be debited to the cost
of investment or as issue costs. These costs include costs of any
aborted transactions.
Restructuring costs comprise costs of integration plans and other
business reorganisation and restructuring undertaken by management.
Costs include cost rationalisation, site closure costs, certain short-term
duplicated costs and other costs related to the reorganisation and
integration of businesses. These are principally expected to be one off
in nature. The costs in the prior year were principally in relation to site
restructuring in Stobart Energy and restructuring the terminal security
operations at London Southend Airport.
Amortisation of acquired intangibles comprises the amortisation of
intangible assets including those identified as fair value adjustments
in acquisition accounting. The charge in the year is principally in
connection with amortisation of the brand assets.
Non-underlying items included in the share of post-tax profits of
associates and joint ventures all relate to the investment in Greenwhitestar
Holding Company 1 Limited. Amortisation of acquired intangibles includes
amortisation of the customer relationships. Transaction costs in the prior
year relate to the partial disposal transaction and restructuring costs
include costs of the restructuring of the Automotive business.
Non-underlying finance costs in the prior year of £8,090,000, which
are not included above, comprise the costs associated with the
early repayment of debt balances. Costs include repayment fees,
associated issue costs written off and directly related professional
fees. The costs were incurred in connection with the repayment of a
£100,000,000 variable rate loan with M&G Investment Management
Limited and repayment of a substantial proportion of a property loan
with GE Real Estate Finance Limited (see note 23).
8 Staff Costs
Staff costs (including Directors) comprise:
Wages and salaries
Driver wages recharged from
related party
Social security costs
Other pension costs
Share-based payment
Note
27
2016
£’000
2015
£’000
32,662
25,019
405
3,060
958
648
5,136
2,685
782
488
37,733
34,110
Staff costs above relate to the underlying continuing business.
Included in staff costs above are costs which have been capitalised
within assets under construction and contract set up costs of £548,000
(2015: £39,000).
Staff costs include £405,000 (2015: £5,136,000) of driver wages
recharged from companies in the Group headed by Greenwhitestar
Holding Company 1 Limited as their employment transfer under TUPE
regulations was only completed on 4 April 2015. These costs are
included in employee benefits expenses excluding share-based
payments in the table in note 6.
9 Finance Income
Bank interest receivable
Interest receivable from associates
and joint ventures
Other
10 Finance Costs
Bank loans, loan notes and overdraft
Net interest of retirement benefit schemes
Finance charges payable under finance
leases and hire purchase contracts
Other interest
93
2016
2016
£’000
2015
£’000
29
55
1,227
87
574
17
1,343
646
2016
£’000
2015
£’000
1,194
75
1,412
96
936
97
848
–
2,302
2,356
During the year £29,000 (2015: £33,000) of interest was capitalised.
11Taxation
Total tax charged in the Consolidated Income Statement
from continuing and discontinued operations
2016
£’000
2015
£’000
Current income tax:
UK corporation tax
– Continuing operations
– Discontinued operations
Adjustment in respect of prior years
–
–
3,130
–
443
890
Total current tax
3,130
1,333
Deferred tax:
Origination and reversal of temporary
differences
Adjustment in respect of prior years
Impact of rate change
1,106
(1,101)
(1,938)
(1,916)
32
–
Total deferred tax
(1,933)
(1,884)
Total charge/(credit) in the Consolidated
Income Statement from continuing and
discontinued operations
1,197
(551)
Included in the above tax charges are total current tax charge on
continuing operations of £3,130,000 (2015: £890,000), total deferred
tax credit on continuing operations of £1,933,000 (2015: £2,283,000)
and a total tax charge on continuing operations in the Consolidated
Income Statement of £1,197,000 (2015: credit £1,393,000).
The current tax adjustment in respect of prior years is as a result of
a reassessment of the ability to access unused tax attributes. The
deferred tax adjustment in respect of prior years is primarily in relation
to the recognition of additional capital losses in respect of property
transactions which occurred during the prior year. This recognition is
supported by the acquisition of properties during the year in which
there are inherent capital gains at the year end.
94
2016
Strategic Report
Governance
Reconciliation of Income Tax Charge
A reconciliation of the income tax charge applicable to the results
from ordinary activities at the statutory income tax rate to income
tax expense at the Group’s effective income tax rate for the year is
as follows:
2016
£’000
2015
£’000
Net loss before tax from continuing and
discontinued operations
9,991
(1,712)
UK income tax at rate 20.08% (2015: 21.17%)
2,006
(362)
Effects of:
Income not taxable including profit on partial
disposal, interest receivable and share of
profits of associates and joint ventures
Profit on disposal of non-qualifying assets
Impact of change in tax rate
Expenses incurred not relievable against
current tax
Chargeable gains
Losses carried forward not recognised
Adjustments in respect of prior years
(2,247)
(8)
(2,124)
(3,198)
(841)
142
1,161
380
–
2,029
1,840
–
946
922
1,197
(551)
Included in the Statement of Other Comprehensive Income is a
charge of £60,000 (2015: £20,000) in relation to the defined benefit
pension scheme.
The deferred tax credit in the Consolidated Income Statement is
analysed as follows:
Accelerated allowances on plant and
machinery
Revaluation of properties to fair value on
acquisition
Brands recognised on acquisition
Other temporary differences
2016
£’000
2015
£’000
472
(1,113)
(1,030)
1,795
696
1,933
(57)
(743)
29
(1,884)
Deferred tax on temporary differences in the year amounting to £nil
(2015: £894,000) has not been recognised in the financial statements
on the basis that these temporary differences relate to tax losses of
certain Group entities where there is uncertainty over whether taxable
profit will be generated by the operations of these entities against
which the unused tax losses can be utilised in future periods.
Stobart Group Limited’s affairs are conducted such that it is considered
to be resident in the UK for tax purposes. HM Revenue & Customs has
not objected to this position. As a result, the Company is liable to pay UK
corporation tax on its profits.
Factors That May Affect the Future Tax Charge
Reductions in the UK corporation tax rate from 20% to 19%
(effective from 1 April 2017) and 18% (effective from 1 April 2020)
were substantively enacted on 26 October 2015. The recent March
2016 Budget announced that the rate effective from 1 April 2020 will
further reduce to 17%. This will reduce the Company’s future current
tax charge accordingly. The deferred tax assets/liabilities as at
29 February 2016 have been provided at 18%.
12 Earnings Per Share
Basic earnings per share amounts are calculated by dividing net profit
for the year attributable to ordinary equity holders of the Parent by the
weighted average number of ordinary 10p shares outstanding during
the year.
Diluted earnings per share is calculated by dividing net profit attributable
to ordinary equity holders of the parent by the weighted average number
of ordinary shares, adjusted for share options which have exercise prices
below the average market price of shares during the period. These
options are anti dilutive in the current and prior years and have not
therefore been included in the calculation in accordance with IAS 33.
The following table reflects the income and share data used in the
basic and diluted earnings per share calculations:
2016
£’000
Numerator
Continuing operations
Profit/(loss) used for basic and diluted
earnings
Discontinued operations
Profit used for basic and diluted earnings
Total
Profit/(loss) used for basic and diluted
earnings
Denominator
Weighted average number of shares
used in basic EPS
Effects of employee share options
Weighted average number of
shares used in diluted EPS
Weighted average of own shares
held and therefore excluded from
weighted average number
8,794
–
8,794
2015
£’000
(8,011)
6,850
(1,161)
Number
Number
328,068,045
550,600
329,929,986
–
328,618,645 329,929,986
26,260,786
24,398,845
The numerator used for the basic and diluted underlying earnings per
share for continuing operations is the underlying profit from continuing
operations of £16,249,000 (2015: £8,627,000). The numerator used for
the basic and diluted underlying earnings per share is the underlying
profit for the year of £16,249,000 (2015: £4,914,000).
95
Strategic Report
Governance
2016
On 21 September 2007, 1,504,120 options with an exercise price of
166.2p were granted. These are potentially dilutive instruments but
were not included in the calculation of diluted earnings per share
because the average market price of the shares was lower than the
exercise price.
On 6 November 2015, 1,571,217 awards were made to Executive
Directors and other senior employees under a Long-Term Incentive
Plan. These are potentially dilutive instruments but were not included in
the calculation of diluted earnings per share because the performance
conditions have not been met unconditionally at the year end date.
On 7 December 2011, 32.5 million share options were granted to
Directors and certain senior managers under a Long-Term Incentive
Plan. These are potentially dilutive instruments but were not included in
the calculation of diluted earnings per share because the performance
conditions have not been met unconditionally at the year end date.
These options have now lapsed.
During the year, the Company sold 16,396,300 treasury shares. During the
prior year, 26,403,000 shares were purchased and were held in treasury
at 28 February 2015. Treasury shares are not included in the weighted
average number of shares used to calculate earnings per share.
On 1 November 2014, 479,395 awards were made to Executive
Directors under a Long-Term Incentive Plan. These are potentially
dilutive instruments but were not included in the calculation of diluted
earnings per share because the performance conditions have not
been met unconditionally at the year end date.
On 22 June 2015, 1,308,941 awards were made to other senior
employees under a Long-Term Incentive Plan. These are potentially
dilutive instruments but were not included in the calculation of diluted
earnings per share because the performance conditions have not
been met unconditionally at the year end date.
On 1 September 2015, the Group introduced an HMRC-approved,
SAYE scheme available to all employees. The maximum number of
shares that may be acquired under this scheme is 1,113,367. These are
potentially dilutive instruments and were included in the calculation of
diluted earnings per share.
Own shares held in an employee benefit trust are excluded from the
weighted average number of shares.
13Dividends
Dividends paid on ordinary shares
Interim dividend paid
4 December 2015
Final dividend for 2015 paid
3 July 2015
Interim dividend paid
5 December 2014
Final dividend for 2014 paid
4 July 2014
Cost or valuation
At 1 March 2015
Additions
Disposals
Reclassified as held for sale
At 29 February 2016
2016
£’000
2015
Rate
p
2015
£’000
2.0
6,559
–
–
4.0
13,117
–
–
–
–
2.0
6,559
–
–
4.0
13,249
6.0 19,676
6.0
19,808
A final dividend of 4.0p per share totalling £13,772,885 was declared
on 12 May 2016 and subject to shareholder approval will be paid on
8 July 2016. This is not recognised as a liability as at 29 February 2016.
14 Property, Plant and Equipment
2016
Rate
p
Land and
buildings
£’000
193,091
13,324
(15,056)
(5,819)
185,540
Plant and
machinery
£’000
Fixtures,
fittings and
equipment
£’000
26,401
6,667
(190)
–
4,762
1,271
(139)
–
32,878
5,894
Commercial
vehicles
£’000
27,425
11,078
(7,409)
–
31,094
Total
£’000
251,679
32,340
(22,794)
(5,819)
255,406
Aggregate depreciation and impairment losses
At 1 March 2015
Charge for the year
Disposals
13,690
2,530
(7)
2,990
1,770
(128)
3,761
1,569
(141)
At 29 February 2016
16,213
4,632
5,189
11,405
37,439
169,327
28,246
705
19,689
217,967
Net book value at 29 February 2016
9,323
2,566
(484)
29,764
8,435
(760)
Included in the above table are disposals of land and buildings totalling £14,876,000 (2015: £nil) in relation to a sale and leaseback. The profit on
sale and leaseback is disclosed in note 6.
96
2016
Strategic Report
Governance
Land and
buildings
£’000
Plant and
machinery
£’000
Fixtures,
fittings and
equipment
£’000
Commercial
vehicles
£’000
Total
£’000
Cost or valuation
At 1 March 2014
Additions
Disposals
Transfers to investment properties
Reclassified to inventory
235,539
14,953
(2,403)
(11,054)
(43,944)
23,841
2,670
(110)
–
–
4,775
728
(741)
–
–
11,241
19,032
(1,696)
–
(1,152)
275,396
37,383
(4,950)
(11,054)
(45,096)
At 28 February 2015
193,091
26,401
4,762
27,425
251,679
Aggregate depreciation and impairment losses
At 1 March 2014
Charge for the year
Disposals
Transfers to investment properties
15,675
2,548
–
(4,533)
1,479
1,535
(24)
–
2,890
1,630
(759)
–
8,706
1,038
(421)
–
28,750
6,751
(1,204)
(4,533)
At 28 February 2015
13,690
2,990
3,761
9,323
29,764
179,401
23,411
1,001
18,102
221,915
Impairment of Assets
There were no impairment charges in the current or prior year.
Impairment Testing of Other Property, Plant and Equipment Where No Charge for Impairment Has Been Recognised
The London Southend Airport CGU comprises the business operations of the commercial airport and ancillary operations including a hotel and
railway station. Whilst there were no significant indicators at year end that the CGU may be impaired, the CGU has been tested for impairment as
the business suffered a loss before tax in the year to 29 February 2016. The Group estimated the value in use of the CGU and determined that
no charge for impairment was necessary. The pre-tax discount rate used in the value in use calculation was 11.5% (2015: 10.8%). The estimated
value in use was based on estimates of the timing and extent of increases in the level of future passenger numbers, incomes per passenger,
rental income and the discount rate. The carrying value of property, plant and equipment included in this CGU at 29 February 2016 was £149.4m
(2015: £153.1m).
The calculation of the value in use is most sensitive to the discount rate. In order for the estimated recoverable amount of the CGU to be equal to
the carrying amount the discount rate would need to be individually increased by 6.2% (2015: 6.6%).
Other Disclosures in Relation to Property, Plant and Equipment
Certain land and buildings were acquired through business acquisitions and were subject to independent valuations as part of the fair value
exercise, or were acquired during the year and accounted for at cost.
Bank borrowings are secured on the Group’s freehold land and buildings.
Included in land and buildings at 29 February 2016 are assets under construction of £10,226,000 (2015: £11,393,000).
The net carrying amount of property, plant and equipment includes the following amounts in respect of assets held under finance leases and
secured on the related assets:
Land and
buildings
£’000
Plant and
machinery
£’000
Cost
Aggregate depreciation
876
(110)
12,392
(1,785)
766
10,607
796
7,444
Fixtures,
fittings and
equipment
£’000
4,496
(3,769)
Commercial
vehicles
£’000
Total
£’000
22,532
(2,965)
40,296
(8,629)
727
19,567
31,667
1,680
15,798
25,718
Strategic Report
Governance
97
2016
15 Investments in Associates and Joint Ventures
Year end
Issued ordinary
shares
Company holding direct
investment
Residence
31 December
10,000
Stobart Properties
Limited
Guernsey
Property investment
50%
Entity
Westbury Fitness Limited
% of nominal value
of issued shares
or members’
capital held
Principle activity of the
entity or group
headed by the entity
5 April
2
WPL Investments
Limited
Isle of Man
Property investment
50%
Everdeal Holdings Limited
31 December
2,000
SAI1 Limited
Eire
Commercial airline
45%
Propius Holdings Limited
31 December
30,000
Stobart Holdings
Limited
Cayman
Islands
Aircraft leasing
331/3%
31 March
20,000
Stobart AD 1
Limited
UK
Operation of energy
plant
25%
Shuban 6 Limited1
30 September
20,000
Stobart AD 1
Limited
UK
Operation of energy
plant
38%
Mersey Bioenergy
Holdings Limited1
31 December
100
Stobart Green
Energy Limited
UK
Operation of energy
plant
39.6%
Greenwhitestar Holding
Company 1 Limited1
30 November
1,000
Stobart Holdings
Limited
Isle of Man
Contract logistics
49%
39,215,686
Stobart Holdings
Limited
Isle of Man
Financing company
49%
Convoy Limited
Shuban Power Limited1
Greenwhitestar Finance
Limited1
30 November
1 ₁ These entities are associates, all others are joint ventures.
Associates and Joint Ventures
At 1 March
Cash additions
Non-cash additions
Share of post-tax profits
Distributions
Exchange adjustment on retranslation of
investment in joint venture
Amounts taken to comprehensive income
in associates
At 29 February
2016
£’000
57,828
3
–
8,295
(4,264)
1,564
(727)
62,699
2015
£’000
15,799
345
44,100
2,507
(2,874)
(406)
(1,643)
57,828
Loans to associates and joint ventures where the settlement is planned
or expected to be repaid in the foreseeable future do not form part
of the equity investment and are included in other receivables or
non-current amounts owed by associates and joint ventures according
to the expected repayment terms.
Reconciliation of equity investment in joint ventures
disclosed in the Consolidated Statement of Cash Flows
2016
£’000
2015
£’000
Cash additions
Deferred consideration paid
–
–
(345)
(1,094)
At 29 February
–
(1,439)
Stobart Green Energy Limited has a commitment to provide £nil (2015:
£3,636,604) in respect of further loan notes to be issued to Mersey
Bioenergy Holdings Limited.
Summary of material and immaterial carrying values of
equity investments in associates and joint ventures
Carrying amount of Propius Holdings Limited
Carrying amount of Greenwhitestar Holding
Company 1 Limited
Carrying amount of individually immaterial
joint ventures
Carrying amount of individually immaterial
associates
At 29 February
2016
£’000
2015
£’000
11,018
12,353
50,875
44,657
457
473
349
345
62,699
57,828
98
2016
Strategic Report
Governance
Material Associates
Greenwhitestar Holding Company 1 Limited
2016
£’000
2015
£’000
Percentage ownership interest
49%
49%
Material Joint Ventures
Propius Holdings Limited
Percentage ownership interest
Non-current assets
316,606
279,970
Current assets (including cash and cash
equivalents (2016: £14,347k/2015: £14,082k)) 129,929
153,587
Non-current liabilities (including non-current
financial liabilities other than trade and other
payable provisions (2016: £140,157k/2015:
£194,635k))
(225,405) (226,832)
Current liabilities (including current financial
liabilities other than trade and other payable
provisions (2016: £18,542k/2015: £22,047k))
(117,162) (115,448)
Non-current assets
Current assets (including cash and cash
equivalents (2016: £13,396k/2015: £9,727k))
Non-current liabilities (including non-current
financial liabilities other than trade and other
payable provisions (2016: £65,554k/2015:
£67,200k))
Current liabilities (including current financial
liabilities other than trade and other payable
provisions (2016: £nil/2015: £1,804k))
Net assets (100%)
Group’s share of net assets
Adjustment
2016
£’000
2015
£’000
33.33%
33.33%
95,268
103,321
14,193
10,192
(74,913)
(74,042)
(1,493)
(2,410)
103,968
50,944
(69)
91,277
44,726
(69)
Net assets (100%)
Group’s share of net assets
Adjustment
33,055
11,018
–
37,061
12,353
–
Carrying amount of interest in associate
50,875
44,657
Carrying amount of interest in joint venture
11,018
12,353
Revenue
Depreciation and amortisation
Non-underlying amortisation of acquired
intangibles
Non-underlying transaction costs
Non-underlying restructuring costs
Interest expense
Income tax expense
Profit from continuing operations
547,761
(16,274)
530,003
(11,299)
(2,835)
–
–
(18,439)
–
7,131
(5,306)
(1,437)
(1,808)
(16,318)
(3,215)
4,490
Revenue
Interest income
Interest expense
Income tax expense
Profit from continuing operations
13,937
3
(6,345)
(1,017)
4,318
11,583
1
(4,370)
(215)
1,508
33.33% of post-tax profits
Adjustment
1,439
(74)
503
(3)
Group’s share of profit
1,365
500
Group’s share of other comprehensive
income
1,564
(406)
Group’s share of total comprehensive
income
2,929
94
Post-tax profit from discontinued operations
7,042
–
49% of post-tax profits
Adjustment
6,945
–
2,200
–
Group’s share of profit
6,945
2,200
Group’s share of other comprehensive
income
Group’s share of total comprehensive
income
(727)
6,218
(1,643)
Propius Holdings Limited is considered a joint venture because voting
rights do not give control to an individual. Board decisions require
unanimous shareholder approval.
557
Aggregate Immaterial Joint Ventures
Greenwhitestar is considered an associate because Board decisions
require a majority vote with the casting vote in a stalemate scenario
being held by a non-Stobart chairman.
Carrying amount
Share of loss from continuing operations
Other comprehensive income
Total comprehensive income
2016
£’000
2015
£’000
457
(15)
–
–
473
(193)
–
–
99
Strategic Report
Governance
Aggregate Immaterial Associates
Carrying amount
Share of profit from continuing operations
Other comprehensive income
Total comprehensive income
2016
£’000
2015
£’000
349
–
–
–
345
–
–
–
The unrecognised share of losses in associates in the year is £nil
(2015: £nil). The unrecognised share of losses in joint ventures in the
year is £1,743,000 (2015: £2,878,000). The cumulative unrecognised
share of losses in joint ventures as at 29 February 2016 is £5,435,000
(2015: £3,692,000).
16 Investment Property
2016
£’000
2015
£’000
At 1 March
Reclassified from property, plant and
equipment
Transferred to assets held for sale
Additions
Disposals
Gain on revaluation
20,926
30,890
–
–
17,598
–
8,441
6,521
(5,800)
167
(12,144)
1,292
At 29 February
46,965
20,926
During the year the Group acquired an investment property at
Speke for £17,598,000, inclusive of stamp duty and fees. This property
was revalued at 29 February 2016 at £26,700,000, giving rise to a
revaluation gain of £9,102,000. A significant discount has been applied
in the valuation of the Speke property to take account of the lease
with a third party tenant not being signed pre year end. If this discount
was not applied, the full value of the property would be higher.
In the prior year, the Group disposed of a number of investment
properties, realising net proceeds of £12,217,000 and a profit on
disposal of £73,000. There were no disposals of investment property
during the current year.
Rental income received from investment properties during the year
was £1,960,000 (2015: £3,185,000), and direct operating expenses
attributable to these properties were £411,000 (2015: £408,000).
All of the Group’s investment properties were subject to an independent
valuation as at 29 February 2016 by GVA Grimley, on the basis of open
market value, supported by market evidence. The open market value
represents the amount at which the assets could be exchanged
between a knowledgeable, willing buyer and a knowledgeable,
willing seller in an arm’s length transaction at the date of the valuation.
The valuation was performed in accordance with the RICS Valuation
Standards issued by the Royal Institution of Chartered Surveyors and
is based on available market evidence.
At 29 February 2016, there were no contractual obligations to purchase
investment property (2015: nil).
17 Intangible Assets
2016
Goodwill
£’000
Brand
names
£’000
Customer
relationships
£’000
Total
£’000
Cost
At 1 March 2014
59,044
60,000
1,793
120,837
At 28 February
2015
59,044
60,000
1,793
120,837
At 29 February
2016
59,044
60,000
1,793
120,837
Amortisation and impairment
At 1 March 2014
–
–
664
664
Amortisation charge
–
3,717
222
3,939
At 28 February
2015
Amortisation charge
–
–
3,717
3,717
886
221
4,603
3,938
At 29 February
2016
–
7,434
1,107
8,541
Net book value
At 28 February 2014
At 28 February 2015
59,044
59,044
60,000
56,283
1,129
907
120,173
116,234
At 29 February
2016
59,044
52,566
686
112,296
No internally generated intangible assets are recognised in the
financial statements.
Brand names consist of the Stobart and Eddie Stobart trademarks
and designs and other Stobart-associated trademarks and designs.
Customer relationships consist of contractual relationships with
customers recognised on acquisitions.
Goodwill and Intangible Assets with Indefinite Lives
The goodwill and brands with indefinite lives from business
combinations have been allocated to cash-generating units (CGUs).
Carrying amounts of goodwill and brand names with indefinite lives
allocated to each CGU are set out below. These assets are considered
to have indefinite lives because there is no foreseeable limit to the period
over which the assets are expected to generate net cash inflows for the
Group. Factors taken into account in the consideration were the legal
ownership, the long period over which the brand names have been
established, the strength of brand awareness and the stability of the
industries in which the main brands are involved.
100
2016
Strategic Report
Governance
Stobart Biomass Transport
Carrying amount of
goodwill
Carrying amount of
brands with indefinite
useful lives
Stobart Biomass Products
Stobart Rail
Other
Total
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2016
£’000
2015
£’000
6,004
6,004
48,665
48,665
4,375
4,375
–
–
59,044
59,044
3,300
3,300
5,500
5,500
4,100
4,100
1,700
1,700
14,600
14,600
Impairment Testing of Goodwill and Intangible Assets with
Indefinite Lives
In accordance with IAS 36 ‘Impairment of Assets’, the Group has
undertaken impairment testing for each CGU. The key assumptions
applied in respect of each CGU are set out below. A sensitivity analysis
has been performed, at the individual CGU level, in order to review the
effect of changes in key assumptions.
Stobart Biomass Transport Cash-Generating Unit
The recoverable amount of the intangible assets in the Stobart Biomass
Transport CGU has been based on value in use calculations using
projections from financial forecasts approved by senior management
covering a five year (2015: five year) period. The main assumptions on
which the forecasts were based include sales volumes and profit
margins. The pre-tax discount rate applied to the cash flow projections
was 11.6% (2015: 8.9%) based on the weighted average cost of capital
of the CGU, taking into account the cost of equity and debt for the CGU,
and adjusting for risk specific to the CGU. Cash flows beyond the five
year period are deemed to be in perpetuity but an annual growth rate of
2.0% (2015: 2.0%) is assumed in the calculations.
No impairment losses have been recognised in the current or
prior year. The calculation of the value in use is most sensitive to the
discount rate and sales volumes. With regard to the assessment of
value in the CGU, management believes that no reasonably possible
change in the discount rate or sales volumes would cause the carrying
value of the CGU to exceed its recoverable amount.
Stobart Biomass Products Cash-Generating Unit
The recoverable amount of the goodwill and intangible assets in
the Stobart Biomass Products CGU has been based on value in
use calculations using projections from financial forecasts approved
by senior management covering a five year (2015: five year) period.
The main assumptions on which the forecasts were based include
sales volumes and profit margins. The pre-tax discount rate applied
to the cash flow projections was 8.9% (2015: 9.1%) based on the
weighted average cost of capital for the CGU, taking into account the
cost of equity and debt for the CGU, and adjusting for risk specific to
the CGU. Cash flows beyond the five year period are deemed to be in
perpetuity but an annual growth rate of 2.0% (2015: 2.0%) is assumed
in the calculations.
No impairment losses have been recognised in the current or prior
year. The calculation of the value in use is most sensitive to the
discount rate. With regard to the assessment of value in the Stobart
Biomass CGU, management believes that no reasonably possible
change in the discount rate would cause the carrying value of the
CGU to exceed its recoverable amount.
Stobart Rail Cash-Generating Unit
The recoverable amount of the goodwill and intangible assets in the
Stobart Rail CGU has been based on value in use calculations using
projections from financial forecasts approved by senior management
covering a five year (2015: five year) period. The main assumptions on
which the forecasts were based include Network Rail work volumes.
The pre-tax discount rate applied to the cash flow projections was
9.8% (2015: 11.3%) based on the weighted average cost of capital for
the CGU, taking into account the cost of equity and debt for the CGU,
and adjusting for risk specific to the CGU. Cash flows beyond the five
year period are deemed to be in perpetuity but an annual growth rate
of 2.0% (2015: 2.0%) is assumed in the calculations.
No impairment losses have been recognised in the current or the prior
period. The calculation of the value in use is most sensitive to the
discount rate and sales volumes. With regard to the assessment of
value in the CGU, management believes that no reasonably possible
change in the discount rate or sales volumes would cause the carrying
value of the CGU to exceed its recoverable amount.
Other
The brands with indefinite life in the ‘other’ column in the table relate to
Stobart brands for which the Group obtained an independent valuation
in 2014 which supports these values. This asset has been tested for
impairment at the year end using a pre-tax discount rate of 6.2% (2015:
10.1%). No impairment losses have been recognised and in order for
the estimated recoverable amount of the CGU to be equal to the
carrying amounts the discount rate would need to be individually
increased by 16.5% (2015: 1.2%) to 22.7% (2015: 11.3%) and the net
cash flows driven by sales volumes would need to individually reduce
by 72% (2015: 24%).
The balance of the brands of £37,966,000 (2015: £41,683,000),
not included in the above table, represents the value of expected
receipts under the licence agreement with a trading subsidiary of
Greenwhitestar Holding Company 1 Limited for the right to use
the Eddie Stobart brand, following the disposal of the Transport and
Distribution business. This is not included in the table above in the
current year because this asset is not considered to have an indefinite
life, but instead will be amortised to a residual value over its useful
economic life of six years, four years of which are remaining at the
year end. The licence agreement allows a trading subsidiary of
Greenwhitestar Holding Company 1 Limited to use certain Eddie
Stobart trademarks and designs for an initial period of 15 years with
options to extend the licence period, terminate within four years, or
purchase the trademarks and designs for use in the logistics business
or purchase the trademarks and designs for unlimited use.
The discount rates used in the impairment workings for some of the
CGUs are lower than those used in the prior year. The methods used
to determine the factors within the discount rate calculations were
consistent with the prior year. Reasons for the reduction in some of
the discount rates include slight reduction in cost of debt, variations in
gearing and beta values for comparative companies used to calculate
cost of equity.
Strategic Report
Governance
The Stobart Biomass Transport and Stobart Biomass Products CGUs
are both part of the Energy segment. The Stobart Rail CGU is part of
the Rail segment and the Other CGU is part of the adjustments and
eliminations segment.
18Inventories
Consumable supplies
Goods held for resale
Vehicle inventory
Property inventories
2016
£’000
2015
£’000
222
452
–
44,409
298
758
1,152
43,944
45,083
46,152
Property inventories includes the development land assets at Widnes
and Carlisle.
19 Trade and Other Receivables
2016
£’000
2015
£’000
13,401
–
10,344
484
13,401
10,828
24,167
24,783
17,493
24,928
48,950
42,421
Non-current
Amounts owed by associates and joint
ventures
Other receivables and prepayments
Current
Trade receivables – net
Other receivables and prepayments
Movement in the provision for
doubtful debts
At 1 March
Movement in the year
373
470
54
319
At 29 February
843
373
2016
£’000
Receivable
Current
1 month
2 months
3+ months
The analysis of trade receivables past due but not impaired is as follows
Neither past due or impaired
< 30 days
31–60 days
61–90 days
91–120 days
> 120 days
2016
£’000
Provision
2015
£’000
Receivable
–
–
–
(843)
9,999
5,914
811
1,142
(98)
–
(30)
(245)
25,010
(843)
17,866
(373)
The standard period for credit sales varies from 30 days to 60 days.
The Group assesses creditworthiness of all trade debts on an ongoing
basis. New customers are subject to stringent credit checks.
2015
£’000
18,026
2,791
2,011
1,059
51
1,072
14,013
2,252
756
256
351
238
25,010
17,866
During the current year, a property which was previously classified as
property, plant and equipment was classified as held for sale and
remained for sale at year end.
The major classes of assets and liabilities held for sale are as follows:
2016
£’000
2015
£’000
Investment properties
Property, plant and equipment
–
5,354
7,375
–
Total assets classified as held for sale
5,354
7,375
2016
£’000
2015
£’000
17,568
1,949
16,660
1,195
18,458
264
25,696
302
38,239
43,853
2016
£’000
2015
£’000
11,480
8,306
16,333
8,570
19,786
24,903
Trade payables
Other taxes and social security
Other payables, accruals and deferred
income
Government grants
2015
£’000
Provision
16,611
3,683
2,535
2,181
2016
£’000
20 Disposal Groups Classified as Held for Sale
At 28 February 2015, two properties previously classified as investment
property were classified as held for sale. During the current year, one
of the two properties held for sale was written down by £275,000. Both
properties were subsequently sold, generating a profit on disposal
of £259,000.
21 Trade and Other Payables (Current)
The analysis of trade receivables due is as follows:
101
2016
22 Non-Current Payables
Other payables, accruals and deferred
income
Government grants
102
2016
Strategic Report
Governance
23 Financial Assets and Liabilities
Non-current
Fixed rate:
– Obligations under finance leases and hire
purchase contracts
Variable rate:
purchase contracts
– Bank loans
Current
Fixed rate:
purchase contracts
Variable rate:
– Obligations under finance lease and hire
purchase contracts
Total loans and borrowings
Cash
Net debt
2016
£’000
2015
£’000
6,608
6,045
15,902
26,382
11,452
–
48,892
17,497
2,295
2,559
6,663
4,723
8,958
7,282
57,850
24,779
9,858
5,716
47,992
19,063
The obligations under finance leases and hire purchase contracts
are taken out with various lenders at fixed or variable interest rates
prevailing at the inception of the contracts.
During the prior year, a £100,000,000 variable rate Group finance
arrangement was fully repaid on 11 April 2014 and a £74,864,000
property loan was repaid on 9 January 2015. There was also
£15,000,000 drawn on a £20,000,000 variable rate committed revolving
credit facility with a facility end date of February 2016 that was fully
repaid on 26 January 2015. This was replaced with a new £50,000,000
variable rate committed revolving credit facility with a facility end date
of January 2019, which was drawn at £27,000,000 (2015: £nil) at the
year end.
Non-underlying finance costs of £nil (2015: £8,090,000) includes the
early repayment fees payable in connection with the two substantial
repayments set out above as well as the write off of the debt issue
costs carried in relation to the repaid amounts.
Loan notes were issued in connection with the acquisition of Stobart
Biomass Products Limited on 19 May 2011. During the prior year,
these loan notes were fully repaid on 5 March 2014.
The Group was in compliance with financial covenants throughout
both the current and prior year.
The book value and fair values of financial assets and financial
liabilities are as follows:
Financial assets
Cash
ventures
Trade receivables
Other receivables
Financial liabilities
Trade payables
Finance leases and hire purchase
arrangements
Diesel swap
Financial assets
Cash
ventures
Trade receivables
Other receivables
Diesel swap
Trade payables
Finance leases and hire purchase
arrangements
Other payables
Book value
2016
£’000
Fair value
2016
£’000
9,858
9,858
15,339
24,167
638
15,339
24,167
638
17,568
26,382
17,568
26,382
31,468
1,381
30,124
1,381
Book value
2015
£’000
Fair value
2015
£’000
5,716
5,716
10,344
17,493
945
116
10,344
17,493
945
116
16,660
16,660
24,779
253
22,158
253
For trade and other receivables/payables with a remaining life of
less than one year, the carrying amount is considered to reflect the
fair value.
The fair values of loans and borrowings have been calculated by
discounting the expected future cash flows at prevailing interest rates.
The fair value of finance leases and hire purchase arrangements and of
loans and borrowings are classified as level 2 in the fair value hierarchy.
Fair Value Hierarchy
The Group uses the following hierarchy for determining and disclosing
the fair value of financial instruments by valuation technique:
Level 1:quoted (unadjusted) prices in active markets for identical
assets or liabilities.
Level 2:other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either
directly or indirectly.
Level 3:techniques which use inputs which have a significant effect
on the recorded fair value that are not based on observable
market data.
Strategic Report
Governance
Financial Assets and Liabilities Measured at Fair Value
Diesel swap
Financial assets
Diesel swap
Total
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
1,381
–
1,381
–
Total
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
116
–
116
–
Investment Properties
In addition to the financial assets disclosed above, investment
properties are also measured at fair value. All of the Group’s investment
properties were subject to an independent valuation as at 29 February
2016 by GVA Grimley, on the basis of open market value, supported
by market evidence. The open market value represents the amount
at which the assets could be exchanged between a knowledgeable,
willing buyer and a knowledgeable, willing seller in an arm’s length
transaction at the date of the valuation. The valuation was performed
in accordance with the RICS Valuation Standards issued by the Royal
Institution of Chartered Surveyors and is based on available market
evidence, and therefore falls within level 3 of the fair value hierarchy.
The significant unobservable inputs in the fair value calculations are
the future rentals and the related yields 5.0%–9.5% (2015: 5.0%–9.5%),
void period 0–3 years (2015: 0–3 years) and rent-free period 0–1 year
(2015: 0–1 year).
Fair Value Calculation Methodology
Diesel swaps are valued based on market rates and market-accepted
models. Fair value for financial instruments held at amortised cost has
been estimated by discounting cash flows at prevailing interest rates.
During the current and prior year, there were no transfers between level
1 and level 2 fair value measurements, and no transfers into and out of
level 3 fair value measurements.
Financial Instruments – Risk Management
The Group is exposed through its operations to the following
financial risks:
• Credit risk
• Fair value or cash flow interest rate risk
• Liquidity risk
• Capital risk
• Diesel price risk
In common with all other businesses, the Group is exposed to risks
that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks
and the methods used to measure them.
Principal Financial Instruments
The principal financial instruments used by the Group, from which
financial instrument risk arises, are as follows:
• Trade and other receivables • Cash at bank
• Bank overdrafts
• Trade and other payables
• Floating-rate bank loans
• Finance leases
103
2016
General Objectives, Policies and Processes
The Board has overall responsibility for the determination of the
Group’s risk management objectives and policies.
The overall objective of the Board is to set policies that seek to
reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies
are set out below:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or
a counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit risk from credit
sales. It is Group policy, implemented locally, to assess the credit risk
of new customers before entering contracts. Such credit ratings are
taken into account by local business practices.
All credit sales are made under Group payment and delivery terms
and conditions and are mostly covered by insurance. All credit limits
are formally set and are in agreement with the bank.
The recoverability of the net trade and other receivables book is
considered highly likely. This is supported by the history of collection
by the Group.
Interest Rate Risk
The Group is exposed to cash flow interest rate risk from long-term
borrowings and cash at variable rates. There are loan facilities at
variable rates as well as amounts held on deposit. These borrowing
policies are managed centrally. Although the Board accepts that this
policy neither protects the Group entirely from the risk of paying rates
in excess of current market rates nor eliminates fully cash flow risk
associated with variability in interest payments, it considers that it
achieves an appropriate balance of exposure to these risks.
During the current and prior year, the Group’s borrowings at variable
rate were denominated in GBP.
Diesel Price Risk
The Group is exposed to diesel price risk as diesel fuel is a key supply
to the transport fleet of vehicles in the Energy business. If diesel prices
rise there will be increases in the base costs that cannot be fully
passed onto customers. In order to mitigate this risk, the Group has
taken out diesel swap contracts to manage its exposure to diesel
price risk.
The fair value of diesel swap contracts, falling within level 2 of the
fair value hierarchy, as at 29 February 2016 is £1,381,000 liability
(2015: asset £116,000) and the gross swap coverage was £5,283,333
(2015: £6,640,000).
The fair value of the swaps are calculated by Lloyds Bank and Investec
Bank Commercial Markets based on mid-market levels as of the close
of business on 29 February 2016.
Sensitivity Analysis
The sensitivity analysis set out below summarises the sensitivity of the
market value of financial instruments to hypothetical changes in market
rates and prices. Sensitivity is calculated based on all other variables
remaining constant.
104
2016
Strategic Report
Governance
The interest rate analysis assumes a 1% change in interest rates. The
diesel price sensitivity analysis is based on diesel related derivative
instruments held at the end of each reporting period.
In addition, full annual five-year forecasts are prepared including cash
flow and headroom forecasts. These are full detailed forecasts built up
by division and consolidated for the Group.
The impact of a 1% increase in interest rates and a 10% increase in the
diesel price is disclosed. A corresponding decrease results in an equal
and opposite impact on the Consolidated Income Statement.
The financial statements have been prepared using the going concern
basis as the financial forecasts support the assumption that the Group
will be able to meet its obligations when they fall due.
Interest rate
1% increase
£’000
Diesel price
10% increase
£’000
At 29 February 2016
Increase in fair value of financial instruments
280
390
Impact on profit: (loss)/gain
(328)
201
124
307
(605)
167
At 28 February 2015
Increase in fair value of financial instruments
Impact on profit: (loss)/gain
Cash Flow Hedge
Financial instruments designated as cash flow hedges are held at fair
value in the Consolidated Statement of Financial Position.
The Group held an interest rate swap contract which was designated
as hedged against a proportion of the interest cash flow payable in
respect of its LIBOR floating rate borrowings. This interest rate swap
contract matured during the prior year on 1 October 2014.
Capital Management
The objective of the Group’s capital management is to ensure that it
maintains a strong credit rating and healthy capital ratios in order to
support its business and maximise shareholder value.
The Group monitors capital using gearing ratios. Gearing (excluding
net debt in disposal groups) based on net debt divided by capital
was 11.6% at 29 February 2016 (2015: 4.7%). The Group includes the
following within borrowings; bank loans and overdrafts, finance leases
and hire purchase contracts and loan notes. Capital comprises equity
attributable to the equity holders of the Parent.
The Group uses share capital to partly fund major acquisitions where
considered appropriate.
The Group is not subject to any externally imposed capital restraints
except compliance with normal bank covenants.
Dividends are payable after considering the solvency of the Group and
the forecast funding requirements and headroom.
Liquidity Risk
Liquidity risk arises from the Group’s management of working
capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. See also the maturity
profile of loans and borrowings below.
The Group prepares and reviews rolling weekly cash flow projections.
Actual cash and debt positions along with available facilities
and headroom are reported weekly. These are monitored by
Group management.
The table below summarises the maturity analysis of financial liabilities
based on contractual undiscounted payments:
At 29 February 2016
Loans and
borrowings
Finance lease
borrowings
Trade payables
Diesel swap
At 28 February 2015
Finance lease
borrowings
Trade payables
<1 year
£’000
1 to 5 years
£’000
>5 years
£’000
Total
£’000
–
26,382
–
26,382
9,811
17,568
1,169
20,345
–
212
8,819
–
–
38,975
17,568
1,381
28,548
46,939
8,819
84,306
7,774
16,660
14,655
–
3,477
–
25,906
16,660
24,434
14,655
3,477
42,566
24 Employee Benefits – Pension Schemes
The Ansa plan has been the sole defined benefit scheme in the Group
since April 2014.
The Ansa plan was designed for employees of Ansa Logistics Limited,
which remains open but significantly reduced in size following the loss
of the major customer in that subsidiary in 2007. The latest actuarial
valuation of the Ansa plan was as at 31 December 2013 and was
carried out by an independent qualified actuary using the projected
unit method. At the date of the latest actuarial valuation, the realisable
value of assets was £20,291,000, which was sufficient to cover 82%
of the value of benefits that had accrued to members, measured
on the continuing basis. Total contributions payable for the year to
29 February 2016 amounted to £614,000 (2015: £412,000) with no
contributions due to the plan at 29 February 2016.
The principal assumptions for the purpose of the actuarial valuations
used in these Consolidated Financial Statements were as follows:
Discount rate for scheme liabilities
Rate of inflation (RPI)
Rate of inflation (CPI)
Rate of general increase
in salaries
Mortality table used
2016
2015
3.85%
3.20%
2.20%
3.50%
3.20%
2.20%
3.20%
3.20%
S1PA,
S2PA,
CMI_2014,
CMI_2015,
1.0% minimum 1.0% minimum
annual
annual
improvement¹
improvement
Expected rate of return on assets
3.85%
3.50%
for the forthcoming year
1 +one year age rating.
Strategic Report
Governance
Longevity Assumptions for Members of the Ansa Plan
The life expectancies based on the plan’s IAS 19 mortality assumptions
at the plan’s normal retirement age of 65 are as follows:
Male life
expectancy
Female life
expectancy
29 February 2016
29 February 2036
86.9
88.2
88.9
90.4
28 February 2015
28 February 2035
86.3
87.6
88.5
90.0
The figures for the members 20 years in the future show how the
expected future improvements in longevity, as a result of the CMI
projections and the 1% p.a. minimum annual improvements, affect life
expectancies. An ‘improvement’ means the decrease in the rate of
mortality at a given age over the time period.
Sensitivities to Principal Assumptions
The principal risk to the Group in relation to the plan is that the Group
would be required to fund any deficits in the plan, the level of which is
variable and depends upon mortality rates, inflation and returns on
plan assets.
The most significant sensitivity stems from the following assumptions:
–– Discount rate. This is a key assumption because it is applied to
the future pension payments.
–– Price inflation. This is a key assumption because it is used to
determine increases to pensions in payment and in deferment,
and increases to pensionable salaries for the one active member.
–– Mortality after retirement. This is a key assumption because it
determines how long pensions are paid for when they come into
payment. The central assumptions are the S2PA base tables,
with the CMI_2015 projections of future experience, subject to
a 1.0% p.a. minimum annual improvement with no age rating.
Sensitising the assumptions listed above would have the following
effects on the total liabilities, assets and deficit positions. For the
purposes of the mortality sensitivity illustrations, we have varied the
minimum annual improvement.
Discount rate assumption
Liabilities
Assets
Deficit
RPI inflation assumption
Liabilities
Assets
Deficit
Minimum annual improvement
Liabilities
Assets
Deficit
3.60%
£’000
3.85%
£’000
4.10%
£’000
24,710
20,988
3,722
23,696
20,988
2,708
22,725
20,988
1,737
3.60%
£’000
3.85%
£’000
4.10%
£’000
22,922
20,988
1,934
23,696
20,988
2,708
24,522
20,988
3,534
0.50%
£’000
1.00%
£’000
1.50%
£’000
23,157
20,988
2,169
23,696
20,988
2,708
24,266
20,988
3,278
105
2016
Amounts Recognised in the Consolidated Statement of
Financial Position
2016
£’000
Present value of funded obligations
Fair value of scheme assets
Net liability recognised in the
Consolidated Statement of Financial
Position
2015
£’000
(23,696)
20,988
(24,344)
22,012
(2,708)
(2,332)
Amounts Recognised in the Consolidated Income Statement
Return on scheme assets
Interest expense
Finance expense
Current service cost (included in
staff costs)
2016
£’000
2015
£’000
760
(835)
846
(942)
(75)
(96)
(2)
(2)
Amounts Recognised in the Consolidated Statement of
Comprehensive Income
2016
£’000
Actual return less return recognised in profit
or loss
Experience gains arising on the scheme
liabilities
Changes in financial assumptions underlying
the present value of the scheme liabilities
Changes in mortality assumptions underlying
the present value of the scheme liabilities
2015
£’000
(1,170)
1,243
(557)
264
1,411
(1,618)
(365)
13
Amounts recognised in the Consolidated
Statement of Comprehensive Income
Deferred tax
(681)
60
(98)
20
Remeasurement on defined benefit plan
(621)
(78)
Cumulative net gains recognised
(401)
220
Actual return less return recognised in
profit or loss
Actual return on scheme assets
Less return recognised in profit or loss
760
(1,930)
2,089
(846)
(1,170)
1,243
106
2016
Strategic Report
Governance
Changes in the present value of defined benefit obligations and the fair
value of scheme assets are as follows:
2016
£’000
2015
£’000
Defined benefit obligation
Opening defined benefit obligation
Obligations disposed in the year
Current service cost
Interest expense
Actuarial losses
Employee contributions
Benefits paid
24,344
–
2
835
(489)
1
(997)
35,398
(12,621)
2
942
1,341
1
(719)
Closing defined benefit obligation
23,696
24,344
Opening fair value of scheme assets
Assets disposed in the year
Return recognised in profit or loss
Actuarial (losses)/gains
Contributions made by the Group
Employee contributions
Benefits paid
Expenses
Closing fair value of scheme assets
22,012
–
760
(1,170)
617
1
(997)
(235)
20,988
30,458
(10,079)
846
1,243
412
1
(719)
(150)
22,012
The fair value of the scheme assets at the year end is analysed as follows:
Equity instruments
Bonds
Other (including cash)
2016
£’000
2015
£’000
10,076
10,797
115
10,590
11,290
132
20,988
22,012
The scheme assets do not include any of the Group’s own financial
instruments, nor any property occupied by, or other assets used by,
the Group. The trustees of the Ansa scheme regularly review their
investment strategies to ensure that wherever possible the nature of
assets held in each scheme is appropriate to the maturity profile of
the underlying pension obligation. The types of assets held are shown
above. The age profile of the Ansa scheme members, which provides
an indication of the maturity profile of the defined benefit obligation,
is shown below:
Normal retirement age
Average age of deferred members
Average age of pensioner members
2016
Years
2015
Years
65
55
66
65
58
68
The Group expects to contribute approximately £610,000 to the Ansa
scheme in the year ended 28 February 2017 (2016: £224,000). A new
schedule of contributions was agreed with the trustees in the year to
cover a 16 year period to 28 February 2031 setting out the deficit
contributions payable into the scheme.
The trustees seek to align the investment strategies with the maturity
profile of the liabilities in the schemes.
The Group operates a defined contribution plan. The charge in the year
to the income statement was £955,000 (2015: £781,000). The value of
contributions outstanding as at 29 February 2016 and included in other
payables is £62,000 (2015: £226,000).
25 Deferred Tax
Deferred tax liabilities
Accelerated allowances on plant and
machinery
Roll-over relief
Revaluation of properties to fair value on
acquisition
Brands recognised on acquisition
Other temporary differences
2016
£’000
2015
£’000
2,602
2,692
3,074
2,991
3,513
9,462
21
2,483
11,257
557
18,290
20,362
Deferred tax assets have been recognised in respect of certain tax
losses and other temporary differences giving rise to deferred tax
assets because it is probable that the assets will be recovered.
Deferred tax has not been recognised in respect of tax losses
of certain Group entities of £9,669,000 as at 29 February 2016
(2015: £9,786,000) on the basis that there is uncertainty over whether
taxable profit will be available within the trades operated by these
entities against which the unused tax losses can be utilised in
future periods.
The deferred tax balances reflected opposite have been calculated
at 18% as this was the rate that was substantively enacted at the
Statement of Financial Position date. The main rate of corporation
tax reduced to 20% with effect from 1 April 2015.
107
Strategic Report
Governance
2016
Movement in Deferred Tax Balances During the Year
Provisions
Tax losses
Share-based
payments
Pension
Roll-over relief
Revaluation of
properties to fair
value on acquisition
Brands recognised
on acquisition
Accelerated
allowances on plant
and machinery
Capitalised interest
Recognised
in other
comprehensive
income
£’000
Discontinued
operations
£’000
Balance
28 February
2015
£’000
(121)
–
56
–
298
575
–
20
–
76
–
–
32
–
–
57
–
–
(12,000)
743
–
(4,499)
(2,041)
1,113
–
–
–
(22,621)
1,884
20
Balance
28 February
2014
£’000
Recognised
in profit or
loss
£’000
178
575
185
–
–
–
217
480
(2,991)
(181)
(33)
–
(2,540)
Recognised
in retained
earnings
£’000
Recognised
in profit or
loss
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in retained
earnings
£’000
Balance
29 February
2016
£’000
625
517
327
(58)
–
–
–
–
144
467
(2,991)
30
(102)
299
–
60
–
79
–
–
253
425
(2,692)
–
(2,483)
(1,030)
–
–
(3,513)
–
–
(11,257)
1,795
–
–
(9,462)
–
–
312
–
(3,074)
(2,041)
472
200
–
–
–
–
(2,602)
(1,841)
400
(20,362)
1,933
60
79
(18,290)
(45)
26Provisions
Provisions made
Provisions used
Provisions released
Unwind of discount
Site
restoration
£’000
Onerous
leases
£’000
Litigation and
claims
£’000
Total
£’000
3,401
1,027
1,777
6,205
–
(89)
(693)
65
–
(257)
(25)
19
57
(284)
(57)
–
57
(630)
(775)
84
2,684
764
1,493
4,941
Analysis of provisions:
Current
Non-current
–
2,684
242
522
–
1,493
242
4,699
2016
£’000
2015
£’000
Expenses arising from equity-settled
share-based payment transactions:
Non-Executive Directors’ Share Scheme
Long-Term Incentive Plan 2011
Long-Term Incentive Plan 2014 to date
SAYE scheme 2015
–
259
360
29
2
334
152
–
Total charged to continuing underlying
operating profit
648
488
–
–
35
1,443
648
1,966
Site Restoration
The Group leases a long leasehold property which is currently
unoccupied, in respect of which it has annual holding costs and
dilapidation obligations. The estimated liability is discounted to its
present value. The provisions released were in respect of two other
leased properties where developments in the year have significantly
reduced the likelihood of any obligation.
Onerous Leases
The onerous leases provision is in relation to leases for properties
at Wakefield and Northampton and also the holding costs of an
unoccupied property. The provisions used in the period represents
the costs payable in the period.
Litigation and Claims
During the prior year, the Group indemnified Eddie Stobart Logistics in
relation to various ongoing and potential litigations and claims. These
cases are being defended, however, a provision is held to cover the
estimated future liability to the Group.
27 Share-Based Payments
Included in restructuring costs
Charged to discontinued operations
Total share-based payment charge
108
2016
Strategic Report
Governance
The share-based payment plans are described below.
Share Options
On 21 September 2007, 1,504,120 options over 10p ordinary shares
were granted with an exercise price of £1.66 each. The options vested
over a three year period and there are no performance conditions
attached. These options lapse in September 2017.
Non-Executive Directors’ Share Scheme
The Non-Executive Directors were incentivised to purchase shares in
the Group under a scheme by which they are allocated one share for
each share purchased by them in the 12 month period from 1 June
2011 up to a maximum value of 150% of their annual fees. This scheme
closed on 31 May 2012. There are no performance conditions attached
to the share options and they vested after three years from the date
of grant.
During prior years, 259,368 share options were granted under the
scheme. No performance targets apply but Non-Executive Directors
must remain in place for three years from the date of allocation.
218,307 of these options vested in the prior year and the rest lapsed.
Long-Term Incentive Plan 2011
On 7 December 2011, 32.5 million share awards were granted
to Directors and others under a Long-Term Incentive Plan. These
performance share awards vest subject to the total shareholder return
(TSR) of the Group measured three years after the grant date and
thereafter at the end of each month in the fourth year after the date
of grant. No share awards will vest unless the TSR performance of the
Group exceeds that of the comparator group (the TSR of the FTSE
250) by at least 40%. For all the share awards to vest the TSR
performance must exceed that of the comparator group by at least
120%. The base price for the measurement of TSR is 155p. These
awards all lapsed in the period. Further details are included in the
Remuneration Report on pages 58 to 70.
Long-Term Incentive Plan 2014 to Date
During the current and prior years, performance shares were
awarded to Executive Directors and other senior management
under a Long-Term Incentive Plan. These performance shares vest
subject to the TSR and the cumulative earnings per share (EPS),
both measured over three year periods. 50% of the share awards vest
dependent on the TSR performance of the Group. None of these share
awards will vest if the TSR performance of the Group is less than that
of the comparator group (the TSR of the FTSE 250). 25% of the awards
will vest if the TSR performance of the Group equals that of the
comparator group and the remaining 75% will vest proportionately in
line with how the TSR performance of the Group exceeds that of the
comparator group between 0% and 10%. 50% of the share awards
vest dependant on the cumulative EPS over the three financial years
ending 28 February 2017. None of these share awards will vest if the
cumulative EPS is less than threshold, 25% of the shares will vest if
the cumulative EPS is threshold and the remaining 75% will vest
proportionately in line with how the cumulative EPS performs
between threshold and stretch. If both elements of the performance
conditions are achieved in full, the awards will be subject to a multiple
up to a maximum of 2x multiplier if the Company’s three year TSR
outperforms the index by 40% per annum or more. Further details
are included in the Remuneration Report on pages 58 to 70.
EPS threshold and EPS stretch for each issue
Grant date
1 November 2014
6 November 2015
22 June 2016
1 September 2016
Number of
awards
EPS
threshold
EPS
stretch
479,395
1,268,546
1,308,941
302,671
17.0p
23.5p
23.5p
23.5p
21.0p
27.5p
27.5p
27.5p
Save As You Earn (SAYE)
On 1 September 2015, the Group introduced a SAYE scheme which
was available to all qualifying employees and Directors. The scheme
is approved by HM Revenue & Customs. Participants enter into a
contract to save a fixed amount per month of up to a maximum of £500
for three years and are granted an option over shares at a fixed option
price, set at a 20% discount to average market price for the three days
prior to the invitation to participate. The number of shares comprising
the option is determined by the monthly amount saved on maturity of
the savings contract. Options granted under the SAYE scheme are not
subject to any performance conditions. The maximum number of
shares, if all vest, is 1,113,367.
Movements in the Year
The following table illustrates the number (No.) and weighted average
exercise prices (WAEP) of, and movements in, outstanding share
awards during the year:
Outstanding at
1 March
Granted during
the year
Lapsed during
the year
Exercised during
the year
2016
No ‘000
2016
WAEP
2015
No ‘000
2015
WAEP
34,483
£0.07
34,263
£0.07
3,994
£0.24
479
£nil
£nil
–
–
(32,500)
–
–
(259)
£nil
Outstanding at end
of year
5,977
£0.58
34,483
£0.07
Exercisable at end
of year
1,504
–
1,504
–
No share awards/options were exercised in the year.
The weighted average share price at the date of exercise of the share
awards/options exercised during the prior year was 118p.
The weighted average contractual life of awards/options outstanding
at year end is 19 months (2015: three months).
Valuation Details
The fair value of the options granted without market-based
performance conditions is estimated using a Black-Scholes model
taking into account the terms and conditions upon which the options
were granted. The fair value of the options granted with market-based
performance conditions are estimated using a Monte Carlo model
taking into account the terms and conditions upon which the options
were granted.
Strategic Report
Governance
The following table lists the inputs to the models used for the current
and prior year.
Long-Term Incentive
Plan
2011 LTIP share awards
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of options (years)
Weighted average share price (£)
Fair value at date of grant (£)
Model used
Dividend yield (%)
Model used
Dividend yield (%)
Model used
2015 SAYE scheme
Dividend yield (%)
Model used
4.7
25
0.43
3–4
1.19
0.05
Monte Carlo
Long-Term Incentive
Plan subject to TSR
Long-Term Incentive
Plan subject to EPS
5.37
30.02
1.01
3
0.99
0.40
Monte Carlo
5.37
30.02
1.01
3
0.99
0.88
Black-Scholes
Long-Term Incentive
Plan subject to TSR
Long-Term Incentive
Plan subject to EPS
6.04
30.87
0.92
3
1.02
0.40
Monte Carlo
6.04
30.87
0.92
3
1.02
0.85
Black-Scholes
28 Issued Share Capital and Reserves
Ordinary share capital
Authorised – 505,272,670 (2015:
505,272,670) shares of 10p each
Ordinary share capital – deferred shares
Authorised – 1,000 shares of 0.1p each
109
2016
2016
£’000
2015
£’000
50,527
50,527
£
£
1
1
Ordinary shares of 10p
each issued and fully paid
Number of
shares 2016
‘000
Share capital
2016
£‘000
Number of
shares 2015
‘000
Share capital
2015
£‘000
At 1 March
354,329
35,434
354,329
35,434
At 29 February
354,329
35,434
354,329
35,434
During the year ended 29 February 2016, the Company sold
16,396,000 (2015: nil) of its own shares for a net consideration
of £17,360,000 (2015: £nil). At 29 February 2016, the Group held
10,007,000 (2015: 26,403,000) shares with a market value of
£10,507,000 (2015: £28,779,000) in treasury.
Voting Rights
Ordinary shareholders are entitled to vote at all general meetings.
The deferred shares and treasury shares have no voting rights.
Capital Entitlement
The deferred shareholders are entitled to the repayment of the
amounts paid up on the deferred shares after payment in respect of
each ordinary share and £1,000,000.
SAYE plan
5.98
30.10
0.91
3
1.09
0.16
Black-Scholes
The fair value at the date of grant of the awards subject to the multiplier
was £0.06 (2015: £0.10).
The expected life of the options is based on historical data and is
not necessarily indicative of exercise patterns that may occur. The
expected volatility reflects the assumption that the historical volatility
is indicative of future trends, which may also not necessarily be the
actual outcome.
Nature and Purpose of Other Reserves
Own Shares Held by Employee Benefit Trust
This comprises the weighted average cost of own shares held by
the employee benefit trust.
Hedge Reserve
The hedge reserve is used to record the effect of a cash flow hedge.
29 Lease Commitments
Group as Lessee
The Group has various operating lease agreements for land and
buildings, in respect of both operational and office premises. These
leases typically have terms of renewal but do not contain purchase
options. Property leases typically include rent review clauses which
allow for upward revision to the rental charge on a periodic basis,
according to prevailing market conditions. Where escalation clauses
are present that stipulate specific increases to the rental amount the
operating lease expense is recorded on a straight-line basis. Similarly,
lease incentives are recorded on a straight-line basis.
110
2016
Strategic Report
Governance
At the year end, the Group had outstanding commitments for future
minimum payments under non-cancellable operating leases, which
fall due as follows:
Within one year
After one year but not
more than five years
More than five years
Property
2016
£’000
Vehicles,
plant and
equipment
2016
£’000
Property
2015
£’000
Vehicles,
plant and
equipment
2015
£’000
3,989
565
3,603
421
13,285
30,027
132
–
10,389
10,019
366
–
47,301
697
24,011
787
Group as Lessor
The Group has entered into commercial property leases on some of
its properties. These non-cancellable leases have remaining terms of
between one and 30 years. Certain leases include a clause to enable
upward revision of the rental charge on an annual periodic basis
according to prevailing market conditions. Where escalation clauses
are present that stipulate specific increases to the rental amount the
operating lease expense is recorded on a straight-line basis. Similarly,
lease incentives are recorded on a straight-line basis. Future minimum
rentals receivable under non-cancellable operating leases are as follows:
Within one year
After one year but not more than five years
2016
£’000
2015
£’000
6,387
11,528
23,600
8,238
14,416
8,767
41,515
31,421
The prior year lessee and lessor operating lease commitments
above have been amended to better reflect the distribution and legal
obligation of leases during the partial disposal of the Transport and
Distribution business.
Finance Lease and Hire Purchase Commitments
The minimum lease payments under hire purchase and finance leases
fall due as follows:
Within one year
After one year but not more than five years
2016
£’000
2015
£’000
9,811
20,345
8,819
7,774
14,655
3,477
38,975
Future finance charges on hire purchase and
finance leases
Present value of hire purchase and finance
lease liabilities
(7,507)
31,468
25,906
(1,127)
24,779
Capital Commitments
At 29 February 2016, the Group had commitments of £2.5m (2015: £nil).
30 Contingent Liabilities
The Group is party to a number of ongoing legal cases, principally
in relation to general employment, transaction and property related
matters. The Group will continue to defend any litigation in respect of
such claims and, whilst the outcome of any claim, and therefore any
future liability, cannot be certain, it is the Directors’ opinion, based on
external legal and property advice, that no liability exists in respect of
legal claims at year end beyond those included in provisions.
31 Notes to the Consolidated Cash Flow Statement
Notes
Profit/(loss) before tax from
continuing operations
Adjustments to reconcile profit/(loss)
before tax to net cash flows:
Non-cash:
Gain in value of investment properties
Realised profit on sale of property,
plant and equipment and investment
properties
Share of post-tax profits of associates
and joint ventures accounted for
using the equity method
Loss on disposal of/loss in value of
assets held for sale
Profit on sale and leaseback
equipment
Finance income
Finance costs
Finance costs – non-underlying
Release of grant income
Amortisation of intangibles
Share option charge
Loss/(gain) on diesel swap mark to
market valuation
Working capital adjustments:
Decrease/(increase) in inventories
Increase in trade and other
receivables
(Decrease)/increase in trade and
other payables
Cash generated from continuing
operations
16
15
Year to
29 February
2016
£’000
Year to
28 February
2015
£’000
9,991
(9,404)
(8,441)
(1,292)
(183)
(305)
(8,295)
(2,507)
16
(1,893)
67
–
14
9
10
7
6
6
27
8,435
(1,343)
2,302
–
(302)
3,938
648
6,751
(646)
2,356
8,090
(277)
3,939
523
23
1,497
(116)
1,535
(94)
(3,747)
(14,493)
(3,999)
13,240
159
5,832
32 Related Parties
Relationships of Common Control or Significant Influence
WA Developments International Limited is owned by W A Tinkler.
During the year, the Group levied recharges of £41,000 (2015:
£150,000) relating to the recovery of staff costs and expenses to
WA Developments International Limited. £nil (2015: £nil) was due
from and £nil (2015: £nil) was due to WA Developments International
Limited at the year end.
Strategic Report
Governance
Apollo Air Services Limited is owned by W A Tinkler. During the year,
the Group made purchases of £525,000 (2015: £452,000) relating to
the provision of passenger transport and sales of £19,000 (2015:
£17,000) relating to fuel to Apollo Air Services Limited. £nil (2015:
£32,000) was owed by the Group and £nil (2015: £2,000) was owed
to the Group by this company at the year end.
During the year, the Group made purchases of £4,000 (2015: £nil)
and sales of £54,000 (2015: £9,000) to WA Tinkler Racing, a business
owned by W A Tinkler, for the provision of advertising services. £nil
(2015: £nil) was owed to the Group and £nil (2015: £nil) was owed from
the Group at the year end.
During the year, a number of close family members of W A Tinkler were
employed by the Group. The total emoluments of those close family
members, including benefits provided as part of their employment,
amounted to £53,000 (2015: £48,000).
Associates and Joint Ventures
Since the partial disposal of the Transport and Distribution business,
there have been a number of transactions with the Group headed by
Greenwhitestar Holding Company 1 Limited, an associate interest,
which owns Eddie Stobart Logistics Limited. During the year, the
Group made sales of £11,962,000 (2015: £7,298,000), mainly relating
to cost recharges (see below), and purchases of £5,160,000 (2015:
£17,986,000), mainly relating to haulage costs and cost recharges (see
below). A balance of £475,000 (2015: £1,254,000) was owed by the
Group and £684,000 (2015: £1,124,000) was owed to the Group at the
year end. These balances are shown within current trade and other
receivables/payables.
The Group and members of the Group headed by Greenwhitestar
Holding Company 1 Limited operated under a transitional services
agreement for a period following the partial disposal. This agreement
details recharges for shared services; significant examples are time
apportioned staff costs, truck and trailer hire costs, property leases,
office space rental charges, fuel and car costs, IT hardware and
software costs and payroll processing costs.
The Group has no loans outstanding from its joint venture interest,
Convoy Limited. The loan was fully repaid during the prior year and
was accounted for as an equity investment in associates and joint
ventures. The repayment in the prior year is part of the distributions
received in the reconciliation of investments in note 15.
The Group had loans, not part of the net investment, outstanding
from companies within the Group headed by its joint venture interest,
Everdeal Holdings Limited, with a book value of £6,538,000 (2015:
£6,538,000) at the year end. The loans are unsecured, will be settled
in cash and are due for repayment at the Group’s discretion. During
the year, the Group made sales of £nil (2015: £1,828,000) to a 100%
subsidiary of Everdeal Holdings Limited. A balance of £nil (2015:
£140,000) was owed to the Group at the year end. The balances are
disclosed as part of trade and other receivables.
The Group had loans, not part of the net investment, outstanding
from its associate interest, Shuban Power Limited, of £5,250,000
(2015: £5,122,000) at the year end, disclosed within trade and other
receivables in non-current assets. The interest outstanding at the year
end was £1,055,000 (2015: £662,000) and is disclosed within trade and
other receivables. The loans are unsecured, will be settled in cash and
have no fixed repayment date.
111
2016
The Group had loans, not part of the net investment, outstanding from
its associate interest, Shuban 6 Limited, of £849,000 (2015: £802,000)
at the year end, disclosed within trade and other receivables in
non-current assets. The interest outstanding at the year end was
£45,000 (2015: £22,000) and is disclosed within trade and other
receivables. The loans are unsecured, will be settled in cash and have
no fixed repayment date.
The Group has loans, not part of the net investment, outstanding
from its associate interest, Mersey Bioenergy Holdings Limited, of
£7,302,000 (2015: £3,758,000) at the year end. This balance is
disclosed within trade and other receivables in non-current assets.
The interest outstanding at the year end was £838,000 (2015: £nil)
and is disclosed within trade and other receivables. The loans are
unsecured, have a ten-year term ending in November 2024 and will be
settled in cash. During the year, the Group made sales of £nil (2015:
£2,200,000), and purchases of £nil (2015: £100,000) from its associate
interest, Mersey Bioenergy Holdings Limited, of which £nil (2015: £nil)
was outstanding at the year end.
During the prior year, in April 2014, the Group acquired a controlling
interest in Stobart Barristers Limited.
There were no other balances between the Group and its joint ventures
and associates during the current or prior year.
All loans are unsecured and all sales and purchases are settled in cash
on the Group’s standard commercial terms.
Key Management Personnel
Key management personnel are the Executive and Non-Executive
Directors. During the prior year, Richard Butcher was appointed an
Executive Director on 1 July 2014. Prior to that Richard Butcher held the
title of CEO Stobart Estates and Company Secretary. Total aggregate
emoluments were £2,362,000 (2015: £3,833,000) and consisted of:
Emoluments
Company contribution to money purchase
pension plan
2016
£’000
2015
£’000
2,232
3,666
190
167
2,422
3,833
Further details of the Executive and Non-Executive Directors’
remuneration are set out in the Directors’ Remuneration Report.
33 Post Balance Sheet Events
There were no events after the reporting period that are material for
disclosure in the financial statements.
112
2016
Strategic Report
Governance
Directors, Officers and Advisors
Executive Directors
Andrew Tinkler
Appointed 01 March 2008
Ben Whawell
Appointed 01 March 2008
Richard Butcher
CEO Stobart Energy & Infrastructure
Appointed 01 July 2014
Iain Ferguson
Andrew Wood
John Coombs
John Garbutt
Appointed 01 October 2013
Appointed 01 November 2013
Company Secretary
Richard Laycock
Kate Willard
Appointed 15 December 2015
Resigned 15 December 2015
Registered Office
Old Bank Chambers, La Grande Rue, St Martin’s, Guernsey GY4 6RT
Administrator
Morgan Sharpe Administration Limited
Old Bank Chambers, La Grande Rue, St Martin’s, Guernsey GY4 6RT
Auditors
KPMG LLP
1 St Peter’s Square, Manchester M2 3AE
Bankers
Lloyds Bank plc
Black Horse House, 91 Sandyford Road, Newcastle upon Tyne NE1 8HQ
Sponsor, Financial Advisor and Broker
Cenkos Securities Limited
6.7.8 Tokenhouse Yard, London EC2R 7AS
Stifel Nicolaus Europe Limited
150 Cheapside, London EC2V 6ET
stobartgroup.com
Old Bank Chambers
La Grand Rue
St Martin’s
Guernsey
Channel Islands
GY4 6RT
Registered in Guernsey
Registered number 39117

The Stobart 2016 Annual Report

Transcription

Similar documents

I`m helping to end MS by participating in the 2016 Jayman BUILT MS

The Board of Directors of Qatar Fuel (WOQOD) is pleased to invite

5 `S` Training Program at ABV-IIITM, Gwalior on 21.07.2016

Porky Expo Flyer

The NeuLion Report

Sept 30-Oct 2, 2016 Nov 4-6, 2016 @Camp Tadmor

4 star ALOE HOTEL, PAPHOS

the Guidelines for the registration on

Ticket plus hotel packages for the Chelsea Flower Show 2016

loyola institute for ministry on-campus open house thursday, may 12