francis clark - essential 6-monthly finance directors' update - june 2015

Finance Directors’ Update

June 2015

www.francisclark.co.uk

Chairman’s Welcome

Chris Hicks

Partner


Housekeeping


What’s new at Francis Clark ?

‘Top 50 Corporate Finance Team of the Year’


What’s new at Francis Clark?

Paul Crocker, new Corporate Finance Partner, joined the firm on 1 June 2015

• Previous position as Head of Corporate Banking for the South West at HSBC

• Appointment to assist even more companies with their transactions and fundraising, in response to strong growth in our Corporate sector in the West


What’s new at Francis Clark?

Duncan Leslie, new Corporate Partner, joined the firm on 1 April 2015 from Deloitte

• Appointment in response to strong growth in our Corporate sector in the West

• Role will focus on delivery of audit services to larger organisations in the public, private and not-for-profit sectors


Programme

Stephanie Henshaw, Corporate Partner• Current Issues in Financial Reporting

Julie Towers, VAT Partner• Topical VAT Issues

Andrew Welch, Chartered Financial Planner, Francis Clark Financial Planning• Pension Freedoms - Opportunities

COFFEE BREAK


Programme

John Endacott, Tax Partner• Corporation Tax – Topical Issues

David Armstrong, Corporate Finance Director• Grant Funding

Andrew Killick, Corporate Finance Partner• Current Trends in Transactions and Funding

LUNCH

Current issues in financial reporting

Stephanie Henshaw


In this session….

• Changes to Companies Act 2006 governing financial reporting

• Accounts for members and for filing

• Consequential impact on accounting standards

• New UK GAAP – points to consider in implementation year

• Points to watch before your first FRS 102 year end

• Presenting FRS 102 changes in the annual accounts


Forthcoming changes to CA 2006affecting annual accounts

• Primarily, but not exclusively small companies

• Affects accounts for members and for filing

• Increases thresholds for qualifying as small/ medium-sized

• Extends maximum useful life of goodwill 5 years → 10 years

• Mandatory for A.P.s beginning 1 January 2016

• Early adoption permitted for A.P.s beginning 1 January 2015


Company law changes:Thresholds for small/ medium

“Old” “New”

Small

Medium

T/o £6.5mTotal Assets

£3.26m


£12.9m


£5.1m

T/o £36mTotal Assets

£18m

No change to employee thresholds


No change to audit thresholds

at this stage


Company law changes:Impact of threshold increase?

Large → Medium

• Very little difference

• Minor disclosure differences

• No entitlement to file abbreviated accounts – now abolished

• New “statutory information” requirement

Medium → Small

• Reduced (and restricted) disclosure

• Right to present “abridged accounts” subject to unanimous member approval annually

• Filing exemptions – but NOT abbreviated accounts as abolished

• Relief from group accounts

• New “statutory information” requirement


Company law changes:Restricted disclosure

• Significant reduction in mandatory disclosure, e.g:

• Directors’ remuneration

• Share capital and dividends

• Much analysis of expenses

• Arms’ length related party transactions

• BUT: subject to overriding requirement to give a true and fair view

• At this stage, unclear how much reduction in practice


Company law changes:accounts filing for small companies

• Broadly, two options

• File information sent to members

• File balance sheet and notes only, plus details of audit report

• More information that in current small company abbreviated accounts but can still avoid filing P&L


Company law changes:impact on accounting standards for small companies

• Abolition of FRSSE

• FRS 102 recognition and measurement will be extended to small companies

• Disclosure, subject to need to give true and fair view, follows “restricted” regime

• No cash flow, statement of changes in equity

• Applies from AP when new company law thresholds are adopted (i.e. 1 January 2015 or 2016, if no early adoption)


Practical implications for small companies

• Key FRS 102 changes apply

• Basic v non – basic split of financial instruments

• Requirements to use fair value

• Additional deferred tax

• In addition, compared to FRSSE

• Fair value applies to share-based payment (e.g. option schemes)

• Transition date for restatement = beginning of comparative year


New UK GAAP: implementation yearPoints to watch

• Main areas of impact identified/ confirmed negligible impact?

• Restatement impact on retained profit identified?

• Managing shareholder expectations are regards dividends

• Appropriate adjustments to system e.g. translating stock under forward forex contracts?

• Appropriate documentation in place e.g. to support hedge accounting for forex/ interest rate management?

• Interim figures to bank reflect FRS 102?


New UK GAAP implementation yearIntra group property rental

• No longer automatically excluded from investment property

• Implies fair value required for intra group rental property

Unless

• Cost and effort is ‘undue’

Or

• Property not held by relevant entity for capital appreciation or to earn rentals


New UK GAAP implementation yearFirst Time Adoption financial statements

New primary

statements

Statement of Other Comprehensive

IncomeStatement of

Changes in Equity Ongoing

new Notes

Fair values, financial instruments,

estimates and judgements

“Once only” Notes

Restatement on transition and reconciliation


New UK GAAP implementation yearPresenting FRS 102 changes in annual accounts

At Transition

At First Time

Adoption

Narrative explanation of nature of changes, options on transition, new

policies

Reconcile old and new equity

Reconcile old and

new equity

Reconcile comparative

P&L


New UK GAAP implementation yearMeeting the challenge

• Finalise assessment of impact and policy choices

• Time to focus on presentation

• What to include, adjust, explain

• What resources and timescale are needed

• Impact on “normal” annual accounts production process


Contact details

Stephanie Henshaw – Corporate Partner

01392 667000

[email protected]

mailto:[email protected]

Topical VAT Issues

Julie Towers


Agenda

• Current issues

• Cross company charges and VAT Groups

• Dealing with errors on VAT returns

• VAT and International trade


Current issues

• Budget March 2015 - changes to Fuel Scale Charges effective for accounting periods starting on or after 1 May 2015

• Tool now available on HMRC’s website to calculate fuel scale charge

• https://www.gov.uk/fuel-scale-charge• No VAT on Severn River Toll from 2018


Current Issues Prompt Payment Discount

Historically where discount offered VAT calculated on the discounted amount whether or

not discount takenRules changed from 1 April 2015

From 1 April 2015 suppliers need to account for the full amount of VAT. If discount subsequently

taken up an adjustment should be made to the VAT

• Either original invoice shows VAT on both the full and discounted amount; or

• Credit note is issued if discount is taken


Current issuesVAT visits

• Increased number of visits to clear repayment returns

• Entitled to repayment supplement if HMRC delay

• HMRC do not offer it automatically

• Delays with the Repayment Supplement Team

• Tip – contact HMRC in advance to pre-empt queries on repayment returns


Current IssuesHMRC - Delays

• Option to Tax Unit – 6 week delay

• Repayment Supplement Team – 4 month delay!


Current issuesEnergy saving materials

• 4 June 2015 CJEU ruled that the UK application of the reduced rate of VAT for energy saving materials is contrary to EU law

• Currently the reduced rate applies to the installation of energy saving materials, and the goods themselves when provided with qualifying services

• Too early for any comment from Government or HMRC

• The reduced rate will continue in the short term. Any change very unlikely to have retrospective effect.

• An agenda point for Mr Cameron?


Cross company charges and VAT groups

• Management charges

• Don’t forget to account for VAT

• Date accounts approved if no earlier invoice or payment

• Directors

• Directors services subject to VAT

• Common directors – no supply where share of director’s fees recovered when one company pays fees of common directors.


Cross company charges and VAT groups

• Joint contracts of employment

• No VAT on recharges where staff are jointly employed and exact costs only recharged

• Must be clear that there is more than one employer from contracts of employment or letter of appointment

• Take legal advice if considering

• Beneficial for companies with exempt activities


VAT Groups

HOLDING

COMPANY

LTD CO

SUB CO SUB CO SUB CO

100%

28 % 52% 100%


VAT Group

• Advantages of VAT group

• No VAT on charges between group members

• One VAT return for the whole group


VAT Group

• Disadvantages of VAT Group

• All members of the group are jointly and severally liable for any VAT due from the representative member

• A new VAT number will be allocated to the group as it is not possible to transfer a VAT number from a “sole/normal” to a group registration

• Partially exempt deminimis limits and voluntary disclosure limits apply to the group as a whole

• Could accelerate inclusion in the Payment on Account scheme


Errors on VAT returns

• Adjustment should be made for errors in last 4 years

• Measured to the start of current VAT return period 4 years ago

• Example – current VAT quarter 30 June 2015, adjustment should be made for errors back to 1 April 2011, must be notified by 30 June 2015



Adjustment can be included on the current VAT return where:

• Net amount of all errors is less than £10,000 or

• The error is £50,000 or less and less than 1% turnover. Turnover is based on the sales in the current VAT return period

• In May 2015 the FC of ABC Ltd discovers an error of £30,000 on the company’s VAT return for the quarter ended 30 June 2012. The turnover in the June 2015 VAT quarter will be £3.5M. As the error is less than 1% of the turnover in the quarter in which the error is discovered it can be included on the June return.

• No interest for errors adjusted on VAT return



Where an adjustment cannot be included on the VAT return

• Separate disclosure to the VAT Error Correction Team at HMRC in Liverpool

• Disclosure using form VAT 652 or separate letter

• HMRC will charge interest unless no overall loss to HMRC (commercial restitution)

• HMRC can assess a penalty if reasonable care not taken – 30%

• Penalties can be mitigated or suspended


VAT and International trade - goods



• Sales to VAT registered customers in other EC countries are zero-rated as long as criteria met

• Obtain customer’s VAT number, check validity

• Show VAT number on sales invoice plus 2 digit country prefix

• Goods must be sent to another EC country within time limits

• Obtain and retain proof that the goods have been removed within time limits



• Reporting requirements

• VAT return – boxes 6 and 8

• EC Sales Lists quarterly or monthly

• Intrastats – 2015 threshold £250,000



• Sales to non-VAT registered customers in other EC countries

• Subject to UK VAT where goods sent from UK to EC country

• Distance selling rules could require VAT registration in EC country of destination

• Keep record of sales to each Member State

• Threshold either €35,000 or €100,000 (or local currency equivalent)



• Direct export of goods to non-EC countries are zero-rated as long as criteria met

• Goods sent outside EC

• Proof obtained that goods moved

• Goods removed within time limits

• Direct export means supplier arranges transport

• Sales invoice should make country of delivery clear



• Indirect export of goods to non-EC countries are zero-rated as long as same criteria as for direct exports are met

• Customer arranges collection of goods

• Customer belongs overseas

• In order that supplier can zero-rate must obtain proof of movement of the goods from customer

• Recommend obtaining a deposit equivalent to VAT



Holding stock overseas

• VAT registration may be required for sales made in country where goods are stored

• Some countries have special procedures and the customer must account for VAT not the supplier



Purchase of goods from other EC countries

• No VAT charge by supplier as long as GB VAT number provided

• Account for VAT on UK VAT return

• Intrastat required if value > £1.5M (threshold from 1 January 2015)

Purchase of goods from non EC countries

• EORI and payment required in order for goods to clear customs

• C79 must be retained as proof for recovery of VAT


VAT and International trade - services

Providing services

• B2C services charge UK VAT assuming supplier in the UK

• General rule for B2B – VAT due where the customer belongs

• Business customers in other EC countries

• Any customer outside the EC

• EC Sales List entries required for VAT registered EC customers

• Exceptions for certain services


VAT and International trade - services

Receiving services

• Account for reverse charge on UK VAT return

• Entries in boxes 1, 4, 6 and 7 on VAT return

• No effect for fully taxable businesses

• Do not apply to excepted services


And finally – VAT or no VAT?

0% 20%


Contact details

Julie Towers – VAT Partner

01392 667000

[email protected]

Richard Staunton – VAT Director

01823 275925

[email protected]

Liam Dushynsky – VAT Consultant

01392 667000

[email protected]





Pension Freedoms - Opportunities

Andrew Welch

www.fcfp.co.uk Twitter.com/francisclarkifa

Agenda

• A round-up of the pension changes

• Case Study – positive pension funding

• Tax efficient profit extraction

• Assists with maintaining Entrepreneur's and Business Property Relief

• Aids succession planning

• Enable assets to be passed on free of Inheritance Tax

• Summary

• Questions

Round-up of the changes


A new pensions landscape

Flexi-access Drawdown (FAD) available

• Full access to pension funds from age 55

• No compulsion to purchase an annuity

• 25% of the fund still tax free

• Remainder of fund taxed at marginal rate when drawn

• Existing drawdown pensions can be converted to FAD

• Be aware of Lifetime Allowance – reducing to £1 million from 2016/17 then indexed by CPI in subsequent years



New Lump Sum Death Benefit Tax Charges

• 55% tax rate scrapped

• If pension owner under 75 years old on death there will be no tax charge on the fund – whether income has previously been drawn or not.

• If death occurs when over 75 the remaining fund will be payable to any chosen beneficiary at the recipient’s marginal rate of income tax (from April 16)

• Pension funds can now be passed on to future generations with no IHT



Busting the objections to pension saving

Restricted access to pension funds

Unlimited access from age 55

Forced to buy an annuity

No longer an issue

Penal rate of tax on death

Abolished

Can’t pass on to children

Can now with no immediate tax liability


Another Budget on 8 July

• Further tweaks to pension rules/taxation could be announced

• Prior to the election the Conservatives stated they would take steps to restrict tax relief for additional rate taxpayers (45% rate)

• There is also a chance that pension tax relief for higher rate (40%) taxpayers could be restricted

• Clearly we don’t know what will be announced but if you are minded to make a pension contribution in this tax year it would be worth considering this before the Budget

Case Study – positive pension funding




• Maximum Manufacturing Ltd

• £8m turnover

• £1.7m post tax profit

• £3m surplus cash in the business

• Shareholder Directors, Mr Smart 35% (age 60), Mrs Smart 35% (age 60) and Mr Smart Jnr 30% (age40)

• Current remuneration for each is £100k salary and £50k dividends per annum




• Current concerns are:

• Mr & Mrs Smart Senior want to reduce their commitment to the business gradually over the next 10 years and need an income top up

• Concerns around the accumulation of cash in the business in respect of potentially disqualifying Entrepreneur's Relief should a business sale occur

• If cash continues to build, BPR could also be threatened and would mean the value of company shares are accountable for IHT




The Solution – maximum funding pensions

• Mr & Mrs Smart already had £50k each in personal pension plans but they hadn’t contributed for many years

• The existence of these pension plans allowed them to use the Carry Forward rules to sweep up unused annual allowances

• They then fund maximum annual pension allowances of £40k each per annum for 10 years

Let’s look at the figures……………




Carry Forward – allows you to bring forward the 3 previous tax years annual pension allowances if you haven’t used them

The annual allowance is £40k in this tax year but in previous years it was £50k

In the 2015/16 tax year you can bring forward the following allowances if you haven’t used them:

2014/15 £40k

2013/14 £50k

2012/13 £50k




Mr & Mrs Smart therefore put in place a plan to maximum fund their pensions for the next 10 years as follows:

Starting assets in existing plans £100,000

2015/16 Annual Allowances X2 £80,000

2015/16 Carry forward allowances X2£280,000

2016/17 – 2024/25 2X Annual Allowances X9 £720,000

Assuming 5% investment growth along the way could see a final combined fund of £1,675,523

What does this mean in practical terms……………




• From the combined pension fund of £1,675,523

• They can take 25% as a tax free lump sum = £418,880

• Residual fund of £1,256,643, provides £56,548pa income (they could take more but might erode the fund)

• The cash build up in Maximum Manufacturing has slowed thus helping to alleviate the ER & BPR concerns

• Maximum Manufacturing received 20% Corporation Tax relief on the £1,080,000 contributed to the pension plans saving £216,000 in tax



Summary

• Barriers to pension saving removed

• Efficient way of extracting funds from company to personal balance sheet

• Aids succession planning

• Can play a role in reducing threats to ER’s and BPR relief’s

• Reduces Corporation Tax

• Unused pension funds can be passed on to beneficiaries


Contact details

Andrew Welch – Chartered Financial Planner01392 [email protected]

David Clifton – Chartered Financial Planner01872 [email protected]

Richard Wright – Consultant01752 [email protected]




www.fcfp.co.uk

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

Francis Clark Financial Planning is a trading style for Francis Clark Financial Planning Limited, which is authorised and regulated by the Financial Conduct Authority.

Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay, TQ2 7FF.

Registered in England No. 05413603

Exeter Plymouth Salisbury Taunton Tavistock Torquay Truro

This PowerPoint presentation is for general information only and is not intended to constitute professional advice.Though Francis Clark Financial Planning Ltd is confident on its accuracy, no duty of care is assumed to any direct Recipient of this presentation and no liability is accepted for any omission or inaccuracy.

Important Statement

Twitter.com/francisclarkifa


BREAK

Corporate tax – topical issues

John Endacott


UK acquisition - asset vs share purchase

• Composition of deal matters

• Asset purchase of intangibles

• No stamp duty/SDLT

• Corporation tax relief available

• Regulatory permissions favour share purchase

• Pre 2002 versus Post 2002 intangibles

• Lower deal costs on asset purchase

• Watch connected party goodwill (Finance Act 2015)


Intangible assets

EXAMPLE

• Company only has licences

• Price for shares agreed of £3m

• Licences – fully amortised in accounts

• Licences acquired for £1m in 1990


Example - licences

Share purchase

Asset purchase

£'000 £'000

Licences 3,000 3,250 Base cost (pre 2002) (2,000)

1,250

Licence proceeds 3,250 Corporation tax @ 20% (250)

3,000 CGT @ 10% (300) (300)

Net receipt 2,700 2,700


Example - licences

• Base cost on asset sale of £2m (£1m of indexation)

• No tax relief on intangibles as share deal – cost £3m

• After tax cost of £3.25m asset purchase - £2.6m

• Simpler cheaper deal

• Stamp duty saving - £15k

• Cashflow implications/time value of money etc


Corporation tax rate – 20%


Tangible assets – capital allowances

• Rates of plant & machinery allowance have reduced as corporation tax rate has fallen

• Main pool 18%

• Special rate pool 8%

• Annual allowance £500k but only £25k from 1 January 2016

• Annual allowance restricted if change during accounting period

• March Budget Speech - will be “much more generous than” £25k

• Short life asset elections now very important


Tangible assets – fixtures

• There is plant & machinery in buildings

• Fixtures & integral features

• Election requirement – s198/199 since April 2012

• Pooling requirement since April 2014

• Rules still poorly understood – check you are getting good advice

• Need to consider at an early stage on acquisition

• Don’t forget VAT/SDLT


Overseas expansion – tax developments

• National tax systems overlaid with double tax treaties

• Principles developed in the 1920s - worked until the 1980s (or so)

• What changed?:

• International tax competition (Eire)

• Better communications (fax/internet) & cheaper travel

• Online businesses

• Growth of genuine multi-national businesses – not just country by country subsidiaries

• Current system open to abuse


Enter BEPS

• Base Erosion & Profit Shifting (BEPS)

• Various action plans being pursued by OECD

• Depends on international co-operation

• BEPS agreements to overlay double tax treaties

• BUT – still unilateral actions by governments (Diverted Profits Tax) & US approach


Diverted profits tax

• Finance Act 2015 measure

• From 1 April 2015 – 25% tax rate

• Tax avoidance motive or entities that lack economic substance

• Notification requirement but HMRC assess

• SME exemption

• Guidance from HMRC updated on 20 April 2015


What are the key areas?

• Digital economy – permanent establishment

• Stop tax treaty shopping & abuse of reliefs

• Economic substance of the entity

• Transfer pricing

• Country by country reporting

• State Aid issues

Relevant to future structuring and will impact on UK tax policy


Permanent establishment

• New definitions and approach required

• Warehouse issue

• Staff presence in country

• Nexus approach

• May catch Amazon in UK BUT overseas representative offices could become PEs

• Implications for businesses expanding abroad


Transfer pricing

• Increased focus on transfer pricing

• Not a major issue for HMRC (20% tax) but other countries may get stricter

• Arm’s length definition – profit splitting now the usual approach

• Have to have the supporting documentation in place

• SME exemption in UK but different approaches elsewhere


Intellectual property

• IP innovation regimes introduced throughout Europe

• UK system – Patent Box from April 2013

• Patent Box tax rate of 10% – unfair competition

• State Aid issue

• Deal negotiated by UK government in late 2014

• UK system to be phased out & replaced by a BEPS compliant system by 2021


Patent Box – current position

• New UK scheme likely from April 2016

• Italy has first BEPS compliant IP innovation scheme (likely model for others)

• Nexus approach being suggested

• UK scheme too generous & not sufficiently connected with IP activity in the UK

• Some R&D activity will have to be carried on in the UK


Loan arrangements & losses

• Interest tax relief coming under scrutiny (The Economist leader 16 May 2015)

• More restrictions on loan interest relief likely – both domestically & internationally

• General anti-abuse & specific limitations

• Treaty benefits likely to be precluded unless genuine commercial activity in the country concerned

• Loan conduit companies most exposed to attack – intermediate holdcos with loan & no activity (lack of economic substance)

• More restrictions on carry forward of losses possible


UK tax losses – asset vs share purchase

• Some businesses currently have large accumulated tax losses

• Tax losses can be acquired on a share acquisition

• Tax benefits carried forwards can be:

• Trade losses

• Investment business management expenses

• Capital allowance pools

• Restrictions if major change in the nature or conduct of a trade or if activities have become negligible

• Trade losses must follow a trade on a hive across


Losses – Leekes tax case

• Leekes (department stores) purchased Coles (furniture stores with warehouse)

• Coles trade was loss-making

• Coles trade was transferred into Leekes (hive across)

• Trade losses automatically carry forward against future profits of same trade as long as liabilities transferred

• Old anti-avoidance measure to prevent terminal loss claims

• Losses available – but against what profit?


Leekes tax case (continued)

• Leekes claimed the loss brought forward in Coles against its total profits

• HMRC argued losses only available against the profits of the old Coles trade – so streaming required

• In this case there was an amalgamation of trades

• First-tier Tax Tribunal held that loss streaming was not required

• Too difficult to stream on an amalgamation – could not have been intended by Parliament

• Appeal by HMRC is likely


Entrepreneurs’ relief changes

• Significant tinkering in Finance Act 2015

• Goodwill

• Associated disposals

• Trading company definition

• Loss to the exchequer greater than thought

• 10% rate of CGT on first £10m of gains

• 10% not available on goodwill etc obtained from connected person

• Write down of goodwill in company no longer tax deductible (intangible asset amortisation)


Trading company definition

• Impacts on joint venture arrangements

• Now different rules for entrepreneurs’ relief, CGT gift of shares and SSE – watch out

• Inheritance tax business property relief definition is different again

• Previously shareholders with < 5% could qualify for entrepreneurs’ relief if they could get within a joint venture structure

• Management company structure no longer works

• Review of such structures now required


Example of structure considered abusive

Five shareholders

(2% each)100%

Others > 5%

Management Company Limited

90% 10%

Trading Company Limited


Future UK tax policy

• Budget – 8 July 2015

• AIA announcement & support for capital expenditure likely

• More tax relief restrictions likely

• Consultations on future tax policies could be announced

• The future?

• Support for innovation & international trade

• 20% tax rate to remain (Northern Ireland?)

• BEPS action plans implemented to a greater or lesser extent

• Loss & interest relief could be introduced


Contact details

John Endacott – Head of Tax

01392 667000

[email protected]

Paul Collings – Tax Partner

01752 301010

[email protected]

Damian Lannon – Head of Corporate Tax

01392 667000

[email protected]




Grant funding

David Armstrong


Contents

• Background to the grant landscape

• A selection of schemes

• State Aid

• What makes a good grant application

• Recent successes

• Keeping up to date


Background to the grant landscape

• Demise of the RDAs / Creation of the LEPs

• European Programmes 2013-2020

• Regional Growth Fund

• Assisted Area Map

• Revolving door approach


What is available?

• Grant search for general manufacturing business in SW generated >100 grant schemes

• Match future plans with grant scheme

• Understand whether:

• Capex Job creation

• Research & Development / Innovation

• Exporting

• Leadership & Management


Capital expenditure Job creation

North Devon + Cornwall Marine Fund

South West Growth Fund

Area HotSW LEP South West businesses in marine sector

Wider South West – as far as Wiltshire and Dorset

Applicants All companies SMEs All companies

Level of grant

£25K to £499K £50k to £500K £15k to £1m

Timetable Open for business

Closes 31 July 2015

Opens in the summer


• Grant support for SMEs:

• Proof of market (9 months, £25k, 60%)

• Proof of concept (18 months, £100k, 60%)

• Development of prototype (2 years, £250k, 35% / 45%)

• Timeframes

• SMART v R&D Tax Credits - cannot have both for same project

Research & Development - SMART

http://www.robothespian.com/blog/news-blog.html


State aid

• Other grants

• EIS/ SEIS

• Enterprise Finance Guarantee Scheme

• Innovation vouchers

• R&D Tax Credits

• De Minimis


Investment ready Preparation is key…

1. Project

2. Eligibility

3. Robust Business Case

4. Business Plan (and Financial Projections)

5. Dialogue with fund holders

6. Understanding their requirements: strategic and operational

7. Need for grant

8. Patience/ Completeness

9. Understanding timelines

10. Match funding


Recent successes

http://www.plesseysemiconductors.com/index.php

http://www.google.co.uk/url?sa=i&rct=j&q=UTC+aerspace+systems+logo&source=images&cd=&cad=rja&docid=0FBCjIxI17fIIM&tbnid=ejmy5mJTjIonBM:&ved=0CAUQjRw&url=http://jobsearch.naukri.com/mynaukri/mn_newsmartsearch.php?xz=7_0_5&qc=62886&tem=utcaerospace&ei=_fBGUe6oCMXP0QWTwIEY&bvm=bv.43828540,d.d2k&psig=AFQjCNFz31Ui32BTzuFHg5frZXL_VP4TdQ&ust=1363690103570862


Keeping up to date

http://www.francisclark.co.uk/services/grant-advisory/

David [email protected] 056164

David [email protected] 276477

Richard [email protected] 763049

http://www.heartofswlep.co.uk/home

http://www.heartofswlep.co.uk/home




Current trends in Transactions and Funding

Andrew Killick


Overview

• Deal activity

• Responding to approaches from potential buyers

• Funding and Bank facility renewal


Deal activity and Valuations

Q1 2015 lower than Q4 as caution exceeds completions for tax planning reasons

Source: Experian

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q10

200

400

600

800

1,000

1,200

1,400

1,600

UK M&A Activity: Number of Deals per Quarter

Number of Deals

2013 20152014


Deal activity - SW

Source: Experian

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q10

20

40

60

80

100

120

140

South west M&A Activity: Number of Deals per Quarter

Number of Deals

2013 2014 2015


The Politics of Transactions ……and uncertainties

• Pre Election

• Post Election

• Longer term planning

• Grexit

• Brexit/EU Referendum

….and then interest rates…. exchange rates…..


Business lessons from Politics?

• Predictions and projections can be out by ‘a bit’ ….which can have a significant impact on the

overall outcome!• Strong leadership and a clear campaign can win

against the odds:


Interest rates


Economics

• Lowest interest rates

• Lowest ‘inflation’ rates

• Low tax regime

More companies are looking to make acquisitions

………are you a target?


Being approached, and how to respond

• Many SW company sales are reactive to approaches

• We act for a number of acquirers - what have they seen?

• Its an opportunity to demonstrate your expertise and knowledge, and perhaps you can turn the threat into a bigger opportunity?

• Seek advice before responding/ignoring the approach


Being approached – the traps

• A “confidentiality letter” or exclusivity agreement that binds you in

• Sending the last three years accounts and management accounts as requested

• Receiving an offer based on the historical results

• Initial offers being ‘subject to…’

• Your costs not being covered if they pull out


Being approached – be prepared

• Document the reasons for historical financial results and be aware of any profit enhancing adjustments

• Ascertain what a Buyer is after from your business

• Consider providing information looking forwards to enable a Buyer to see the future value

Valuation may simplistically = Earnings X Multiple


Being approached – Adjustments

£’000

Profit per accounts 300

- One-off costs of new development 50

- Excess owners remuneration/pension 80

- Recruitment of Sales Director 20

Adjusted profit/maintainable earnings 450

At a multiple of 5, the value impact could be £750,000!


Being approached – the traps

“Our offer is £5m for 100% of the shares, subject to the continuation of recent financial performance and Due Diligence”

Offers and Heads of Terms should go into sufficient detail to avoid major misunderstandings/different interpretations at a later date.

Perhaps you could be the buyer through an MBO?


Current Bank/Lending behaviour

• Many Banks saw a fall in activity pre-Election

• Appetite is strong and they expect to be busy

• There is still a significant contrast between businesses that present themselves well to Funders and those that seem to want to make the process hard for themselves….


Facility renewal: be properly prepared

• Prepare a pack to include:

- Last years results and YTD – WITH narrative

- Update on any changes in/affecting the business

- Future plans and Budgets/projections – WITH….?

- Details of any changes in security

- Any changes in facilities required? If so;- What’s any new money required for?

- When will it be repaid?

- What additional security is there?


Funding: obtaining the best terms

Understand what the funder is after

It’s a negotiation – so treat it like one

Consider giving something of value to them that doesn’t cost you much

Use competition if you are not getting a suitable result

If you are suitably prepared with a pack of information it wont take long to explore the market


Summary

• Uncertainty will come and go – work out what is relevant to you rather than global economics

• Be prepared to be approached…it can make a real difference to the Company valuation and your own future prospects

• Be prepared to retain or obtain funding


Contact Details

Andrew Killick – Corporate Finance Partner07771 [email protected]

Paul Crocker – Corporate Finance Partner07780 [email protected]

Mark Greaves – Corporate Finance Partner07887 [email protected]




Chairman’s Closing Remarks

Chris Hicks

Partner


Dates for the diary

November/December 2015: Finance Directors’ Update

Taunton: Wednesday 11th November Somerset County Cricket Club

Exeter: Thursday 12th November Exeter Racecourse

Plymouth: Wednesday 18th November Boringdon Golf Club

Southampton: Tuesday 8th December Chilworth Manor

Fraddon: Thursday 10th December Kingsley Village


Lunch

Thank you


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