stadium group plc annual report and accounts 2016

Design-led connected

technologiesAnnual report and accounts 2016

Stadium Group plc

Overview02 Highlights

03 At a glance

Strategic report08 Our business model

10 Chairman’s statement

12 Chief Executive’s review

16 Our technologies in action

24 Our core markets

28 Our strategy

30 Our KPIs

32 Financial review

36 Risks

40 Sustainability

Governance45 Board of Directors

46 Group leadership team

48 Corporate governance

49 Report of the Remuneration Committee

50 Directors’ report

52 Statement of Directors’ responsibilities

Financial statements53 Independent auditor’s report

54 Consolidated income statement

55 Consolidated statement of comprehensive income

56 Consolidated statement of financial position

57 Consolidated statement of changes in equity

58 Consolidated statement of cash flows

60 Statement of accounting policies

65 Notes to the financial statements

87 Company balance sheet

88 Company statement of changes in equity

89 Notes to the Company financial statements

100 Five year financial summary

101 Corporate directory

See page 2 for our highlights

Find out more about us online at

www.stadiuminvestors.com

Our purpose

Stadium Group plc is a global provider of design-led electronic technology solutions. We realise product roadmaps

and reduce time to market for our customers through the delivery of specialist engineering expertise supported by

world-class manufacturing and fulfilment operations.

Stadium Group plc Annual report and accounts 201601

Strong growth from Technology Products

Headlines

— Statutory reported profit before tax up 29% to £2.2m (2015: £1.7m)

— Year end order book up 36% to £25.8m (2015: £19.0m) underpinned by Technology Products growth

Financial highlights

— Revenues of £53.1m (2015: £53.9m)

— Technology Products sales up 18.1% to £31.9m (2015: £27.0m), now 60.1% of Group sales

— Electronic Assemblies sales down 21.1% to £21.2m (2015: £26.9m)

— Normalised gross profit margin increased to 25.1% (2015: 23.2%)

— Normalised profit before tax* up 5.2% to £4.2m (2015: £4.0m)

— Net debt improved to £3.3m (2015: £4.7m), with cash in the bank of £4.6m

— Adjusted earnings per share* of 9.1p (2015: 9.9p)

— Statutory earnings per share of 4.9p (2015: 4.2p)

— Final dividend proposed of 1.95p per share (2015: 1.8p)

— Total dividends up 7.4% to 2.9p per share (2015: 2.7p)

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration – see Notes 2 and 18 for further information.

Other highlights

— Order intake increased by 11% up to £59.8m

— Regional design centre fully established in Stockholm to become hub of growing wireless business

— Stontronics, acquired in August 2015, now fully integrated and performing well

— Key appointments have significantly strengthened leadership team and design engineering capability

— Further optimisation of global operational footprint

— Consolidated four UK manufacturing sites into two at Hartlepool and Southampton

— Established two new regional fulfilment centres in Reading for Europe and Hong Kong for APAC region

Post period end highlights

— Acquisition of the assets of Cable Power Ltd strengthens integrated technology offering

— Investment in Stadium Group Inc. to further develop our North American sales activity

Normalised profit before tax* (£m)

£4.2m(2015: £4.0m)

16 4.2

15 4.0

14 2.7

13 1.9

12 1.4

Adjusted EPS* (p)

9.1p(2015: 9.9p)

16 9.1

15 9.9

14 7.8

13 5.3

12 3.1

Revenue (£m)

£53.1m(2015: £53.9m)

16 53.1

15 53.9

14 41.7

13 42.2

12 41.0

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration – see Notes 2 and 18 for further information.


Highlights

At a glance

Our business

We deliver fully integrated design-led electronic technologies, and global manufacturing and fulfilment solutions. Our businesses provide expertise in wireless

connectivity, power products and human machine interface (HMI) underpinned by electronic assemblies, bringing tangible benefits to our customers in design,

competitiveness and speed to market.

Our structureWe employ 700 people in eight locations worldwide, providing design expertise, manufacturing excellence and global sourcing to meet customer demand, technology and vertical markets. Our business model is delivered through design and R&D centres, manufacturing facilities and regional fulfilment centres. Our business operates through two divisions: Technology Products and Electronic Assemblies.

Our technologiesOur leading technologies in wireless Internet of Things (IoT) connectivity, power products and human machine interface (HMI) are driven from dedicated design centres in key regions, underpinned by world-class electronic assembly capability.

Our marketsOur design-led technologies are focused on key growth markets with emerging opportunities. Our customers are global original equipment manufacturers in a wide range of end and emerging markets from automotive, healthcare, aerospace, defence and industrial through to smart home and security.

See page 8 for our business model

See page 24 for our markets

See page 16 for our technologies

Employees worldwide

700

Manufacturing centres of excellence

3

Design centres

4

Fulfilment centres

2

Ove

rview


At a glance continued

Our design-led technologies

Our business operates through two divisions: Technology Products and Electronic Assemblies.

Technology Products

Wireless Power HMI

What we do What we do What we do

Wireless IoT connectivity solutions. Standard, semi-custom and fully customised power and cable products.

Intelligent human machine interface (HMI) solutions.

Applications Applications Applications

Vehicle telematics, the connected car, smart home hubs and wearable technologies.

Access control, CCTV, LED lighting, medical equipment and industrial robotics.

High end automotive, aircraft cabin controls, point of sale and medical equipment.

Products Products Products

Wireless communication and data sharing between electronic devices utilising connectivity technology platforms RFID, NFC, Bluetooth, GSM/GPRS/EDGE, WCDMA/HSPA, CDMA, GPS and GLONASS, LPWAN (low-power wide-area network) and LTE.

Power supplies, customised power solutions, high grade HDMI cabling and USP power switches.

Innovative thin film backlighting and capacitive touch technology, membrane keypads and custom control panel solutions.


Growing revenues

Electronic Assemblies


What we do

Fully integrated electronic assembly solutions.

Applications

Automotive, medical, mobility, industrial and lighting.

Products

Design, electronics assembly, RF controls, full box build, test and system integration and global logistics.

WirelessHMI Power


Technology Products

60% £31.9m(2015: 50%/£27.0m)


40% £21.2m(2015: 50%/£26.9m)

Ove

rview


Delivering on strategy

At a glance continued

HMI business acquired

Electronic Assemblies operational restructure

and consolidation

Wireless business acquired

Technology Products and Electronic

Assemblies divisions established

Leadership team strengthened;

equipment upgrade

Group Technology Board established

2012 2013 2014 2015

Our international footprint

Our strategically positioned design centres, manufacturing operations and fulfilment centres in Europe and Asia are critical to our business model and the delivery of global skills and local performance.


Design Centres opened in Norwich

and Shanghai

Power distribution business acquired – Stontronics Ltd

Design Centre opened in Kista near Stockholm

Cable and power products for SBC

added to portfolio

Stadium Group Inc. – USA

Regional fulfilment centres established

in Reading and Hong KongChina factory

relocation and upgrade

2016 2017

Americas UK and Europe Asia Pacific

DongguanHong Kong

ShanghaiHartlepool

Eastleigh

NorwichReading

Stockholm

Delaware

Ove

rview


Creating sustainable value

Our success and ongoing growth is based on a mix of technology expertise, world-class manufacturing operations and a global supply chain and fulfilment strategy.

Key activities

Our key strengths

Global footprintOur strategically positioned design centres, manufacturing operations and fulfilment centres across the world in Europe and Asia are critical to our business model and the delivery of global skills and local performance.

Trusted brand We have been in business for over 100 years and, as we strive to build our business for the next 100, our brand is our most trusted asset.

Market focus Our focus on niche vertical markets where we have developed extensive market knowledge enables us to take advantage of viable long term opportunities in growth areas.

Our key inputs

Customer partnerships Our continued investment in technology know-how along with our proven skills in design, manufacturing and fulfilment underpins our ability to deliver integrated solutions to our customers and build long term partnerships.

Talent of our peopleThe highly developed in-house expertise of our people is one of our key differentiators in delivering value to our customers and we are committed to our people strategy of attract, grow and retain.

Strategic partners By working with strategic partners who share our goals we can co-ordinate action and provide access to a flexible and strong global supply chain network, and wider technology integrations for competitive advantage.

Design-led technologiesRegional design centres in Europe and Asia dedicated to driving our design-led technology proposition in targeted vertical markets add value through knowledge, access to engineering support and market-leading product designs for our customers.

Supply chainAn established network of trusted and reliable suppliers reinforces our procurement model with global reach and local delivery. Our robust supplier relationships and group-wide, global purchasing model allows us to leverage cost savings and reduce time to market for our customers.

ManufacturingStrategically positioned manufacturing centres of excellence in the UK and China offer low to medium volume production models to meet our customers’ demand, technology and vertical markets.

FulfilmentRegional fulfilment and logistics centres established for Europe in the UK and for Asia in Hong Kong deliver on-time customer deliveries and strategic supply chain requirements in global geographies.

Supported by — technology and innovation;

— customer service operations;

— quality and continuous improvement;

— IT;

— HR; and

— finance.

Routes to market — Direct to OEM customers.

— Global ecosystem partners.


Our business model

How we create value Re-investment

We are committed to investment in our business, whether this is in our people, our technology expertise, our manufacturing capabilities, quality and supply chain strength or in finding further complementary acquisitions that enhance our value.

Our culture and valuesOur values are the basic principles that will help to guide our behaviour to enable us to achieve our goals, whether that be the company vision or an individual’s personal aims and objectives.

ActionWe take action to constantly improve and achieve our shared goals. We go the extra mile to deliver.

IntegrityWe always endeavour to do what is right. Hard on the issue and fair on the person.

TeamworkWe are better together. Working in partnership we deliver excellence in quality and service, every time.

UnityWe lead by setting a world-class example – one approach throughout the Company.

RespectWe aim to treat everyone equally and maintain the self-confidence and respect of others.

For shareholders — Dividend.

— Growth investment opportunity.

For our local communities — Employment opportunities.

— Commitment to apprenticeship schemes.

— Contribution to the local economy.

— Support of local community and charity initiatives.

For employees — Jobs and career development opportunities.

— Clear growth journey for a long term career.

— Performance recognition.

For customers — Total end-to-end and integration solutions.

— Access to technology expertise.

— Time to market competitive advantage.

— Competitiveness from our global scale to achieve growth.

“We continue to develop our business model to deliver an attractive, customer-focused, design-led

technology proposition.”

Strateg

ic rep

ort


I am very pleased to report another year of good progress, as we further transition Stadium from an electronic manufacturing services company to a high growth technology-led business. Whilst we are disappointed not to have secured the accelerated sales growth that we had originally anticipated during the year, we are greatly encouraged by a record order book across the Group, the improving sales mix towards Technology Products and improving margins, whilst delivering incremental growth in normalised profit before tax.

In 2016 we continued to develop the operating model to deliver an attractive, customer-focused, design-led technology proposition supported by strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres to deliver organic growth across the Group. The most recent addition to our regional design centre model, located at the Kista Science City in Stockholm, Sweden, has been particularly successful and has become the cornerstone of our wireless design activity. We are now increasingly

recognised by customers as a reliable design-led technology partner, not just in the UK, but also in North America and Europe.

We believe that Stadium is now well placed for future growth and this is reflected in a record order book of £25.8m at the year end. Therefore, we remain confident about the outlook for 2017 and beyond.

Financial highlightsOverall revenues for the full year were down slightly at £53.1m (2015: £53.9m). Underlying this is a shift in favour of our higher margin Technology Products division, which continues to perform well. Technology Products sales increased 18.1% to £31.9m (2015: £27.0m) and now represent 60% of total sales, compared to 50% in the previous year. Electronic Assemblies sales reduced to £21.2m (2015: £26.9m), reflecting continued reductions in sales volume, further price pressure and our ongoing commitment to strategically review non-core, low margin sales. This is allowing us to better use our Electronic Assemblies capacity to support the activities of our higher margin/higher value added Technology Products division.

A year of good progress

Nick Brayshaw OBEChairman

“Our order book at the year end was at record levels, up 36% on the previous year end at £25.8m. Our offering of complementary electronic

technologies and design-focused engineering

expertise is proving very attractive to our customers, and this growing demand

gives us confidence.”


Chairman’s statement

“We are excited about the prospects for the Group and believe that our operating model, focused

around strategically located regional design centres, manufacturing centres of excellence and regional fulfilment

centres, will allow us to deliver accelerated growth.”

Pleasingly, several Electronic Assemblies customers are being transitioned into Technology Products customers as they seek new design-led solutions from Stadium.

Because of this more favourable sales mix, normalised gross profit margins improved to 25.1% (2015: 23.2%). Normalised operating profit margins* were 8.6% (2015: 8.5%) with normalised operating profit* at £4.56m (2015: £4.58m). Normalised profit before tax* grew by 5.2% to £4.22m (2015: £4.01m) and adjusted EPS was 9.1p (2015: 9.9p).

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to Financial review and Note 2 for further information.

Statutory reported profit before tax was up 29.4% to £2.20m (2015: £1.70m), which includes non-recurring items such as reorganisation costs, the release of the deferred consideration relating to the Stontronics acquisition, amortisation of acquired intangible assets and interest charged on the fair value of deferred consideration.

In 2015, we invested significantly to relocate and materially upgrade our facilities in Asia, and in 2016 we addressed our operating model in Europe, through both investment and reorganisation of facilities, equipment, R&D and people. Net debt was £3.3m (2015: £4.7m), with cash (net of overdrafts and invoice discounting) at £4.6m (2015: £3.8m), enabling the Group to maintain the flexibility to invest appropriately.

DividendThe Board targets a progressive dividend policy, which enables the Group to retain sufficient cash flow to meet its investment needs and support growth. The Board has recommended a final dividend of 1.95p per share (2015: 1.80p per share) giving a total for the year of 2.90p per share (2015: 2.70p per share), an increase of 7.4% over the prior year. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 10 May 2017 to shareholders registered at the close of business on 7 April 2017. The ex-dividend date is 6 April 2017.

2016: Establishing a platform for future growthOver the last two years we have consistently invested across our Technology Products division to drive and support growth over the long term, and to ensure that our design and manufacturing capabilities are world class. To complement our existing regional design centres in Shanghai, Southampton and Norwich, we opened a fourth design centre in Stockholm, Sweden, at Kista Science City. Deemed one of the world’s leading high-tech clusters and often described as Europe’s “Wireless Valley”, this enables us to focus on our fast-growing wireless business and will act as the hub for the Group’s research and development (R&D) activities.

Following the successful upgrade and relocation to a new facility at our manufacturing centre of excellence in Asia in 2015, we consolidated our European manufacturing footprint from four separate locations into two main manufacturing centres of excellence at Hartlepool and Southampton in the UK. At the same time, we expanded and upgraded the facility in Reading to become the distribution centre for Europe and also completed the successful move to a new distribution and logistics centre in Kowloon, Hong Kong to service the APAC region. During the year we also moved the Group’s registered head office from Hartlepool to Reading.

In January 2017, post period end, we invested in a complementary addition to our technology expertise through the acquisition of the assets of Cable Power Ltd (“Cable Power”), a specialist manufacturer and distributor of bespoke cable and power products and accessories to single board computing (SBC) providers, for £0.75 million in cash. The combination of Cable Power and Stontronics sees Stadium uniquely positioned to offer a highly compelling, exclusively approved “one-stop-shop” solution for the rapidly expanding single board computer sector, a key component in the growth of the Internet of Things (IoT).

During the period the decision was taken to establish Stadium Group Inc. to increase our ability to support the development of our activities in North America. This is underpinned by a growing number of new

business opportunities for our design-led technology solutions, from both existing and new customers in this region. The ability to support this new business with capability located in the USA is seen as critical to develop this channel for the Group.

A more detailed overview of the operational performance of the divisions and business units can be found in the Chief Executive’s operational review.

Board changesIn October 2016 Joanne Estell, Chief Financial Officer and Company Secretary, stepped down from the Board to pursue new opportunities outside of the Group, and in January 2017 we announced the appointment of Andrew Tonks as Interim Finance Director with immediate effect. On behalf of the Board and shareholders of Stadium, I would like to thank Joanne for her contribution to the business during a period of major transition and her efforts throughout a series of strategic acquisitions. We are also very grateful to Joanne for making herself available to ensure an orderly handover to Andrew. The process to appoint a permanent Finance Director is continuing and we will update shareholders as appropriate.

OutlookWe are very excited about the prospects for the Group and believe that our operating model, focused around strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres, will allow us to deliver accelerated growth in 2017. Our capability has been further enhanced by the establishment of Stadium Group Inc. which has strengthened our presence in North America. Our record year-end order book at £25.8m, up 36% on the previous year end, continues to rise. Our offering of complementary electronic technologies and specialist design-focused engineering expertise is proving very attractive to current, previous and new customers, and this growing demand gives us confidence in the outlook for 2017 and beyond.

Nick Brayshaw OBEChairman13 March 2017

Strateg

ic rep

ort


Operational overviewStadium Group has now been successfully realigned into two distinct divisions: Technology Products, comprising of wireless solutions, power supplies and human machine interface (“HMI”); and Electronic Assemblies.

The overall contribution from our Technology Products division continued to grow, benefiting from the first full year’s contribution from Stontronics, and this helped to mitigate the impact of the loss of a significant wireless customer during the year. Revenues from our Electronic Assemblies division declined faster than expected and we continued to actively manage our exposure to this area where margins are typically lower and the pricing environment remains highly competitive. These factors delayed the accelerated sales growth that we had expected in 2016. However, with a record order book and with a greater number of customers recognising the value of our design-led technology solutions, we are confident of delivering this growth in 2017 and beyond.

Technology ProductsThe Technology Products division recorded revenue growth of 18.1% over the previous year, contributing £31.9m to overall sales, and now represents 60% of total sales, compared to 50% in 2015 and 34% in 2014. This division contributed 72.8% of normalised operating profits, including Group overhead.

Wireless solutionsOur wireless division has quickly become a key cornerstone of the Group’s technology offering following the successful integration of Stadium United Wireless, acquired in July 2014. We are confident that we now have in place a very compelling proposition with a highly experienced new divisional leadership team, supported by our regional design centres that will not only attract existing and new customers, but which will also allow us to address the needs of previous customers seeking a design-led solution.

Vehicle telematics applications continues to be a significant driver of our current business in wireless and, in March 2016, we announced that we had secured a manufacturing contract worth £5m with Trak Global Solutions Ltd (“Trak Global”),

Operational highlights

— Technology Products sales up 18.1% to £31.9m (2015: £27.0m), now 60% of Group sales.

— Order intake increased by 11% up to £59.8m.

— Regional design centre fully established in Stockholm to become hub of growing wireless business.

— Stontronics, acquired in August 2015, now fully integrated and performing well.

— Key appointments have significantly strengthened the leadership team and our design engineering capability.

— Further optimisation of global operational footprint.

Delivering growth in Technology Products

Charlie PeppiattChief Executive Officer


Chief Executive’s review

a leading UK based telematics business. This new contract extends our existing supply partnership whereby Stadium provides Trak Global with its insurance telematics and usage-based insurance units.

Underpinned by the design capability of our engineering team in Stockholm, we are also starting to see an exciting new project pipeline develop in other high growth IoT vertical markets such as smart home, mHealth, wearables, industrial automation, energy management and asset tracking. We maintain the view that the IoT/M2M wireless market is an exciting growth space for Stadium and the latest market intelligence continues to suggest strong growth for the foreseeable future:

”Berg Insight estimates that the global number of cellular M2M subscribers increased by 30% during 2016 to reach 398.1m at the end of the year – corresponding to around 5% of all mobile subscribers. Until 2021, the number of cellular M2M subscribers is forecasted to grow at a compound annual growth rate (CAGR) of 26.2% to reach 1,274.8m at the end of the period. During the same period, cellular M2M network revenues are forecasted to grow at a compound annual growth rate (CAGR) of 26.0% from €6.7bn in 2015 to approximately €21.4bn in 2021.” The Global M2M/IoT Communications Market – 2015 Report Berg Insight.

Power productsThe power business delivered good growth mainly benefiting from the first full year contribution of Stontronics, which was acquired in August 2015. Stontronics has performed well for the business and the power division remains focused on offering customised power solutions, enhanced by the technical skills of the teams at regional design centres in Norwich and China.

In March 2016, we announced the appointment of Stontronics as the only approved external power supply manufacturer for the new Raspberry Pi 3, a credit-card-sized single board computer (SBC). We believe that the SBC market offers significant opportunities for new business. According to a February 2017 report from GM Insights, the global market size for the SBC market “grew to over USD 440m in 2015 with 12.5% CAGR estimation from 2016 to 2024”.

£31.9m60%

£21.2m40%

£27.0m50%

£26.9m50%

Technology Products


2016 revenue by customer (£m)

Largest three combined

13.0 25%

Next seven combined

15.1 28%

Next ten combined

9.2 17%

All others

15.8 30%

Revenue (£m)

£53.1m(2015: £53.9m)

Technology Products now accounts for more than half of Group revenues in 2016

£50m£45m£40m£35m£30m

£0

2013 2014 2015 2016

£25m£20m£15m£10m£5m

£55m

21% 34

%

50% 60

%

79%

66%

50%

40%

“Our wireless division has quickly become a key cornerstone of the Group’s technology offering.”


Technology Products

2016 2015

Strateg

ic rep

ort


Technology Products continuedPower Products continuedFollowing the year end, we strengthened our position in the SBC market further through the acquisition of the assets of Cable Power Ltd (“Cable Power”), a specialist manufacturer and distributor of bespoke cable and power products and accessories to SBC providers, for £0.75m in cash. Cable Power’s customers include a number of blue-chip OEMs, global distributors and Raspberry Pi, with whom it has exclusivity for several accessories, including HDMI cables, power connectors and other accessory bundles. Bringing together the expertise of Cable Power and Stontronics places Stadium in a unique position to offer a highly compelling, exclusively approved ‘one-stop-shop’ solution for the growing SBC sector.

Human Machine Interface (HMI) Our HMI business delivered growth ahead of plan. As expected the second half benefited from a number of new orders, including instrumentation and lighting systems for the aerospace industry as well as a control system for use in military vehicles and other automotive related contracts.

Electronic AssembliesThe Electronic Assemblies business remains a key element of our integrated sales strategy, supplying directly to OEM customers, as well as taking on an increasing role as a vertically integrated supplier to the rest of the Group. Electronic Assemblies sales reduced significantly during the period, and at a faster rate than expected, to £21.2m (2015: £26.9m). This was a result of a slowdown in UK demand during the second and third quarters of the year, further reductions in the sales volumes of some legacy products, relentless price pressure and our ongoing commitment to strategically review non-core, low margin sales. This is allowing us to better use our Electronic Assemblies capacity to support the Technology Products division. In addition, a number of historic Electronic Assemblies customers have been converted into Technology Products clients, taking advantage of our design-led offering, particularly with wireless connectivity solutions and energy efficient power products designs.

Ongoing strategy Our strategy remains unchanged as we continue to build the business through a combination of design-led organic growth, leveraging our global manufacturing capability and our network of regional

design centres, and in a targeted way, to acquire technologies and capabilities that will generate long-term value and improve the quality of earnings.

In 2016 we set ourselves the following “Vital Few” strategic objectives, and I set out below our progress:

— drive further sales growth and leverage global partnerships;

— enhance our global operations and develop our technology roadmap;

— leverage manufacturing capacity to support growth; and

— identify complementary acquisitions.

Drive further sales growth and leverage global partnershipsHaving invested in our technical sales capability in 2015 and 2016 we have been keen to maximise opportunities for further sales growth from existing and new customers, as well as targeting previous clients that can be attracted back with our enhanced design-led offering.

In terms of existing customers we are seeing two patterns emerging: a number of existing OEM customers that have used our electronic manufacturing services are being transitioned to our custom-designed products, or those with existing custom-designed products are looking to use Stadium for new design programmes or second generation products. It is also pleasing to see that an increasing number of our customers are now requesting a combination of our technology offerings. As well as targeting new customers with our integrated technology products offering we have also had some initial success in winning back some lost customers who have recognised and welcomed the step-change in our design capability.

In terms of global expansion, we have been particularly successful in moving our business away from a traditionally UK-centric customer base to a wider mix of UK, North American and European customers. North America accounted for 11% of Group sales in 2016 and interest is increasing significantly from the region, which currently represents more than 20% of the pipeline going forward. To support existing customers, new customer wins and further potential sales growth in North America we have established Stadium Group Inc. and will invest circa £0.5m in 2017 in technical sales and regional fulfilment capability in the region.

Enhance our global operations and develop our technology roadmapHaving already made significant investment in our new Asia facility and significantly upgrading our technical capabilities through the establishment of three regional design centres, in 2016 we focused on reviewing our European manufacturing and distribution footprint. During the year we consolidated four separate locations into two main manufacturing centres of excellence in the UK at Hartlepool and Southampton, as well as expanding and upgrading our facility in Reading to become our distribution centre for Europe. Our UK site rationalisation is now complete.

In May 2016, we opened a fourth design and R&D centre for customer-focused wireless connectivity solutions in Kista, near Stockholm, Sweden. Kista Science City is the largest Information and Communication Technology (ICT) cluster in Europe often described as “Wireless Valley” and the third largest ICT cluster in the world, housing more than 1,000 technology companies. Kista is Stadium Group’s hub for wireless technology development, working alongside the Group’s additional design centres in Shanghai, China, Norwich, UK and Southampton, UK.

This new design centre is led by a high calibre team whose expertise in Wireless Connectivity and IoT technology is world class, specialising in the development of wireless solutions that support data transfer between devices encompassing connectivity in all the different current and next-generation global technology platforms.

During the year, Kjell Karlsson was appointed as Managing Director of Stadium’s wireless division and our new Swedish entity (SGW Sweden AB). Kjell has over 18 years’ experience in the wireless electronics sector and was formerly Managing Director EU & USA for Sunway Communications, a high-tech enterprise focusing on the R&D and manufacture of the mobile terminal antennae and connectors with high electromagnetic compatibility. Prior to that he was Engineering Director for Laird Technologies’ Mobile Antenna Systems division, overseeing a global network of design centres. As well as Kjell’s appointment we have expanded the team with highly experienced wireless, RF, hardware and software engineers and experienced technical sales capability. Our customers see this capacity as a strong differentiator for Stadium.


Chief Executive’s review continued

This year we further strengthened our management team with the appointment of Martin Brabham as Managing Director for our global power supplies business, comprising Stadium Power and Stontronics Ltd, integrated under the banner of Stadium Stontronics. Martin joined Stadium from XP Power where he held a senior commercial position, and has over 25 years’ experience in the power products and electronics industry. He has a detailed knowledge of the sales and marketing of electronic sub-systems and components to OEMs in the defence, healthcare, communications and industrial sectors.

Leverage manufacturing capacity to support growthThe shift to provide a greater proportion of our Technology Products from our manufacturing centres of excellence continued as the three manufacturing sites in Hartlepool, Southampton and Asia act as vertically integrated suppliers to the different business units. All three sites, following investment and upgrades, are now well placed to produce more technically challenging Technology Products.

Interestingly, during 2016 the level of vertically integrated activity in our Electronic Assemblies plants for the Technology Products division increased to greater than 25%. This is expected to double to more than 50% of activity levels in 2017.

Identify complementary acquisitionsAs previously mentioned, since the year end we strengthened our position in the SBC market by acquiring the assets of Cable Power, a specialist manufacturer and distributor of bespoke cables, power products and accessories.

We believe that there is an opportunity to acquire further complementary technology businesses to strengthen our market position in this sector. We remain committed to acquiring companies that bring a clear value proposition for the Group, and we continue to seek potential targets that increase our exposure to high growth markets, increase our global reach and complement our existing technologies.

OutlookThe key focus for our team this year has been to ensure that we have in place the correct operating model that puts “the customer at the centre of our business” through strategically located regional design centres, manufacturing centres of excellence and regional fulfilment centres. This will allow us to deliver the accelerated growth trajectory in 2017 that we had hoped to achieve in 2016. The best indicator of our successful execution of this plan is the £59.8m order intake in 2016, up 11% on the prior year, with a record year-end order book for the Group of £25.8m which has continued to grow since the year end.

Our enhanced offering of integrated technology products within wireless, power and interface displays, supported by a quality team of talented design engineers, is proving to be very attractive to our customer base and we remain confident that 2017 will be a year characterised by strong sales growth.

Finally, I would like to thank all employees across the whole Group for their commitment, positive contribution, enthusiasm and hard work, which I am sure will all combine to deliver the accelerated growth trajectory anticipated for 2017.

Charlie PeppiattChief Executive Officer13 March 2017

2014 2015 2016

Stadium revenue by market

Energy/Smart home

Transportation Industrial/lighting

Security Healthcare Aerospace/defence and marine

Revenue by destination (£m)

UK

16 33.2 63%

15 33.3 62%

Europe

16 11.3 21%

15 8.6 16%

Asia

16 0.5 1%

15 1.5 3%

Americas

16 6.1 11%

15 7.7 14%

Other

16 2.0 4%

15 2.7 5%

Strateg

ic rep

ort


Accelerating IoT/M2M wireless design expertise in

a dedicated high-tech regionWireless Technology design centre, Kista Science City

The Stadium Group design and R&D centre for customer-focused wireless connectivity solutions was established at the Kista Science City, near Stockholm, in Sweden in May 2016.

The design centre is steered by a high calibre team whose expertise in wireless connectivity and IoT technology is world class, specialising in the development of wireless

solutions that support data transfer between devices encompassing connectivity technology platforms such as RFID, NFC, Bluetooth, GSM/GPRS/EDGE, WCDMA/

HSPA, CDMA, GPS & GLONASS, Low Power Wide Area Network (LPWAN) and LTE.

Kista Science City is the largest Information and Communication Technology (ICT) cluster in Europe and the third largest ICT cluster in the world, housing more than 1,000 technology companies. Kista is Stadium Group’s hub for wireless technology

development, working alongside the Group’s additional design centres in the UK and Asia.

Focus on technology – wireless


Our technologies in action

“Demand for wireless M2M connected devices is being driven by the Internet of

Things (IoT) and our aim at Stadium is to help make this technology widely available, cost effective and compatible across platforms in different industry sectors for our clients.

We have built a solid business model that allows us to mutually optimise design,

manufacturing and sales processes so our OEM customers can very quickly develop

and implement new wireless products and solutions. We understand that speed

to market in this area is critical.”

Kjell Karlsson Managing Director – Wireless Division

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Cable Power acquisition strengthens single board

computer offering

Focus on technology – power

On 11 January 2017 Stadium Group acquired the assets of Cable Power Ltd (Cable Power), a specialist manufacturer and distributor of bespoke cable,

power products and accessories to single board computing (SBC) providers.

Cable Power’s customers include RS Components, Premier Farnell, CPC and Raspberry Pi, with whom it has exclusivity for several accessories,

including HDMI cables, USB power switches and other market-leading products.

Cable Power has been integrated with Stadium’s power division, Stadium Stontronics, which announced in March 2016 that it had become the only approved

external power supply manufacturer for the Raspberry Pi 3. Cable Power is an excellent fit, with complementary products including bespoke cables for data, audio visual

and SBC applications, which complements the Company’s strategy to grow its design-led range of technology products.

“The acquisition of Cable Power brings complementary bolt-on products to our portfolio that enhance our overall offering, primarily in the power

products space.

There is a great deal of synergy between the product ranges of our power division and Cable Power, and we already work closely with many

of the same customers.

Bringing together the expertise of Cable Power and Stontronics places Stadium in a unique position to offer a highly compelling exclusively

approved “one-stop-shop” solution for the single board computing sector.”

Martin BrabhamManaging Director – Power Division


Our technologies in action continued

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HMI technology meeting the demands

of air cabin designThe growth of smart technologies has driven passenger demand for easy

and intuitive access to seating, comfort and entertainment system controls.

Common technologies used in aircraft cabins are the secret-until-lit panels ensuring crew and passengers are only aware of status lights and icons when they are illuminated.

One of the longstanding problems with traditional indicator technology used for this purpose is the amount of space required behind the panel for lamps and backlighting.

Our low-profile high-illumination patented thin film backlighting technology is providing the ideal solution for our customers in this sector.

Thin film backlighting is compact and light enough to integrate into seats, armrests and the bottom of overhead lockers – seamlessly integrated into the aircraft design.

“We have pioneered many HMI innovations now in common use including thin film backlighting, integral RFI screening and back-lit capacitive switching systems.

Through the use of optics and smart manufacturing technologies, including light guides, we are facilitating improved HMI solutions in aircraft and ensuring the

customer experience is at the forefront of future air cabin designs.”

Vince LightManaging Director – HMI Division

Focus on technology – HMI



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Global automotive manufacturing

certification


In 2016 we achieved accreditation to TS16949 certification, one of the most widely used international standards for quality management in the automotive industry,

at our manufacturing centre of excellence at Hartlepool, UK, having held the standard at our China facility for over ten years.

Design-led electronics for the global automotive sector is a core market for Stadium as we continue to deliver high-quality, design-led solutions to customers in vehicle telematics, fleet asset tracking, usage-based insurance (UBI) devices and infotainment.

“We are fully committed to providing world-class manufacturing facilities to support the Group’s customer focused, design-led technology proposition. The TS16949 accreditation at our Hartlepool, UK, facility strengthens our position in the global automotive and transportation sector and provides customers with

complete assurance of quality in all of the end-to-end solutions we deliver.

We now offer low/medium or high-volume manufacturing from the region that provides the best landed cost or near-to-market geography that

meets the customer’s requirement.”

Chris ShortManaging Director – Electronic Assemblies – Europe



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Core growth markets and emerging sectors

Our design-led technologies are focused on key growth markets with emerging opportunities where we deliver end-to-end electronic technology solutions

to our customers.

Our business sectors

WirelessIoT is driving a wealth of opportunity in the industrial space as we move towards an ever more connected world, and we are seeing evidence of emerging markets utilising M2M technology in many of our core markets. In industrial markets such as utilities, transportation and manufacturing, M2M technologies are driving the next phase of growth called Industry 4.0 or Industrial Internet of Things (IIoT) in which industrial processes and the associated machines become smarter, driving higher efficiencies and greater flexibility for meeting customer demand, while opportunities in mobile healthcare, the connected car and smart energy platforms are accelerating demand in our niche sectors.

It is estimated that the number of global cellular M2M subscribers increased by 30% during 2016 to reach 398.1 million at the end of the year and it is forecast to continue on this steep growth trajectory at a compound annual growth rate (CAGR) of 26.2% to reach 1,274.8 million by 2021.

HMIThe global human machine interface market was valued at USD 3.2bn in 2015 and is expected to grow at a CAGR of 9.0% between 2016 and 2022. It is primarily the demand for connected HMI solutions that is underpinning the increase in this sector with drivers including the evolution of IIoT and increasing adoption of touch-based HMI technology across wider industrial applications.

PowerThe overall global power supply market is growing steadily with a forecast CAGR of 1.1% to 2020, albeit there are a number of high growth vertical markets in this space. The fastest growing sector for power supplies is forecast to be LED lighting with a growth rate of 16.8% to 2020. With our knowledge and capability in this sector, we have the opportunity to address primarily niche high value, low volume areas, such as military and industrial applications, as well as other specific custom power design applications where we can add value.

Another market with a modest rate of growth in power supplies is the industrial sector with a CAGR of 0.9% and the medical sector with 2.5%. These niche sectors provide Stadium with opportunities for added value solutions in custom or semi-custom solutions and designs or with our integrated technologies offering.

The single board computing (SBC) market size was over USD 440m in 2015 with forecast 12.5% CAGR from 2016 to 2024. Rising demand across the Internet of Things (IoT) industry is expected to propel the SBC market size in the future. SBCs are considered as IoT hardware components due to seamless integration with the technology, which is anticipated to create a huge demand for these products over the next few years.

Electronic Assemblies Electronic Assemblies revenue in Western Europe is forecast to reach Euro 11.7bn in 2020, up from Euro 10.8bn in 2015, with the market increasingly focused on the aerospace, defence, automotive, medical, control and instrumentation, industrial and telecom segments.


Our core markets

TransportationNiche technologies for the transportation and automotive sector including vehicle telematics, fleet asset tracking, usage-based insurance (UBI) devices, user experience and infotainment.

IndustrialTraditional electronic and emerging technologies for industrial applications including specialist lighting, metering, instrumentation, industrial automation and industrial IoT.

SecurityElectronic technologies for access control, CCTV, fire detection and remote monitoring equipment.

Aerospace and defenceElectronic, interface and power solutions for aerospace and military land, air and sea sectors providing solutions for aircraft interior signage, asset tracking control systems, boat bridge control panels and ruggedised interface systems.

HealthcareOur electronic technology solutions are used in critical medical equipment, diagnostic and monitoring devices, assisted living and hospital infrastructure.

Energy and smart homeSmart solutions for energy management and climate control systems, security and access control, lighting and smart home appliances.

Our six key markets


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Our vertical markets

TransportationDesign-led electronics for the global automotive sector is a core market for Stadium and we specialise in applications that utilise our experience in bespoke technology solutions in the high end niche automotive sector. Accredited to the TS16949 automotive manufacturing standard we deliver design-led solutions to customers in vehicle telematics, fleet asset tracking, UBI devices and infotainment.

The connected carThe connected car has a strong potential for growth as leading automotive OEMs expand the availability of this technology, leveraging the full capabilities of 4G networks. It is estimated that 18% of all vehicles sold globally in 2015 had an embedded telematics solution and by 2020 the attach rate is projected to reach 62%.

OEM telematics is a mass-market feature in North America and is now also becoming widely available in parts of Europe and Asia Pacific. The European market will be boosted by the implementation of the eCall initiative and the North America market will increase further due to the electronic logging device (ELD) mandate. As a result OEM telematics will emerge as a major M2M market in terms of both volume and value.

Touch technologyWith consumers becoming increasingly comfortable using smartphones and tablet PCs, touch screens are now making their way into vehicles. The automotive touch panel market is expected to expand from 28 million units shipped in 2013 to 86 million in 2021.

In this emerging sector there is a shift from resistive-touch to capacitive-touch technology to provide a similar user experience to smartphone and tablet-PC touch displays. Our HMI business provides longstanding expertise in capacitive switching technology and we are working with global automotive manufacturers in this growing space.

IndustrialStadium provides a mix of traditional electronic and emerging technologies for industrial applications including heating, ventilation, metering, specialist lighting, industrial automation, instrumentation and heavy industrial.

The global industrial robotics market is expected to reach USD 79.6bn by 2022, growing at a CAGR of 11.9% between 2016 and 2022. Industrial automation is driving the demand for automated machinery, control systems and connected robotic machines. This technology delivers improved precision, higher efficiencies, better quality control and remote monitoring.

Security Our security solutions provide electronic technologies for access control, CCTV, fire detection and remote monitoring equipment. We incorporate the latest power and battery management systems and wireless connectivity technology to deliver innovative and reliable solutions for our customers.

The demand for electronic security systems is being driven by the surge in demand for CCTV and video surveillance systems. The global market for electronic security systems is projected to exceed USD 80bn by 2020 and the CCTV and surveillance systems market is set to grow at 12.1% CAGR.

Aerospace and defence We deliver niche electronic, interface and power solutions for aerospace and military land, air and sea sectors providing solutions for aircraft interior signage, asset tracking control systems, boat bridge control panels and ruggedised interface systems. We are members of ADS (the premier trade organisation for companies in the UK aerospace, defence, security and space sectors), and operate under the industry and MoD-accredited SC21 improvement programme, designed to increase the performance of the supply chain within the UK aerospace and defence industries.


Our core markets continued

The aircraft cabin interiors market is projected to grow from USD 16.9bn in 2016 to USD 29.2bn by 2021, at a CAGR of 11.6%, driven by an increase of premium economy seating and implementation of in-flight entertainment systems. In our HMI business, we are seeing a growing requirement in aircraft interiors for back-lit control panel systems on commercial aircraft. Our thin film backlighting HMI technology is widely used in this cost-driven sector due to its lightweight, slimline design and minimal weight, meeting the demands of the industry for space and weight reduction.

HealthcareOur partnerships with specialist OEMs in the healthcare sector span over 30 years. We provide design and build capability that meet the demanding requirements of this sector including ISO13485 for the manufacture of medical products and EN60601 for the design and manufacture of power products. Our solutions are used in critical equipment, diagnostic and monitoring devices and assisted living and hospital infrastructure.

The biggest trend emerging in the healthcare sector is the desire for connected medical devices and M2M applications to enable remote management of healthcare driven by healthcare costs, a focus on patient-centric care and penetration of 3G and 4G networks to provide uninterrupted services.

The number of remotely monitored patients worldwide grew 44% in 2016 to 7.1 million and it is estimated that the number of remotely monitored patients will grow at a compound annual growth rate (CAGR) of 47.9% to reach 50.2 million by 2021.

In recent years wearable technologies in the healthcare and consumer space has also emerged as a new category of connected products and we anticipate further growth opportunities in this area.

Energy and smart home Over 91 million homes in Europe and North America will be smart by 2020. Smart home automation provides control and monitoring solutions using a smartphone app or a web portal as a user interface.

Our design-led integrated electronics capability is facilitating growth in this emerging sector with connectivity solutions for energy management and climate control systems; security and access control; lighting; and home appliances.

Sources: Berg Insight, MicroTech Consultants, marketsandmarkets.com, Global Industry Analysts, Inc., GM Insights, HIS Markit, IndustryARC, Reed Research.

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Our strategic prioritiesOur strategy is to build a robust growth business through a compelling design-led technology

offering underpinned by global operational excellence, experienced technical talent and strong leadership and supported by complementary acquisitions.

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Customer satisfaction and operational excellenceWe continuously improve our manufacturing operations and procurement activities to maintain competitiveness, deliver value to our customers and improve profitability.

Our achievements – Consolidated four UK manufacturing sites into two at Hartlepool and Southampton.

– Established two new regional fulfilment centres – in Reading for Europe and Hong Kong for Asia.

– TS16949 certification achieved in the primary UK manufacturing plant, providing capability to this standard now from both our UK and China factories. See page 22.

– Commenced Group-wide roll-out of an upgraded ERP system that will deliver greater efficiencies and improved processes across our businesses.

– Further optimisation of our global supply chain through a number of strategic partnerships.

Our priorities – Progress our manufacturing centres of excellence model.

– Continue to drive cost savings and operational improvements throughout the organisation.

– Optimise our operational footprint, streamline our business process, drive for continuous improvement and develop smarter ways of working.

Market share and profitable sales growthWe drive growth by focusing on our core markets, adding value and providing a fully integrated design, manufacturing and fulfilment solution for our customers with proven capability in wireless, power and HMI solutions.

Our achievements – Technology Products now accounts for over 60%

of our total revenue.

– Growth in core markets and emerging sectors.

– Wireless capability significantly expanded with the launch of a design centre in Kista, Stockholm, with a dedicated and experienced technical team positioned to capitalise on opportunities in this sector.

Our priorities – Continue to focus on end markets and emerging sectors

where our technology products can be applied.

– Accelerate our ability to support the development of ongoing activities in North America, supported by the establishment of Stadium Group Inc.

– Business development strategy to transition Electronic Assemblies customers to design-led proposition.

– Continue to leverage our design and manufacturing capability, and widen our technology offering to existing and new customers.

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Our strategy

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Responsible businessAttracting and retaining the right people is critical to our future success. We are developing a world-class business led by professional and experienced leaders, promoting a culture of responsibility for our people, and ensuring their development and safety.

Our achievements – Group leadership team established, incorporating the senior leaders of the business, that will deliver growth in their respective business areas in line with our growth strategy. See pages 46 and 47.

– Technical leadership capability in place to support design-led technology strategy.

– We recognised and rewarded employees who demonstrated excellence in their performance through the annual CEO awards. See case study on page 41.

– Achieved zero reportable accidents in the period.

Our priorities – Continued succession planning.

– Continued promotion of Stadium’s core values throughout the organisation.

– Talent retention.

– Launch global employee engagement programme to build two-way communication model across our business.

– Maintain world-class health and safety levels across all sites.

Developing our technology roadmapWe continue to upgrade the design engineering capability and capacity across the Group to support the growth strategy of our Technology Products division.

We are committed to driving innovation and technological developments through the Group Technology Board, investment in capitalised R&D and the opening of dedicated regional design centres.

Our achievements – Operations reconfigured to drive full turnkey technology offering from design through prototype to full mass production.

– Increased level of investment in capitalised R&D up to £0.7m to enable technology-led capability (2015: £0.4m).

– Wireless regional design centre established in Kista Science City, Stockholm, to drive design-led wireless M2M/IoT technologies. See page 16.

– Capability added to serve the growing single board computing (SBC) market following the acquisition of the assets of Cable Power Ltd.

Our priorities – To continue the excellent

performance achieved.

– Expand Stockholm as design hub for the Group.

– Deliver technical engineering coverage for growth in focused vertical markets.

M&AWe remain committed to acquiring businesses that bring a clear value proposition for the Group and we continue to seek potential targets that increase our exposure to high growth markets, increase our global reach and complement our existing technologies. Our acquisition model concentrates on businesses that can accelerate the delivery of our strategy and bring speed to value where synergies and an improved quality of earnings can be harnessed for the Group.

Our achievements – Stontronics, acquired in August 2015, now fully integrated.

– Assets of Cable Power Ltd acquired, adding value to our power products portfolio in the single board computing market. See page 18.

Our priorities – Continue to pursue acquisitions that complement existing technologies and augment the growth strategy.

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Link to strategic priorities



Performance in 2016

Growth of Technology Products

Profitable growth

Earnings per share

Measuring our performance

ProgressGross margin on a normalised basis improved by 190 basis points to 25.1% (2015: 23.2%) due to the progressive increase in sales from the higher margin Technology Products division and the savings arising from the last two years’ reorganisation savings. Recent acquisitions have also been gross margin accretive relative to the Electronic Assemblies division. This improvement was partially offset by an increase in development costs to fund the regional design centres and overall normalised profit before tax* increased to £4.2m (2015: £4.0m).

* Refer to Financial review and Note 2 on page 67.

ProgressBasic earnings per share from continuing operations improved. Adjusted fully diluted earnings per share before amortisation of acquired intangibles and from continuing operations reduced slightly with the full year effect in 2016 of the 5.5 million shares issued in August 2015.

* Refer to Note 2 on page 67 and Note 18 on page 80.

ProgressIn line with the strategy to be a design-led organisation, the Technology Products division increased revenues year on year by 18.1% to £31.9m (2015: £27.0m), contributing 60.1% to Group revenues.

Our focus is to build our business organically by leveraging the offering we have from our complementary electronic technologies, engineering expertise,

global footprint and skilled people.

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2

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5

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2

3

5

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2

3

5

Revenue (£m)

£53.1m(2015: £53.9m)

16 53.1

15 53.9

14 41.7

13 42.2

Adjusted EPS* (p)

9.1p(2015: 9.9p)

16 9.1

15 9.9

14 7.8

13 5.3


£4.2m(2015: £4.0m)

16 4.2

15 4.0

14 2.7

13 1.9

79%21%

50% 50%


Technology Products

60% 40%

34% 66%


Our KPIs

R&D expenditure


ProgressTotal R&D spend as a percentage of Technology Products revenue has increased in line with our transition to a technology products provider, which now accounts for the majority of revenue. The £1.2m (2015: £0.5m) spend in 2016 was driven by self-funded R&D activity in the wireless business, which has quickly become a key cornerstone of our technology products offering.

% of Technology Products revenue

3.8%(2015: 1.8%)

16 3.8

15 1.8

14 1.5

13 1.4

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3

1

2

3

5

4

Market share and profitable sales growth

Customer satisfaction and operational excellence

Developing our technology roadmap

M&A

Responsible business

Order intake


ProgressOur offering of complementary electronic technologies and specialist design-focused engineering expertise is proving attractive to current, previous and new customers. The growing demand in Technology Products and the overall customer satisfaction achieved across our business is reflected in the positive order book and order intake.

Order intake (£m)

£59.8m(2015: £53.9m)

16 59.8

15 53.9

14 48.0

13 41.0

Reportable accidents


ProgressWe are committed to working in a way that protects the health and safety of employees.

The RIDDOR reportable accident ratio is a key measure of the safe operation of our business. In 2016 we are proud to declare zero reportable accidents in our business.

Reportable accidents per employee

0.000(2015: 0.003)

16 0.000

15 0.003

14 0.003

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2

4

13 0.006

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Solid performance

RevenueRevenues for the year were £53.1m (2015: £53.9m).

In line with the strategy to be a design-led organisation, the Technology Products division increased revenues year on year by 18.1% to £31.9m (2015: £27.0m), contributing 60.1% of Group revenues. This increase was driven by the growth in power products following the Stontronics acquisition. Underlying growth elsewhere in the Technology Products division largely offset the loss of a major wireless customer in the year. Revenues from the Electronic Assemblies division were £21.2m (2015: £26.9m), declining by 21.1%. This reflects the decision to exit low margin non-core accounts and the migration of some Electronic Assemblies customers towards the services supplied by the Technology Products division.

ProfitGross margin on a normalised basis improved by 190 basis points to 25.1% (2015: 23.2%) due to the progressive increase in sales from the higher margin Technology Products division and the benefits arising from the recent investment in the operating structure. Acquisitions have also been gross margin accretive.

Operating expenses, excluding non-recurring expenses, increased year on year by £0.7m after the impact of acquisitions and investing £0.5m in the regional design centres.

The above results translated into a normalised profit before tax* (PBT) of £4.2m (2015: £4.0m) and an improvement in return on sales to 8.0% (2015: 7.5%).

Normalised adjustments relating to continuing activities excluded from normalised profit before tax are detailed in the table opposite.

Statutory reported profit before taxation of £2.2m (2015: £1.7m) was 29% higher than the prior year. This includes the reversal of £0.5m of deferred consideration provided in 2016 as a result of the non-achievement of part of the Stontronics acquisition earn-out.

Financial highlights

— Normalised gross margin improved by 190 basis points to 25.1% (2015: 23.2%).

— Normalised profit before tax* (PBT) up by 5% to £4.2m (2015: £4.0m).

— Profit before taxation of £2.2m (2015: £1.7m) 29% higher than prior year.

— Total investment in research and development increased to £1.2m (2015: £0.5m).

— Total dividends up by 7% to 2.9p per share (2015: 2.7p).

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to table on page 33 and Note 2 for further information.

Andrew TonksInterim Finance Director


Financial review

Interest and other financing costsFinance costs in the Consolidated Income Statement were £712k (2015: £783k) analysed as follows:

— interest payable on debt (net of interest earned on cash deposits) of £189k (2015: £231k);

— net interest on the net defined benefit pension scheme liability of £386k (2015: £395k);

— interest on finance leases of £12k (2015: £23k); and

— interest of £125k (2015: £134k) relating to the charge on the fair value of deferred consideration, which is excluded from normalised profit before tax.

TaxationOn a reported profit basis, the charge for taxation was £363k (2015: £321k), an effective rate of taxation of 16.5% (2015: 18.8%).

Earnings per shareOn a statutory basis, earnings per share from continuing operations was 4.9p (2015: 4.2p) an increase of 16.7%. Basic adjusted earnings per share* from continuing operations was 9.1p (2015: 9.9p).

* Adjusting for non-recurring items, amortisation of acquired intangibles and interest charged on the fair value of deferred consideration. Refer to Note 2 on page 67 and Note 18 on page 80 for reconciliation.

2016£000

2015£000

Profit before tax attributable to equity holders of the parent 2,201 1,704

Adjustments:

Amortisation of acquired intangible assets 861 1,026

Interest charge on the fair value of deferred consideration 125 134

Acquisition costs 67 201

Directorate change (including severance, recruitment and consultancy costs) 179 —

Release of deferred consideration no longer payable (500) —

UK site rationalisation/reorganisation 1,290 334

Asia factory relocation works — 615

Normalised profit before tax from continuing operations 4,223 4,014

“Gross margin improved by 190 basis points to 25.1% (2015: 23.2%) due to the progressive increase in sales from the higher margin Technology Products division and the benefits arising from the recent investment

in the operating structure.”


£4.2m(2015: £4.0m)

16 4.2

15 4.0

14 2.7

13 1.9

12 1.4

Adjusted EPS* (p)

9.1p(2015: 9.9p)

16 9.1

15 9.9

14 7.8

13 5.3

12 3.1

Revenue (£m)

£53.1m(2015: £53.9m)

16 53.1

15 53.9

14 41.7

13 42.2

12 41.0

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DividendsDuring the year, the Company paid a final dividend for 2015 of 1.80p per share, and a 2016 interim dividend of 0.95p per share. Total cash outflow in respect of dividends paid was £1.0m (2015: £0.8m).

The Board proposes a final dividend of 1.95p per share (2015: 1.80p per share), giving a total dividend for the year of 2.90p per share (2015: 2.70p per share), an increase of 7% and a total cash cost of £1.1m (2015: £1.0m). This final dividend is expected to be paid on 10 May 2017 to shareholders on the register on 7 April 2017 with an ex-dividend date of 6 April 2017.

Balance sheetShareholders’ fundsShareholders’ funds increased to £18.9m (2015: £18.2m). Movements of note include the following: net debt reduced by £1.4m, trade payables increased by £1.2m and accruals and deferred income increased by £0.6m, offset by an increase in the Group’s legacy net pension liabilities of £1.4m.

Goodwill and intangiblesAs previously reported under IFRS, goodwill is no longer amortised but is instead subject to an annual impairment review. There were no impairments identified in the year. Goodwill on the balance sheet is valued at £15.4m (2015: £15.4m). There were no acquisitions in the year.

Intangible assets arising from business combinations are assessed at the time of acquisition in accordance with IFRS 3 and are amortised over their expected useful life.

Other intangible assets comprise development costs, which are capitalised as intangible assets (as required by IFRS), acquisition related customer intangible assets and software costs. Investment in capitalised research and development increased by £0.3m in the year to £0.7m (2015: £0.4m) to support the growth in the Technology Products revenues.

The software costs capitalised relate to £0.4m (2015: £nil) of costs associated with the development of a new business system prior to implementation at the first Group location in 2017. Whilst the software purchased is an established ERP software package, as is normal, there is a level of configuration required to ensure the software implemented is optimised for the current and future requirements of the Group and the costs capitalised relate to this work.

Tangible assetsThe Group has property, plant and equipment totalling £4.4m (2015: £4.4m). Capital expenditure in the year was £0.4m (2015: £1.5m). The investment in 2015 included £1.2m relating to the Asia factory relocation project, which was successfully completed on time and to budget.

Pension schemesThe Stadium Group plc 1974 Pension Scheme and the Southern & Redfern Limited Scheme are final salary pension plans which are closed to new entrants and future accruals.

The net pension liabilities at the end of 2016 (net of the related deferred tax asset) have increased to £5.6m (2015: £4.2m). The increase in the IAS 19 deficit is predominantly due to a decrease in the discount rate applied from 3.60% in 2015 to 2.60% in 2016.

At the year end, the value of plan assets as a percentage of the defined benefit obligation is as follows: the Stadium Group plc 1974 plan funding status is 82.1% (2015: 84.5%) and the Southern & Redfern Limited Scheme is 107.7% (2015: 111.2%).

The Stadium Group plc 1974 Pension Scheme underwent its triennial valuation in early 2015. Given the Group’s increasing financial strength and recent developments in pension legislation, a reduction in deficit funding was agreed with the pension Trustees. Going forward, the Company will contribute £0.5m annually to this legacy pension scheme; this was previously agreed at £1.0m. The change was implemented under a plan for the Company to eliminate the pension plan deficit by 31 March 2019. During 2016, the Company made pension contributions of £0.5m (2015: £0.5m).

Cash generation and net debtAfter payment of the pension deficit contributions and tax amounting to £1.2m (2015: £0.7m), net cash inflow from operating activities was £4.2m (2015: £2.9m), an increase of 47%. This was largely driven by an improvement in working capital management, a continuing area of management focus. Free cash flow was £2.1m (2015: £0.4m). Free cash flow is stated after interest, tax and pensions financing, but before acquisitions, financing activities and dividends, as shown in the table above.

At 31 December 2016, net debt including finance leases was £3.3m (2015: £4.7m).

Bank facilitiesThe Group has agreed debt facilities with HSBC, totalling £11.7m at the balance sheet date. £5.0m of this is a revolving credit facility, which was used to fund the acquisition of Stadium United Wireless in 2014. This is

Free cash flow2016£000

2015£000

Operating profit 2,664 2,402

Depreciation, amortisation, profit/loss on sales of fixed assets and foreign currency translation 2,455 2,643

Working capital movement 289 (1,476)

Proceeds from sale of property, plant and equipment — 40

Capital expenditure on plant and equipment and software (834) (1,465)

Development costs (696) (385)

Difference between pension charge and cash contribution (317) (323)

Tax (874) (378)

Interest paid (581) (673)

Free cash flow 2,106 385


Financial review continued

repayable in July 2019 with no repayment schedule prior to that date. The remaining balance is a term loan and, to support short-term liquidity, the Group has access to a £0.6m overdraft facility of which £nil (2015: £nil) was utilised. The term loan balance was £2.4m (2015: £2.9m). This loan is repayable in increasing instalments across the period to October 2019. The Group also has access to an invoice discounting and factoring arrangement of £3.7m is available for draw down, which was not being utilised at 31 December 2016 (2015: £2.4m utilised) as the Group had sufficient funds due to strong cash management.

All Group companies have complied with all the financial covenants relating to these facilities.

Treasury and risk managementForeign currency effectsThe Group has limited exposure to transactional currency effects, as the currency of revenue and cost streams are largely matched by region. Most sales originating from UK operations are denominated in Sterling, so are largely matched with the underlying costs. Similarly, sales made from Asia are normally denominated in US Dollars and the cost streams are in US Dollars or local currencies. To the extent that the Group suffers a transactional currency effect, some of the impact has been passed on to customers through price increases.

There is a translation effect on consolidation of trading activities from our Asian operations into Sterling for reporting purposes. This effect only becomes realised upon remittance. The strengthening of the average Hong Kong dollar rate against Sterling (compared to the previous year) increased revenues by approximately £2.3m and operating profit by approximately £0.3m.

Post balance sheet eventsAcquisitionThe Group announced on 11 January 2017 the acquisition of the assets of Cable Power Ltd, a specialist manufacturer and distributor of bespoke cables, power products and accessories to the single board computing market. The consideration paid was £0.75m in cash. Further details of this acquisition are shown in Note 23 to the accounts.

Stadium Inc.On 8 February 2017 Stadium incorporated a new legal entity in the state of Delaware, namely Stadium Group Inc. This is currently a non-trading entity and a wholly owned subsidiary of Stadium Group plc.

Capital reductionA special resolution to apply to the Courts for a capital reduction was approved by the shareholders of the Company at the General Meeting held on 19 January 2017. This resolution, which was subsequently approved by the Court on 15 February 2017, has enabled the Company to increase its distributable reserves by £5.3m. These additional distributable reserves provide the Company with greater flexibility with the payment of future dividends and we would like to thank the shareholders, creditors and others for their support in approving this resolution.

Andrew TonksInterim Finance Director13 March 2017

“The Board proposes a final dividend of 1.95p per share (2015: 1.80p per share), giving a total dividend for the

year of 2.90p per share (2015: 2.70p per share), an increase of 7% and a total cash cost of £1.1m (2015: £1.0m).”

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Managing risk in delivering our strategy

Identifying the main categories of risk

The Board of Directors has identified the main categories of risk in relation to the Group strategy and is focused on taking appropriate actions to prevent, mitigate or manage them as outlined below.

The risks to our strategyThe table opposite highlights the main categories of risks we face as a business and which of our strategic objectives they affect the most. Although the Group faces other risks, the below identified risks are considered the most current and relevant to the business at this point in time.

Risk management structureStadium Group is exposed to a number of risks in running the business as described above. The Board of Directors and the Senior Executive Committee (SEC) consider these risks on a regular basis and seek to put in place risk mitigation strategies where appropriate. Overall, we have seen a further improvement in our risk management,

which is evident through the number of external, blue-chip customer audits we have passed and the upgrade to our site certifications and industry accreditations. We continually review our processes and procedures and operate within clearly defined Group operating rules and delegated authority. As we have improved the depth of talent in the organisation, this too has increased risk awareness, with issues being raised and escalated and remedial actions put in place.

The Board has overall responsibility for our risk management policies and ensuring we have effective systems in place.

The Financial review, which forms part of this report, is contained on pages 32 to 35.

Macro-economic outlook


Risk and potential impact

Current global economic and financial market conditions may materially and adversely affect the Group’s operational performance. A downturn may affect customers, suppliers and other parties we do business with. The Group is also exposed to the risk of a downturn in its customers’ end markets leading to reduced levels of activity for the Group.

With the result of the UK referendum we will see uncertainty in the UK, Eurozone and elsewhere as the economic and political relationship between the UK and EU is determined. Also the change in the political leaders in the UK and the US will also have an impact on the economic and political conditions in which we operate. The Board considers that the current level of market risk is higher than normal given the level of geo-political unrest.

Mitigation

The Directors seek to ensure that the Group’s activities are not significantly concentrated in one individual customer or into a single market sector in order to mitigate the exposure to a downturn in activity levels. In the event of a downturn the business could reduce investment plans and downscale its cost base in line with a deterioration in forecasted sales.

Probability

Possible

Potential financial impact

Major

Change since last year

1 5

Regularly review and evaluate

risks

Identify risk

Assess risk

Mitigate risk

Update risk register

Board of Directors

Remuneration Committee

Senior Executive Committee (SEC)

Divisional and functional team

Audit Committee


Risks

Supply chain/production



The Group’s main exposure in terms of supply chain arises from increases in input costs in so far as it is unable to pass them on to customers through price increases.

Mitigation

The Group seeks to mitigate increases in input costs through a combination of continuous improvement activities to increase the efficiency of operations and passing cost increases on to customers, where this is commercially viable.The Group also has an exposure to the limitation of the availability of component supplies, which could inhibit its ability to satisfy customer demand. The Group has taken steps to address this risk by seeking to build direct relationships with key component manufacturers on the basis of consolidated global spend. Single-sourced supplier risks are identified and where possible this risk is mitigated by proactively seeking a dual source. The Group relies on our China facility to produce c.50% of its volumes, which increases the length of the supply chain. The Group is also affected by the social, economic, regulatory and political conditions in China and an adverse event in this regard could have a significant consequence on our ability to supply customers on time. This risk is mitigated by our UK facilities, which could support China in terms of shared manufacturing know-how and expertise between the locations. The Group has business interruption and property damage insurance.

Probability

Possible


Major


Technology and innovation



As the Group develops into a technology-led business, it is critical we invest appropriately in R&D to stay ahead of the competition. There is a need to closely monitor disruptive technologies and to understand product life cycles. Failure to do this could have a materially adverse impact on our financial performance.

Mitigation

The Group mitigates this risk by having a range of technologies to address adjacent markets through organic growth and targeted acquisitions. The Group technology leadership team is also focused on managing the product life cycles and identifying new and emerging markets. The regional design centre model (page 10) has also helped attract the necessary personnel and skills to ensure Stadium stays ahead of the market in our core competencies.

The Group regularly reviews the level of capitalised research and development to ensure it satisfies the criteria as an intangible asset; any impairments are recognised immediately in the profit and loss account.

Probability

Possible


Moderate


Financial risks



The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk.

Mitigation

The Directors regularly review and agree policies for managing these risks. Credit risk is managed by monitoring limits and payment performance of counterparties. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group’s exposure.Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. This is regularly reviewed as the Group wins new business in foreign currency and we continue to monitor the business impact of macro-economic factors, which could affect the value of Sterling and in turn have an impact on supply chain costs. If required, surplus currency will be protected through forward foreign exchange contracts. The results of Stadium Asia are reported in Hong Kong Dollars and because of this the Group’s statement of financial position and trading results can be affected by movements in the Hong Kong Dollar. Accordingly, there is a translation effect on consolidation of trading activities in Asia, which only becomes realised upon remittance. Liquidity risk is managed by the Group having access to an invoice discounting facility with moderate overdraft facilities to provide short-term flexibility. Interest rate risk is managed by holding a mixture of cash and borrowings in Sterling, US Dollars and Hong Kong Dollars at floating rates of interest.

Probability

Possible


Moderate


1 1

1

1

2

2 22

3

3 33 5

5

5

4

4 4

Market share and profitable sales growth

Customer satisfaction and operational excellence

Developing our technology roadmap

M&A

Responsible business

Unchanged

Adverse

Improved

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Legislation and regulations



There is a risk that the Group may not always be in complete compliance with laws and regulations. For example, the risk to the Group’s reputation of failure to comply with ethical and environmental regulations arises mainly from the operation of a production facility in Asia.

Mitigation

The Directors have taken steps to ensure that all the Group’s global operations are conducted to the highest ethical and environmental standards. Regulatory requirements are kept under review and where appropriate production facilities seek to achieve BS, ISO and FDA accreditations. Suppliers are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of the regulations.

Probability

Unlikely


Moderate


Acquisitions



It is part of the Group strategy to acquire complementary acquisitions to support the Group’s technology offering, route to market and access to high growth markets. The success of this activity is dependent upon identifying the right target, ensuring appropriate financing is in place and subsequently integrating the target into the Group. Failure in any of these activities could result in a material financial loss.

Mitigation

Risks are mitigated in this regard by having a detailed due diligence plan, including an assessment of the target’s talent and competencies. Board approval is required at key milestones and final sign off is not given without a completed due diligence report and a detailed integration plan. The Directors regularly conduct post completion reviews and report the performance to the Board.

Probability

Possible


Moderate


Pension funding



As at 31 December 2016, the Group has two legacy defined benefit pension plans. On an accounting basis, under IFRS, the net pension deficit after tax increased from £4.2m in 2015 to £5.6m in 2016 following the movement in corporate bond yields post the UK referendum on membership of the EU.

The amount of the deficit may be adversely affected by lower than expected investment returns, changes in long-term interest rates, inflation expectations and increases in the forecast longevity of members. In addition, there is a risk that the plans’ assets, such as investments in debt securities and equity, will not be sufficient to cover the value of those benefits.

Mitigation

In terms of mitigating the pension risk both schemes have been closed to new entrants and future accrual. Investment plans have been reviewed in detail with the trustee and the Company and adjusted to improve the return on investments and to hedge risk. The Group seeks to maintain a good working relationship with the trustees of both schemes through regular update meetings.

Probability

Likely


Major


1 1 12 35 5 54


Risks continued

Information technology



The Group’s systems are subject to security risks. The Group is dependent on these systems for the day-to-day management of the Company. Any disruption to the Group’s information systems could have a significant impact on the business.

Mitigation

To mitigate these risks the Group is working with a third-party supplier to ensure full backup and restoration of our systems in case of an event. Disaster recovery plans are in place in the UK and are reviewed by senior managers for suitability.

Probability

Possible


Moderate


Talent succession planning



The loss of key personnel or the failure to have an adequate succession plan could have an impact on the Group’s overall performance. As a technology-led business, recruiting and retaining skilled personnel, particularly engineering professionals, is a continual challenge and competition is fierce. Without the necessary talent recruited and embedded into the business this could adversely affect Stadium’s growth plans resulting in a loss of market share and the inability to compete in the aggressive, advanced technology electronics space.

Mitigation

The risk is mitigated by ensuring development plans are in place, salary packages are competitive and talent is sourced where necessary. Stadium’s recent strategy and operating model, which is explained further in the Chief Executive’s review (pages 12 to 15), has also supported attracting the right talent into the Group.

The Chief Executive reviews all the senior managers’ performance and competencies in the organisation and identifies critical retention employees, reporting the findings to the Board of Directors.

Probability

Possible


Moderate


Contractual liabilities



Failure to deliver a contract in a timely manner, according to specification, without any faults may lead to higher costs, penalties or liquidation damages.

Mitigation

The Group mitigates this risk by ensuring adequate project management is in place and any issues identified are dealt with in a timely and efficient manner. Quality assurance processes are embedded in our manufacturing locations supporting compliance with industry regulations. Material contracts are reviewed by the Finance Director or legal counsel according to Group operating rules and delegated authority. It is worth noting that the Group does not have an overdependency on any one particular customer, which also spreads risk in this regard.

Probability

Possible


Moderate


111 222 333 5 545

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Corporate responsibility

We endeavour to act ethically and be socially and environmentally responsible while conducting our business. Sustainability at Stadium

centres around four key areas: our people, our communities, our supply chain and our environment.


Sustainability

Our peopleWe believe our people are crucial to the success of our business. In order to deliver on our growth plans, we require a skilled and engaged workforce to achieve our shared vision. We are committed to employee development, and recognising and rewarding performance.

Supporting employee developmentWe ensure all employees have the relevant knowledge, skills and expertise to perform their work to consistently high standards and to achieve their full potential. We recognise that the training and development of our employees is fundamental to the improvement of our operational performance and key to attracting and retaining the right talent to achieve the business objectives. We have implemented personal goals and objectives (PGOs) for our workforce and follow a continuous process of appraisal and review to develop personal training plans and to identify training needs across the Group.

In 2016 we continued upskilling programmes including the development of specific skills at our newly organised regional fulfilment centre in Reading, UK, with technical, operational and supply chain related training programmes.

Employee engagement Communication is fundamental to engaging employees so we encourage two-way open lines of communication throughout the Group and are committed to ongoing dialogue with local and global stakeholders to create trust, opportunities and long-term sustainable value. We utilise a variety of communication channels from workforce briefings, team briefings, suggestion schemes, works committees and newsletters.

Integration of employees gained through acquisitionAs part our acquisition process we have developed detailed integration plans in order to guarantee a smooth transition for TUPE employees, ensuring that our business ethics, employee development and EHS policies and programmes are fully implemented.

Recognising and rewarding performanceWe recognise the importance of managing performance to ensure employees fulfil their full potential and deliver business results, and where appropriate rewarding them for their achievements. Our employee recognition scheme enables us to have a consistent approach across the Group and aims to improve morale, encourage the right behaviour and improve business performance. In 2015 we launched the Annual CEO Awards which, now in its second year, recognises excellence in an individual’s performance and has received

positive feedback from both management and the wider workforce. In 2016 we introduced the Annual Site CEO Award, recognising the excellent performance or achievement of a Stadium facility.

EthicsWe require all Stadium Group plc employees, at all levels of the business, to abide by the fundamental principles of ethical behaviour as specified in our Global Code of Ethics Policy. Our objective is to apply these standards to all dealings with employees, customers, suppliers and other stakeholders to ensure compliance with all legislative and regulatory requirements and we continually review and update our business policies to ensure every employee or representative of Stadium Group plc has the tools necessary for individual legal or regulatory compliance and ethical decision making.

Diversity and inclusionCreating an equal, engaged and diverse workforce that reflects our global footprint and brings local knowledge is a key priority for Stadium. It is our policy to provide equal opportunities to all people without discrimination as to race, sex, nationality, ethnic origin, language, age, sexual orientation, marital status, religion or disability. We aim to provide an inclusive, collaborative culture that values individual employees and provides them with the support, opportunities and resources to reach their full potential.Team Building Event with the Supply Chain Team in Asia (Dongguan).

Kristan Armstrong (Hartlepool), winner of the 2016 CEO Award.

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Health, safety and environmentWe are committed to protecting the environment, the health, safety and welfare of our employees and the communities where we operate. Our environmental, health and safety (EHS) approach starts with our EHS policy and is supported by our strategy for operational excellence throughout the whole of the business.

Environmental impactOur principal focus areas include resource efficiency, reducing energy consumption, material waste management and recycling initiatives as we strive to reduce the impact of our manufacturing processes and resources on the environment. Our goal is to continually deliver improvements to address these areas and create cost savings for the business by setting EHS targets for all our sites that are reviewed annually. Sustainability plans to reduce water and electrical usage, landfill and scrap rates are implemented at all our manufacturing sites globally.

Health, safety and employee welfareProtecting the health and safety of our employees is paramount to Stadium. We conduct regular safety audits and workplace safety training is delivered to all operational teams. We continue to implement and build on these activities and are monitoring the number of reportable accidents per employee year on year as a key performance indicator.

2016 highlights include the transition to the ISO9001/ISO14001:2015 standards to maintain our commitment to this area and the increase in our commitment to monitor and report on water and energy usage at site level. In the year we also launched an initiative to reduce business travel through the encouragement of new teleconferencing facilities to help reduce our carbon footprint. We are proud to confirm we achieved zero reportable accidents from our business in 2016.

The integrity of our supply chainStadium acknowledges its responsibilities to maintain an ethical and responsible supply chain. We are actively adhering to both legislation and our own policies under the Modern Slavery Act 2015, Conflict Materials and Ethical business in the areas in which we operate to ensure transparency within our organisation and with the suppliers of goods and services to the organisation. We operate strict supplier approval processes to ensure adherence to our policies.

Our commitment as a responsible supplierIn 2016 we also maintained industry recognised accreditations that reflect the quality of our operations as a responsible supplier to the rail, aerospace and defence supply chains – SC21 and RISQS. In 2017 we achieved UK certification to the automotive standard TS16949 to complement the certification already in place in China.

Moving forward to 2017 we are implementing the adoption of the globally recognised Electronic Industry Citizenship Coalition (EICC) Code of Conduct across the Group.

Supporting our local communitiesInspiring and encouraging future talent through apprenticeshipsStadium has long been a firm supporter of apprenticeship programmes and has developed positive relationships with local schools and colleges to inspire the next generation of engineers and business leaders. In 2016 we maintained our commitment with the recruitment of several new apprentices in the UK.

All for a good causeWe encourage our businesses to support their local communities and charities through active participation in fundraising events and initiatives. In 2016 we supported several excellent causes including Macmillan Cancer Support and Alice House Hospice.

Our CEO, Charlie Peppiatt, and the Managing Director of the Electronic Assemblies business in the UK, Chris Short, took part in the globally recognised Great North Run, raising funds for Sara’s Hope Foundation. In 2017 we have a total of 27 employees from across the Group taking part in the event in support of the Foundation.

In 2016 our HMI division in Eastleigh supported the Southampton Wood Recycling Project, which provides work to unemployed, retired or disabled people through the provision of waste wood.

The Strategic Report was approved by the Board of Directors and authorised for issue on 13 March 2017.

Charlie PeppiattChief Executive Officer13 March 2017


Sustainability continued

Charlie Peppiatt, CEO, taking part in the 2016 Great North Run.

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45 Board of Directors

46 Group leadership team

48 Corporate governance

49 Report of the Remuneration Committee

50 Directors’ report

52 Statement of Directors’ responsibilities

See page 46 for Group leadership team

See page 50 for Directors’ report

Governance


Nick Brayshaw OBE CEng, FIMechE, FRSAChairman

Nick Brayshaw was appointed as a non-executive Director in April 2005 and Chairman in April 2006. He is Chairman of the Remuneration and Nomination Committees, and is a member of the Audit Committee at Stadium Group plc. He began his career with Rio Tinto plc and Caradon plc, before being appointed group chief executive of Wagon plc until March 2004. He was an independent member of the Business and Innovation Group Board of the Department of Trade and Industry from 2000 to 2006 and chairman of the CBI Manufacturing Council from 2003 to 2007.

Nick is also chairman of several private equity-backed companies.


Charlie Peppiatt joined Stadium as Group Operations Director in October 2011 from Laird Plc, a FTSE 250 global electronics company. He was appointed CEO of Stadium Group plc in June 2013.

Charlie was formerly vice president of global operations for Laird Technologies with operational responsibility for a division with turnover of USD$400m and 6,000 staff covering eleven sites worldwide.

During 18 years with Laird Plc, Charlie held other senior roles in the USA, Canada, Europe, India and Asia as VP of operations (mobile antenna systems), general manager of Laird Technologies Beijing and Shenzhen, operations director of LSSD and managing director of Intron Ltd.

Chris Gill ACASenior Independent Director

Chris Gill is a Chartered Accountant and was appointed as a non-executive Director in April 2006. He is Chairman of the Audit Committee at Stadium Group plc.

Chris is also a director at Walker Filtration Limited and Banks Group Limited; previous roles include finance director of Wellstream Holdings plc and Domnick Hunter Group plc, and a number of senior international finance roles at Black & Decker.

Our Board

A AR RN N

A

R

N

Audit Committee

Remuneration Committee

Nominations Committee

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Board of Directors

Andrew Tonks

Interim Finance Director and Company Secretary

Andrew is currently responsible for finance, IT, investor relations and compliance, M&A and Group administration as Company Secretary, in an interim capacity.

Andrew has extensive board and operational experience as a finance director in publicly listed and private companies. Previous roles include interim finance director and interim commercial director at e.surv, interim CEO and CFO of Peto Limited and CFO of AIM-listed technology developer Aerte Group PLC, formerly named Mid-States PLC.

He has also held several senior positions within listed groups including HomeServe plc, NSB Retails Systems PLC, Alvis Plc (now part of BAE Systems Land UK), ML Holdings plc, United Biscuits plc and BTR plc.

Kjell Karlsson

Managing Director – Wireless Division

Kjell is responsible for leading business growth in the global wireless space and managing Stadium’s wireless division. Based at the divisional headquarters in Stockholm, he joined the Company in May 2016 with 18 years’ experience in the wireless electronics sector.

Former roles include managing director EU and USA for Sunway Communications working with customers including Microsoft, Apple, Amazon and Samsung with responsibility for global design and sales teams in California (Cupertino), Taiwan (Taipei), China (Shanghai, Beijing and Shenzhen) and Sweden (Kista). Previously Kjell was engineering director with Laird Technologies based in Beijing and Stockholm.

Vince Light

Managing Director – HMI Division

Vince is responsible for leading business growth in the HMI technology space and managing Stadium’s HMI division.

With a strong technical background Vince leads the interface and displays technology strategy for the Group ensuring that Stadium’s HMI know-how, designs and processes are at the forefront of our customers’ product roadmap.

He joined Stadium with the acquisition of IGT Industries in 2012 where he was a founding director of this successful business. Previously he held an engineering position at NFI Electronics Ltd, where he developed early technological innovations in HMI.

Our leadership team

We demonstrate a “one team” attitude and are led by our experienced executive leadership team, which is responsible for developing our business and delivering value to all of our

stakeholders – customers, employees and shareholders.



Group leadership team

Sohan Singh

Managing Director – Stadium Asia

Sohan is responsible for Stadium Asia and the management of the Group’s manufacturing centre of excellence in Dongguan, China. He has a wealth of experience in the global electronics industry and a strong track record of business transformation and operational excellence throughout his career.

Sohan joined Stadium in February 2013 following 30 years with Motorola in multiple locations where he held several senior executive roles including senior director global strategic sourcing and senior director supplier and manufacturing quality.

Chris Short

Managing Director – Electronic Assemblies (Europe)

Chris is responsible for the management of the Group’s Europe manufacturing centre of excellence in Hartlepool, UK, including all aspects of the delivery of the electronics assembly and wireless manufacturing programmes.

He joined Stadium in August 2015, with 27 years’ operational experience in the electronics industry, from Thorn Lighting (Zumtobel Group) where he was UK operations director. Previous roles include global quality director at Thorn Lighting, operations and company director at Cowie Technology Group, global advanced engineering manager at Black & Decker Power Tools (USA) and engineer at Nissan Motor Manufacturers.

Wei Siong Tan

Group Supply Chain Director

Wei Siong is responsible for the global procurement and supply chain strategy of the Group, delivering a robust, competitive and globally sustainable supply chain programme. He manages the global purchasing and materials management teams and co-ordinates the service from the Group’s regional fulfilment centres in Hong Kong and Reading, UK. He is also Managing Director of Stadium Shanghai.

Wei Siong joined Stadium in September 2014 from Laird PLC where he was the vice president of procurement for the telematics division with responsibility for an annual spend of over £100m. Previously he held the role of operations manager for Laird Technology’s mobile phone mechanism division in Beijing.

Martin Brabham

Managing Director – Power Division

Martin is responsible for leading business growth in the global power space and managing the recently integrated power division, including the recently acquired Cable Power business.

He joined Stadium with over 25 years’ experience in the electronics industry in June 2016 from XP Power where he held senior director-level roles in the USA and Europe including sales director for Southern Europe and industry director communications and defence for North America.

Previous roles include UK sales director at Microstar Laboratories and sales and marketing manager at Vepac Electronics, South Africa.

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UK Corporate Governance Code We do not seek to comply with the UK Corporate Governance Code and this is not a statement of compliance with the Code; however, the Board recognises that the UK Corporate Governance Code represents best practice for AIM-listed companies and regulates its activities with regard to the principles and provisions contained therein.

The DirectorsThe Board of Directors, which leads and controls the Company, has a formal schedule of matters reserved for it and consists of:

— the non-executive Chairman;

— the Chief Executive;

— the Finance Director; and

— the non-executive Senior Independent Director.

The Chairman and the Senior Independent Director provide the appropriate balance between the Executive and non-executive Directors for a company of this size.

The Board of Directors takes independent professional advice where necessary, at the Company’s expense. The Board meets monthly and the monthly management accounts and other relevant information are circulated to all Board members in advance of these meetings. The consolidated Group management accounts allow the performance of individual businesses to be monitored against budget, previous forecasts and prior year actual results.

Existing Directors are required to retire and submit themselves for re-election at least every three years or at the first Annual General Meeting (AGM) after their appointment. The appointment of new Directors is delegated to a Nominations Committee, which makes recommendations to the Board.

Directors’ remunerationThe Remuneration Committee consists entirely of the non-executive Directors and its policy and the details of each Director’s remuneration are clearly explained in its report on page 49 and in Note 4 to the accounts.

A proportion of the Executive Directors’ remuneration is structured so as to link rewards to corporate and individual performance. The Board will consider every year whether the Report of the Remuneration Committee should be an item on the AGM agenda.

Relations with the shareholdersAfter the announcement of the interim and final results, the Directors meet the major institutional and private shareholders to discuss trading and future developments. The Board encourages all shareholders to participate at the AGM. Corporate news and financial information is provided on the Company’s website at www.stadiuminvestors.com.

Internal controlThe system of internal controls established by the Directors is intended to be comprehensive, although the limitations of any system of control are such that it is designed to manage rather than eliminate the risk of failure to achieve business objectives and it provides a reasonable, rather than absolute, level of assurance against material misstatement or loss.

The principal features of the system of internal financial controls are:

— budgetary control over all operating units, measuring performance against pre-determined targets on at least a monthly basis;

— regular forecasting and reviews covering trading performance, assets, liabilities and cash flows;

— delegated limits of authority covering key financial commitments including capital expenditure and recruitment;

— identification and management of key business and inherent risks; and

— implementation and annual review of a Group compliance manual.

The Board continually reviews the effectiveness of other internal controls, including financial, operational and compliance controls and risk management.

Legislation in the UK concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Audit Committee The Audit Committee, which comprises the non-executive Directors, meets to consider the scope and key issues in planning the external audit. The external auditor reports their findings and any recommendations to the Audit Committee prior to the approval of the financial statements.

By order of the Board

Andrew TonksCompany Secretary13 March 2017

The Board recognises the UK Corporate Governance Code


Corporate governance

I present, on behalf of the Remuneration Committee of the Board of Directors, a report on Executive remuneration for the year ended 31 December 2016.

All matters relating to the remuneration of the Executive Directors are dealt with by the Remuneration Committee, which comprises the two non-executive Directors of the Company. The objective of the Remuneration Committee is to ensure that the Executive Directors are fairly rewarded for their contribution to the overall performance of the Group and that their remuneration is set in such a manner as to attract, retain and motivate suitable individuals with due regard to the effect upon the operating costs of the Company.

The Remuneration Committee considers all elements comprising Executive remuneration, including basic salary, annual performance related payments, benefits in kind, grants of share options and other longer term performance related remuneration, pension provision and periods of contractual notice.

Basic entitlements The Executive Directors have service contracts which are subject to a notice period of six months.

The Executive Directors are each paid a basic annual salary which is open to review each January. In addition, the Executive Directors are entitled to annual performance related bonuses which are dependent upon the attainment of specific financial targets. Further benefits in kind are awarded as appropriate, including the provision of a company car and private medical insurance.

Pension provision The Executive Directors are entitled to have a contribution made by the Company towards a recognised pension scheme at a rate which matches their own contributions of 10% of their basic salary. The Executive Directors also benefit from death-in-service life insurance of four times earnings.

Share options and other long-term performance related payments The Executive Directors are entitled to participate in the Performance Share Plan as approved at the Annual General Meeting in 2015. A new Performance Share Plan will be submitted for approval at the Annual General Meeting on 4 May 2017.

Details of these options are set out on page 50 and in Note 17 to the accounts.

Non-executive Directors’ remuneration is determined by the Board as a whole and is set at levels intended to attract individuals of an appropriate calibre.

Details of Directors’ remuneration for the year ended 31 December 2016 are provided below.

Directors’ remuneration2016£000

2015£000

Salaries, pensions and benefits in kind 604 657

Directors’ remuneration comprised:

Salary£000

Bonus£000

Termination£000

Benefits in kind

£000

Total2016£000

Total2015£000

Nick Brayshaw 69 — — — 69 65

Joanne Estell (resigned 21 October 2016) 132 — 90 28 250 243

Chris Gill 39 — — — 39 37

Charlie Peppiatt 210 — — 36 246 312

450 — 90 64 604 657

Rex Orton who was appointed as a Director on 2 November 2016 and resigned on 10 November 2016 due to ill health received no remuneration from the Company.

Joanne Estell and Charlie Peppiatt are members of defined contribution pension schemes (see Note 19 to the accounts) and the total Company contributions for the year were £21,000 (2015: £33,000). Pension contributions in respect of the highest paid Director were £14,000 (2015: £19,000). No pension contributions were paid on behalf of the other Directors.

No Director made any profit on the sale of share options exercised during any of the above years.

Nick Brayshaw OBE Chairman of the Remuneration Committee13 March 2017

Report on Executive remuneration for the year ended 31 December 2016

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Report of the Remuneration Committee

Principal activitiesThe principal activities of the Group are providing integrated design-led technologies to OEM customers in the automotive, healthcare, security, industrial, aerospace and defence and smart home markets. Our leading technologies in wireless M2M connectivity, power supplies and human machine interface, including the latest touch technologies, are driven from dedicated design centres in Norwich, Eastleigh, Stockholm and Shanghai. The Group delivers manufacturing excellence and competitive global production through its UK and China facilities.

Results and dividendsThe results for the year are set out in the Consolidated Income Statement on page 54.

An interim dividend of 0.95p (2015: 0.9p) per ordinary share amounting to £354,000 (2015: £329,000) was paid on 21 October 2016. The Directors recommend the payment of a final dividend of 1.95p (2015: 1.8p) per share amounting to £727,000 (2015: £671,000).

Directors and Directors’ interestsThe Directors of the Company during the year and their interests in the ordinary share capital at the beginning of the year or their date of appointment and the end of the year, all beneficial (and including related family interests), are shown in the table below.

Entitlements of the Directors at 31 December 2016 to purchase ordinary shares of 5p each under the share option schemes in Note 17 to the accounts were as follows:

Performance Share Plan

Granted25 March

2015

Exercise price 5p

Charlie Peppiatt 100,000

The market price of ordinary shares at 31 December 2016 was 86p and the shares traded in the range of 65p to 128.5p during the year. Full details of Directors’ shareholdings and options to subscribe are recorded in the Register of Directors’ Interests, which is open to inspection by members.

Directors’ indemnitiesThe Directors are entitled to be indemnified by the Company to the extent permitted by law and the Company’s articles of association in respect of certain losses arising out of or in connection with the execution of their powers, duties and responsibilities. As permitted by the Companies Act 2006, the Company has also executed deeds of indemnity for the benefit of each Director in respect of liabilities that may attach to them in their capacity as Directors of the Company. The Company also purchased and maintained Directors’ and officers’ liability insurance throughout the year.

Authority to purchase own sharesA resolution renewing the Company’s authority to purchase its own issued ordinary shares of 5p each will be proposed at the Annual General Meeting (AGM). This authority is limited to purchases through the London Stock Exchange at a price of not less than 5p per share and not more than 5% above the average of the middle-market quotations of the Company’s shares as shown in the Alternative Investment Market Daily Official List for the ten business days before the purchase is made, covering a maximum number of 5,726,718 shares, being approximately 15% of the Company’s present issued ordinary share capital.

The Directors would not propose to exercise the authority to make purchases unless the expected effect of the purchase would be to increase earnings per share of the remaining shares in the capital of the Company and unless the purchase is generally in the best interest of shareholders. Any shares purchased under this authority would be treated as cancelled and the number of shares in issue reduced accordingly. The Directors presently intend that a resolution to renew this authority will be proposed at each succeeding Annual General Meeting.

Directors’ report for the year ended 31 December 2016

Directors’ interests

Ordinary shares of 5p each31 December

2016 Acquired Disposed ofOptions

exercised31 December

2015

Nick Brayshaw 179,052 10,000 — — 169,052

Joanne Estell (resigned 21 October 2016) 144,184 12,000 (70,000) 185,000 17,184

Chris Gill 77,267 10,000 — — 67,267

Rex Orton (appointed 2 November 2016, resigned 10 November 2016) — — — — —

Charlie Peppiatt 236,263 10,000 (171,227) 350,000 47,490


Directors’ report

Substantial shareholdingsAs far as the Directors are aware, the only notifiable holdings equal to or in excess of 3% of the issued ordinary share capital at 31 December 2016 were as shown in the table below.

Ordinary shares of 5p each Number %

Henderson Volantis Capital 9,378,146 24.56

Hargreave Hale, stockbrokers 3,900,280 10.22

Close Brothers Asset Management 2,716,823 7.12

Barclays Stockbrokers (EO) 2,210,613 5.79

AXA Framlington Investment Management 1,752,230 4.59

GD Fry 1,302,750 3.41

Treasury and risk managementA review of treasury activities and risk management is set out in the Financial Review on pages 32 to 35, the managing risks section on pages 36 to 39 and in Note 15 to the accounts.

Payment of suppliers It is the Company’s policy to pay all suppliers within payment terms formally agreed on an individual basis. The average period of credit taken during 2016 was 64 days (2015: 63 days).

Donations The Group made charitable donations during the year amounting to £1,888 (2015: £1,507). No contributions were made to any political organisation.

Employees The Group actively encourages employee communication and involvement through representation by works committees and participation in schemes offering an element of performance related remuneration. In addition, the share option schemes outlined in Note 17 to the accounts offer employees the opportunity to benefit from the future development prospects of the Group.

It is the Group’s policy to give full and fair consideration to all applications from disabled persons, with due consideration being given to respective aptitudes and abilities. The same policy applies in the event of employees becoming disabled during employment. Appropriate training is provided where applicable.

Going concernThe Directors confirm that, after having made appropriate enquiries, they have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in the preparation of the financial statements.

Likely future developmentOur priorities for 2017 are disclosed in the Strategic Report on pages 8 to 42. Our strategy remains to build the business through a compelling design-led integrated technology offering that leverages our existing capability and regional design centres, complemented where appropriate by acquisitions to enhance technology leadership and global reach. The Group will continue to identify further opportunities for the development of new product groups and invest in R&D. This strategy has already seen Technology Products become 60% of the Group’s revenues and the incorporation of Stadium Inc. has strengthened the Group’s presence in the USA.

Research and developmentDuring the year, the Group’s self-funded expenditure on research and development, either written off in the year or capitalised under intangible assets, totalled £1.2m (2015: £0.5m).

Events after the reporting date (Note 23)On 11 January 2017, the Group acquired the assets of Cable Power Limited, a specialist manufacturer and distributor of bespoke cable and power products and accessories to single board computing providers, for £0.75m in cash. There is no contingent consideration payable. This transaction will be accounted for in accordance with IFRS3 in the 31 December 2017 financial statements. Given the proximity to the date of acquisition no provisional assessment of fair values has yet been made by management.

On 15 February 2017, Court approval was granted approving the reduction of the Company’s share premium account (the “Capital Reduction”), as approved by shareholders on 19 January 2017. The Company has filed this order with the Registrar of Companies and it is therefore now effective as from 15 February 2017. The purpose of the Capital Reduction was to create additional distributable reserves which will provide the Company with further flexibility in relation to the payment of future dividends.

There is no change in the nominal value of the ordinary shares or the number of ordinary shares in issue arising from the event. No new share certificates will be issued as a result of the Capital Reduction. The share premium account was reduced by £5,295,000, which has had the effect of restoring it to its level prior to the 2015 fundraising.

On 8 February 2017 Stadium incorporated a new legal entity in the state of Delaware, namely Stadium Group Inc. This is currently a non-trading entity. It is anticipated in 2017 that this legal entity will facilitate the increase in US business the Group is currently transacting and will support new business wins.

No other significant events have occurred between 31 December 2016 and the date of authorisation of these financial statements.

Independent auditor A resolution to re-appoint BDO LLP as auditor of the Company will be proposed at the Annual General Meeting. So far as each of the Directors is aware at the time this report is approved:

— there is no relevant audit information of which the Company’s auditor is unaware; and

— the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

This Directors’ Report was approved by order of the Board

Andrew Tonks Company Secretary13 March 2017

Go

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The Directors are responsible for preparing the Strategic Report, the Director’s Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

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

— select suitable accounting policies and then apply them consistently;

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

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

— prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.

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

Website publicationThe Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

Statement of Directors’ responsibilities for the year ended 31 December 2016


Statement of Directors’ responsibilities


We have audited the financial statements of Stadium Group plc for the year ended 31 December 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, the Company Statement of Financial Position, the Company Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the 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.

Respective responsibilities of Directors and auditorsAs explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they 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 on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statementsIn our opinion:

— the financial statements give a true and fair view of the state of the Group’s and the parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended;

— the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

— the parent company’s financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

— the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006In our opinion, based on the work undertaken in the course of the audit:

— the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

— the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exceptionIn the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.

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

— adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

— the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

— certain disclosures of Directors’ remuneration specified by law are not made; or

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

Mark Langford (senior statutory auditor)For and on behalf of BDO LLP, statutory auditorLeeds, UK13 March 2017

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

Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

Independent auditor’s reportto the members of Stadium Group plc

Fin

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Consolidated income statementfor the year ended 31 December 2016

Note2016£000

2015£000

Revenue 1 53,069 53,872

Cost of sales (39,744) (41,365)

Cost of sales – non-recurring 2 (363) —

Total cost of sales (40,107) (41,365)

Gross profit 12,962 12,507

Other operating income – non-recurring 2 500 —

Operating expenses 2 (9,625) (8,955)

Operating expenses – non-recurring 2 (1,173) (1,150)

Total operating expenses 2 (10,798) (10,105)


Finance expense 2 (712) (783)

Finance income 2 249 85

Profit before tax 2,201 1,704

Taxation 5 (363) (321)

Profit attributable to equity holders of the parent 1,838 1,383

Basic earnings per share (p) 18 4.9 4.2

Diluted earnings per share (p) 18 4.7 3.8


Note2016£000

2015£000

Profit for the year attributable to equity holders of the parent 1,838 1,383

Other comprehensive income

Items that will or may be reclassified to profit and loss

Exchange differences on translating foreign operations 904 471

Items that will not be reclassified to profit and loss

Actuarial (loss)/gain in pension scheme, net of deferred tax 19 (1,715) 900

Other comprehensive (expense)/income for the year, net of tax (811) 1,371

Total comprehensive income for the year attributable to equity holders of the parent 1,027 2,754

The tax effects of items of other comprehensive income are disclosed in Note 5.

Consolidated statement of comprehensive incomefor the year ended 31 December 2016

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Note2016£000

2015restated*

£000

AssetsNon-current assetsProperty, plant and equipment 8 4,379 4,363Goodwill 7 15,379 15,379Other intangible assets 10 2,194 2,223Deferred tax assets 16 1,150 1,041Other receivables 12 119 156

23,221 23,162

Current assetsInventories 11 8,148 7,518Trade and other receivables 12 13,932 13,739Cash and cash equivalents 4,601 8,489

26,681 29,746

Total assets 49,902 52,908

Equity attributable to equity holders of the parentEquity share capital 17 1,909 1,826Share premium* 9,673 9,673Merger reserve* 1,559 924

Capital redemption reserve 88 88Translation reserve 1,405 501Retained earnings 4,237 5,146

Total equity 18,871 18,158

Non-current liabilitiesBank loans 14 6,713 7,350Finance leases 22 385 455Other non-trade payables 14 1,108 2,150Deferred tax 16 215 421Gross pension liability 19 6,767 5,205

Total non-current liabilities 15,188 15,581

Current liabilitiesBank loans and overdrafts 13 637 2,814Invoice securitisation 13 — 2,399Finance leases 22 143 153Trade payables 13 9,994 8,773Current tax payable 13 237 576Other payables 13 4,562 4,139Provisions 21 270 315

Total current liabilities 15,843 19,169

Total liabilities 31,031 34,750

Total equity and liabilities 49,902 52,908

* Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. A third balance sheet to restate 2014 has not been included as the adjustment has no net effect on shareholders’ funds.

The accounts were approved and authorised for issue by the Board on 13 March 2017 and signed on its behalf by:

Charlie PeppiattDirector

Consolidated statement of financial positionat 31 December 2016

Company number: 00236394


Note

Ordinaryshares

£000

Sharepremiumrestated*

£000

Mergerreserve

restated*£000

Capitalredemption

reserve£000

Translationreserve

£000

Retainedearnings

£000Total£000

Balance at 31 December 2014 1,554 5,302 — 88 30 3,263 10,237

Prior period adjustment 24 — (924) 924 — — — —

Balance at 31 December 2014 as restated 1,554 4,378 924 88 30 3,263 10,237

Changes in equity for 2015

Profit for the period — — — — — 1,383 1,383

Total profit for the period — — — — — 1,383 1,383

Exchange differences on translating foreign operations — — — — 471 — 471

Actuarial gain on defined benefit plan net of deferred taxation 19 — — — — — 900 900

Other comprehensive income — — — — 471 900 1,371

Total comprehensive income for the period — — — — 471 2,283 2,754

Transactions with owners in their capacity as owners

Equity settled share based payment transactions — — — — — 364 364

Issue of share capital 17 272 5,727 — — — — 5,999

Payment of transaction costs — (432) — — — — (432)

Dividends 6 — — — — — (764) (764)

Total transactions with owners of the Company 272 5,295 — — — (400) 5,167

Balance at 31 December 2015 1,826 9,673 924 88 501 5,146 18,158


Profit for the period — — — — — 1,838 1,838

Total profit for the period — — — — — 1,838 1,838

Exchange differences on translating foreign operations — — — — 904 — 904

Actuarial loss on defined benefit plan net of deferred taxation 19 — — — — — (1,715) (1,715)

Other comprehensive income — — — — 904 (1,715) (811)

Total comprehensive income for the period — — — — 904 123 1,027


Equity settled share based payment transactions — — — — — (7) (7)

Issue of share capital 17 83 — 635 — — — 718

Dividends 6 — — — — — (1,025) (1,025)

Total transactions with owners of the Company 83 — 635 — — (1,032) (314)

Balance at 31 December 2016 1,909 9,673 1,559 88 1,405 4,237 18,871

* Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value.

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

Reserve Description and purpose

Ordinary shares Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

Share premium Amount subscribed for share capital in excess of nominal value.

Merger reserve The excess of the fair value over nominal value of shares issued by the Company for the acquisition of businesses is credited to the merger reserve. This is in accordance with S610 of the Companies Act 2006.

Capital redemption reserve Amounts transferred from share capital on redemption of issued shares.

Translation reserve Gains/losses arising on retranslating the net assets of overseas operations into Sterling.

Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

Consolidated statement of changes in equityfor the year ended 31 December 2016

Fin

ancial state

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Consolidated statement of cash flowsfor the year ended 31 December 2016

Cash flows from operating activities

Note2016£000

2015£000

Profit for the year 1,838 1,383

Adjustments for:

Income tax expense 5 363 321

Finance income 2 (249) (85)

Finance expense 2 712 783


Share option costs (7) 364

Depreciation 8 731 627

Amortisation of intangibles 10 1,144 1,214

Loss on sale of fixed assets 36 58

Effect of exchange rate fluctuations 550 380

(Increase)/decrease in inventories (630) 183

Increase in trade and other receivables (157) (3,239)

Increase in trade and other payables 1,101 1,580

Cash generated from operations 5,432 3,569

Difference between pension charge and cash contributions (317) (323)

Tax paid (874) (378)

Net cash flows from operating activities 4,241 2,868

Investing activities

Acquisition of subsidiaries, net of cash acquired — (4,738)

Purchase of property, plant & equipment and software (834) (1,465)

Proceeds from sale of property, plant and equipment — 40

Development costs (696) (385)

Cash flows from investing activities (1,530) (6,548)

Financing activities

Equity share capital subscribed 50 6,000

Payment of share issue transaction costs — (432)

Interest paid (581) (673)

Non-operating loan payments received 60 112

Net (repayments)/proceeds from use of invoice discounting (2,399) 2,023

Repayment of borrowings (525) (125)

Finance lease repayments (182) (233)

Dividends paid on ordinary shares (1,025) (764)

Cash flows from financing activities (4,602) 5,908

Net (decrease)/increase in cash and cash equivalents (1,891) 2,228

Cash and cash equivalents at start of period 6,200 3,906

Exchange gains on cash and cash equivalents 292 66

Cash and cash equivalents at end of period 4,601 6,200


Analysis of changes in net debt

2016£000

Cash flow£000

Othernon-cashchanges

£000

Foreignexchange

£0002015£000

Cash 4,601 (4,180) — 292 8,489

Overdrafts — 2,289 — — (2,289)

Total cash and cash equivalents 4,601 (1,891) — 292 6,200

Loans (7,350) 525 — — (7,875)

Invoice discounting — 2,399 — — (2,399)

Finance leases (528) 182 (13) (89) (608)

Net (debt)/funds (3,277) 1,215 (13) 203 (4,682)

Total equity 18,871 18,158

Gearing 17.4% 25.8%

Gearing is defined as the ratio of net debt to total equity.

Consolidated statement of cash flows continuedfor the year ended 31 December 2016

Fin

ancial state

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Statement of accounting policiesfor the year ended 31 December 2016

Stadium Group plc (the “Company”) is a company incorporated in England and is listed on AIM. The consolidated financial statements of the Company for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group”). The financial statements were authorised for issue by the Directors on 13 March 2017.

Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 December 2016, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The Company has elected to prepare its parent company accounts under UK Generally Accepted Accounting Principles (UK GAAP), including Financial Reporting Standard 102 “The Financial Reporting Standard in the UK and Republic of Ireland”.

Accounting developments and changes The Group’s IFRS accounting policies, set out below, have been consistently applied to all the periods presented. The accounting policies have been applied consistently by Group entities.

The following standards or interpretations are effective for the first time for periods beginning on or after 1 January 2016:

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11): 1 January 2016

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38): 1 January 2016

Equity Method in Separate Financial Statements (Amendments to IAS 27): 1 January 2016

Annual Improvements to IFRSs (2012–2014 Cycle): 1 January 2016

Disclosure Initiative (Amendments to IAS 1): 1 January 2016

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28): 1 January 2016

None of these amendments to standards have a significant effect on the Group’s financial statements.

The following standards, amendments and interpretations to existing standards have been published and are mandatory for accounting periods beginning after 1 January 2017 or later periods, but they have not been early adopted by the Group:

IFRS 15 Revenue from Contracts with Customers: 1 January 2018

IFRS 9 Financial Instruments: 1 January 2018

IFRS 16 Leases: 1 January 2019

Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12): 1 January 2017

Disclosure Initiative (Amendments to IAS 7): 1 January 2017

IFRS 16 Leases will result in assets and liabilities for a number of leases being recognised in the Consolidated Statement of Financial Position which will have a material impact on the gross assets and liabilities being recognised. The impact of IFRS 15 Revenue from contracts with customers and IFRS 9 Financial instruments are still being assessed, as these new standards may have a significant effect on the Group’s future financial statements. No other standards or interpretations are expected to have a material effect on the financial statements in the future other than in respect of presentation and disclosure.

Basis of consolidation Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the Company considers all relevant facts and circumstances, including:

— the size of the Company’s voting rights relative to both the size and dispersion of other parties who hold voting rights;

— substantive potential voting rights held by the Company and by other parties;

— other contractual arrangements; and

— historic patterns in voting attendance.

The consolidated financial statements present the results of the Company and its subsidiaries (the “Group”) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Consolidated Statement of Comprehensive Income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date, based on the probability of a payment being made. Subsequent changes to the fair value of contingent consideration that is deemed to be an asset or liability are recognised in accordance with IAS 39 in profit and loss.


Basis of consolidation continuedThe income and expenditure of foreign subsidiary undertakings are translated into Sterling at the average exchange rate prevailing during the period on a month by month basis. Exchange differences arising on retranslation of opening assets and liabilities, long-term financing denominated in foreign currencies and the trading of foreign subsidiary undertakings are taken directly to the translation reserve using the net investment method.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as Sterling denominated assets and liabilities.

Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

Goodwill Goodwill arising on consolidation consists of the excess of the fair value of the consideration over the fair value of the Group’s interest in the identifiable tangible and intangible assets net of liabilities including contingencies of the business acquired at the date of acquisition.

Goodwill is recognised as an asset at cost less any recognised impairment losses. It is reviewed for impairment at least annually and any impairment is recognised immediately in the income statement.

Revenue Revenue is measured at the fair value of goods provided to customers net of returns, discounts, value added tax and other sales taxes. Revenue from the sales of goods is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Group will receive the previously agreed upon payment. These criteria are considered to be met when the goods are delivered to the buyer. Where warranties are offered to customers, revenue is recognised in the period where the goods are delivered less an appropriate provision for returns based on past experience.

Provided the amount of revenue can be measured reliably and it is probable that the Group will receive any consideration, revenue for services is recognised in the period in which they are rendered.

In addition to the above revenue from sales may also be recognised on bill and hold transactions. When a customer specifically requests that the Group delays delivery of the goods for a legitimate business reason, revenue on these goods will be recognised before delivery takes place. Revenue on bill and hold sales is recognised when the customer takes legal title of the goods, accepts the invoice and the product is ring-fenced and available for their collection.

Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.

Depreciation is charged at rates calculated to write down the cost of assets (excluding freehold land) over their estimated useful lives by equal instalments at the following rates:

Freehold buildings 2%

Plant and machinery 10%–25%

Fixtures and equipment 10%–25%

Useful lives and residual values are reviewed annually.

The gain or loss arising on disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income.

InventoriesInventories are stated at the lower of cost and estimated net realisable value. Cost is determined on a first-in, first-out basis including transport and handling costs and, in the case of manufactured products, includes all direct expenditure and production overheads based on normal levels of activity.

Deferred taxation Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the reporting date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the reporting date.

A deferred tax asset is regarded as recoverable and is therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable surpluses from which the future reversal of the underlying temporary differences can be deducted. Deferred tax balances are not discounted.

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Statement of accounting policies continuedfor the year ended 31 December 2016

Other intangible assets Other intangible assets are shown at historical cost less accumulated amortisation and impairment losses. Acquired intangibles of customer relationships and order books are measured at fair value less amortisation.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life either in use or under development are tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The useful lives are as follows:

Internally generated:Development costs up to five years, consistent with the revenue generation profile of the product

Externally acquired:Customer relationships three to five years

Customer order books one year

Software costs three to ten years

Amortisation periods and methods are reviewed annually and adjusted if appropriate. Amortisation of each of the above classes is charged to Operating expenses in the Consolidated Income Statement.

Assets under construction/developmentCosts relating to assets in the course of construction or development are capitalised in the Consolidated Statement of Financial Position. On completion of the asset, it is then depreciated or amortised in accordance with its useful life.

Share based paymentsEmployee share options are measured at fair value at grant date using the Black-Scholes model. The fair value is expensed on a straight-line basis over the vesting period, based on an estimate of the number of options that will eventually vest.

Termination benefits Termination benefits are employee benefits payable as a result of either:

— a decision to terminate an employee’s employment before the normal retirement date; or

— an employee’s decision to accept voluntary redundancy in exchange for those benefits.

The Group may be committed by legislation, by contractual or other agreements with employees or by a constructive obligation based on business practice, custom or a desire to act equitably, to make payments (or provide other benefits) to employees when it terminates their employment. Such payments are termination benefits.

Such termination payments do not provide the Group with future economic benefits. Therefore such costs are recognised as an expense in profit or loss immediately that the Group becomes demonstrably committed to make such payments.

Pension costs Defined benefit scheme Assets and liabilities arising from retirement benefit obligations and the related funding are reflected at fair value in the financial statements and operating and finance costs are recognised in the financial periods in which they arise.

Gains and losses arising from actuarial experience during the accounting period are recognised in other comprehensive income together with movements in the related deferred tax asset.

Net interest costs on the net defined benefit liability are charged to the Consolidated Income Statement as part of Finance expense.

Defined contribution schemes Contributions payable are charged to the income statement in the accounting period in which they are incurred.

Foreign currencies Transactions denominated in foreign currencies are recorded at the prevailing rate on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into Sterling (the Group’s presentational currency) at the rate prevailing at the period end. Gains and losses arising on the translation of foreign currencies are dealt with as part of operating profit.

The assets and liabilities of foreign subsidiary undertakings are translated into Sterling, the presentational currency of the Group, at the period-end exchange rate.

Provisions A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. A warranty provision is recognised when the related goods are sold. The provision is based upon historical customer claims data relative to levels of sales activity.


Non-recurring costsCertain costs have been classified on the face of the Consolidated Income Statement as “non-recurring”. These are material items which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence for the financial statements to give a true and fair view. These transactions are of a nature that will not be ongoing in the ordinary course of trading and the Group has classified in this manner costs incurred in restructuring and reorganising the business, including costs relating to acquisitions made.

Research and developmentResearch expenditure is charged to the income statement as an expense when incurred in accordance with IAS 38. Development expenditure is capitalised as an internally generated intangible asset once criteria relating to the product’s technical and commercial feasibility have been met, the decision to complete the development has been taken and resources have been committed to the completion of the project. Development expenditure is stated at cost less accumulated amortisation and impairment losses. Development costs are amortised over varying periods of up to five years in a profile that matches the anticipated revenue generation profile of the product.

Leased assets Leases of property, plant and equipment where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Assets held under finance leases are capitalised at fair value of the leases, unless the present value of the lease payments is lower. The corresponding leasing commitments, net of finance charges, are included in liabilities.

Leasing payments are analysed between capital and interest components so the interest element is charged to the income statement over the period of the lease at the constant periodic rate of interest on the remaining balance of the liability outstanding.

Depreciation on assets held under finance leases is charged to the income statement over the useful life of the asset.

All other leases are treated as operating leases with annual rentals charged to the income statement, net of any incentives granted to the lessee, over the term of the lease.

Financial instruments The Group’s financial instruments comprise borrowings, some cash and liquid resources and items such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group’s operations.

Financial assets and financial liabilities are recognised in the Group’s Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables Trade receivables do not carry any interest and are stated at their nominal value less appropriate allowances for estimated irrecoverable amounts. Such allowances aim to ensure that receivables are only recognised to the extent to which they are recoverable. Provisions created for irrecoverable amounts are recorded in a separate allowance account with the loss being recognised within the Consolidated Income Statement. On confirmation that the trade receivable will not be collectable, the gross carrying value is written off against the associated provision.

Cash and cash equivalents Cash includes bank current accounts and petty cash balances, which are subject to insignificant risk of changes in value.

Bank borrowings Interest bearing bank loans and overdrafts are recorded at the fair value of proceeds received net of any transaction costs. Such loans 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. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Trade payables Trade payables do not carry any interest and are stated at their nominal value.

Invoice discounting Amounts due in respect of invoice discounting are separately disclosed as current liabilities. The Group can use these facilities to draw down a percentage of the value of certain sales invoices. The management and collection of trade receivables remains with the Group and it therefore retains the risks and rewards of ownership.

Equity instruments Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.

It has been, throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The Group does not consider that it has any obligations or rights under derivative financial instruments.

The main risks arising from the Group’s financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and these policies are set out in Note 15.

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Accounting estimates and judgements In preparing these consolidated financial statements, management has made estimates, assumptions and judgements that affect the application of the Group’s accounting policies and the reported amounts of assets and liabilities. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Assumptions and estimation uncertaintiesKey sources of estimation uncertainty are:

Asset useful life estimates – Tangible and intangible assets are depreciated and amortised over their estimated useful lives. Risk arises in determining the actual period that the assets will continue to generate income and therefore the depreciation and amortisation charges appropriate to each financial reporting period.

Development cost useful life estimates – Development expenditure is stated at cost less accumulated amortisation. Risk arises in assessing the future period that matches the anticipated revenue generation profile of the product and therefore the amortisation charges appropriate to each financial reporting period.

Stock provisions – The stock provision is based on the age of stock to identify items for which there is no current demand or for which net realisable value (NRV) is lower than cost.

Retirement benefit obligations – Refer to Note 19 for disclosure of the key sources of estimation uncertainty relating to the retirement benefit obligation.

Goodwill – Goodwill is evaluated for impairment at each reporting date. The recoverable amounts of cash generating units have been estimated based on value-in-use calculations.

Credit risk – Trade and other receivables are recognised to the extent that, in the opinion of the Directors, they are recoverable in the ordinary course of business. Risk arises from the potential of any customer failing to meet their contractual obligations and settle debts when due. It is Group policy to assess creditworthiness of new customers, to review and, where necessary, renegotiate terms of trade from customers with which it has a good trading history, and to actively monitor customer compliance, ensuring that trading terms are adhered to.

Identification of intangibles – Identified intangibles acquired in business combinations are recognised separately on business combinations from goodwill. An intangible asset is identified if it arises from contractual or legal

rights or if it is separable. Determining the fair value of intangible assets acquired requires estimates of the future cash flows related to the intangibles and a suitable discount rate to calculate the present value.

Income taxes – The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact current and deferred tax expenses and balances in the period in which such determination is made.

JudgementsKey judgements relate to:

Non-recurring items – Transactions classified as non-recurring require judgement to be exercised in identifying which items are of a nature that they will not be expected to recur in the ordinary course of trade and are material for the financial statements to present a true and fair view.

Statement of accounting policies continuedfor the year ended 31 December 2016


Notes to the financial statementsfor the year ended 31 December 2016

1. Segmental reporting by operating segmentThe Group measures its revenues across two main areas of activity: Electronic Assemblies is the global provision of sub-contract electronic manufacturing services and Technology is the design and manufacture of power supplies, intelligent interface displays and specialist M2M wireless connectivity. Our operating segments are based on the management structure of the Group. Segmental analysis is provided below in respect of these two segments. The Group manages its operations down to operating profit by operating unit and centrally manages its Group taxation and capital structure, including net equity and net debt.

The below is the level of information provided to the board, which is considered to be the Chief Operating Decision Maker (CODM). Inter-segment sales are made on an arm’s length basis. This policy was applied consistently throughout the current and prior period.

2016

2016

TechnologyProducts

£000

ElectronicAssemblies

£000

Non-recurring

costs£000

Total£000

Total revenue 31,912 21,299 — 53,211

Inter-segmental revenue (44) (98) — (142)

Total revenue – external customers 31,868 21,201 — 53,069

Segment profit before Group charges 3,947 2,029 (1,036) 4,940

Group charges (1,252) (1,024) — (2,276)

Operating profit 2,695 1,005 (1,036) 2,664

Finance expense (712)

Finance income 249

Taxation (363)

Profit for the year 1,838

Non-recurring costs of £156,000 were incurred from the restructuring of the Electronic Assemblies segment of the business, £813,000 from the restructuring of the Technology Products segment of the business and £67,000 from making the post year end acquisition of Cable Power Limited as outlined in Note 23.

2015

2015

TechnologyProducts

£000


£000

Non-recurring

costs£000

Total£000

Total revenue 27,202 26,955 — 54,157

Inter-segmental revenue (215) (70) — (285)

Total revenue – external customers 26,987 26,885 — 53,872

Segment profit before Group charges 3,386 2,779 (1,150) 5,015

Group charges (1,155) (1,458) — (2,613)

Operating profit 2,231 1,321 (1,150) 2,402

Finance expense (783)

Finance income 85

Taxation (321)

Profit for the year 1,383

Non-recurring costs of £156,000 were incurred from the restructuring of the Electronic Assemblies segment of the business, £178,000 from the restructuring of the Technology Products segment of the business, £615,000 from relocating the Asia factory and £201,000 from making the acquisition of Stontronics Limited.

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Notes to the financial statements continuedfor the year ended 31 December 2016

1. Segmental reporting by operating segment continued

2016

TechnologyProducts

£000


£000

Unallocatedand

adjustments£000

Total£000

Segment assets 15,738 13,349 20,815 49,902

Segment liabilities (4,097) (10,147) (16,787) (31,031)

Segment net assets 11,641 3,202 4,028 18,871

Expenditure on property, plant and equipment* 222 207 — 429

Expenditure on intangibles* 696 — 405 1,101

Depreciation and amortisation 1,165 708 2 1,875

2015

TechnologyProducts

£000


£000

Unallocatedand

adjustments£000

Total£000

Segment assets 14,935 12,674 25,299 52,908

Segment liabilities (6,565) (6,580) (21,605) (34,750)

Segment net assets 8,370 6,094 3,694 18,158

Expenditure on property, plant and equipment* 312 1,295 — 1,607

Expenditure on intangibles* 772 — — 772

Depreciation and amortisation 1,296 545 — 1,841

* Including those acquired in a business combination. The financial information provided to the Board of Directors in respect of total assets and liabilities is measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

Segmental reporting by geographical location

2016

Revenue– externalcustomers

by locationof customer

£000

Non-current assets

by locationof assets

£000

UK 33,183 20,375

Europe 11,328 89

North America 6,068 —

Asia Pacific and other 2,490 2,757

53,069 23,221

Sales to the Group’s largest single customer of £5,878,000 represented 11% of Group revenues. These sales are recorded within the Electronic Assemblies and Asia segments. No other customer exceeded more than 10% of Group revenues.

2015

Revenue– external

customersby location

of customer£000

Non-current assets

by locationof assets

£000

UK 31,483 20,755

Europe 8,648 —

North America 9,543 —

Asia Pacific and other 4,198 2,407

53,872 23,162

Sales to no single customer exceeded more than 10% of Group revenues.


2. Profit before taxation2016£000

2015£000

(a) Operating expenses

Distribution costs (1,014) (482)

Administrative expenses (9,784) (9,623)

(10,798) (10,105)

(b) Non-recurring items

Included within cost of sales is the following one-off item, which is considered material due to its size and nature:

Technology Products division reorganisation costs (363) —

Included within other operating income is the following one-off item, which is considered material due to its size and nature:

Release of deferred consideration no longer payable – Stontronics Limited 500 —

Included within operating expenses are the following one-off items, which are considered material due to their size and nature, or a combination of both:

Electronic Assemblies division reorganisation costs (156) (156)

Technology Products division reorganisation costs (950) (178)

Asia factory relocation costs — (615)

Acquisition costs (67) (201)

(1,173) (1,150)

(c) Profit before taxation is stated after charging:

Inventories recognised as costs of sale 32,665 34,208

Costs of equity settled share based payments (7) 364

Foreign exchange losses 43 355

Amortisation of bank loan facility fees 18 13

Auditor’s remuneration

Fees payable to the Company’s auditor for audit of the parent company and consolidated financial statements 57 56

The audit of the Company’s subsidiaries pursuant to legislation 82 76

Taxation services 26 22

Other services 6 34

For audit of Company pension schemes 12 12

Operating lease costs – plant and machinery 161 201

Operating lease costs – other 648 666

Depreciation 731 627

Loss on disposal of fixed assets 36 58

Research and development expenditure 508 109

Amortisation of development costs and other intangible assets 1,144 1,214

(d) Finance cost (net) comprises:

Interest payable on bank loan, overdrafts and invoice discounting (189) (231)

Other finance costs (523) (552)

(712) (783)

(e) Other finance costs comprise:

Net interest on the net defined benefit pension scheme liabilities (386) (395)

Interest on finance leases (12) (23)

Interest charge on the fair value of deferred consideration (125) (134)

(523) (552)

(f) Finance income comprises:

Non-operating loan interest income 46 54

Net foreign exchange gain on finance leases 203 31

249 85

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2. Profit before taxation continuedNormalised profitNormalised results refer to the underlying performance of the Group and exclude items that are considered to be non-recurring and amortisation of acquired intangibles and interest charged on the fair value of consideration.

Normalised adjustments2016£000

2015£000

Operating profit per Consolidated Income Statement 2,664 2,402

Adjustments:

Non-recurring items per Note 2b above 1,036 1,150

Amortisation of acquired intangibles 861 1,026

Normalised operating profit 4,561 4,578

2016£000

2015£000

Profit before tax per Consolidated Income Statement 2,201 1,704Adjustments:Non-recurring items per Note 2b above 1,036 1,150Amortisation of acquired intangibles 861 1,026Interest charge on the fair value of consideration 125 134

Normalised profit before tax 4,223 4,014

3. Employees2016 2015

Average number of employees (including Directors) during the year was:Direct production UK 175 200 Asia 227 281Selling and administrative (including indirect production) 270 276

672 757

2016£000

2015£000

Aggregate payroll costs were as follows:Wages and salaries 9,765 10,322Social security costs 797 656Pension costs 686 649

11,248 11,627

In addition to the above there were also severance costs of £279,000 (2015: £642,000) within the reorganisation costs disclosed in Note 2 and costs paid during the year that had been previously provided for of £Nil (2015: £57,000).

4. Directors’ remuneration2016£000

2015£000

Salaries and benefits in kind 478 624Severance costs 90 —Pensions 36 33Social security costs 71 77Share based payments (25) 221

650 955

Details of the highest paid Director are shown in the Report of the Remuneration Committee. The Directors are considered to be the key management personnel.


5. Taxation2016£000

2015£000

Current taxUK corporation tax on profit for the period 3 288Adjustments in respect of previous periods 69 10

72 298

Foreign tax 408 169Adjustments in respect of previous periods 34 (34)

442 135

Total current tax 514 433

Deferred taxOrigination and reversal of temporary differences (105) (130)Change in tax rates (51) —Adjustments in respect of previous periods 5 18

Total deferred tax (151) (112)

Tax on profit 363 321

The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 20% (2015: 20.25%) for both periods shown.

The differences are explained below:

2016£000

2015£000

Profit before tax 2,201 1,704

Profit multiplied by the standard rate of corporation tax in the UK of 20% (2015: 20.25%) 440 345

Effects of:

Expenses not deductible for tax purposes 89 154

Income not chargeable for tax purposes (100) —

Tax deductible expenses (128) —

Overseas earnings at lower rates (43) (2)

Unrecognised temporary differences (76) (185)

Foreign exchange gain in reserves (164) 3

Losses carried forward 287 12

Change in tax rates (51) —

Adjustments in respect of previous periods 109 (6)

Tax charge for the period 363 321

A deferred tax credit of £319,000 (2015: debit of £225,000) relating to the increase (2015: decrease) in the defined benefit pension obligations has been recognised directly in other comprehensive income, together with a tax charge of £156,000 (2015: £Nil) relating to a change in the rate at which deferred tax has been calculated. Deferred tax assets have not been recognised in relation to tax losses arising in the parent company. The total amount unrecognised is £1,503,000 (2015: £1,501,000). Future tax charges will be affected by the extent to which these tax losses can be utilised.

6. Dividends2016£000

2015£000

Ordinary dividends

2015 final dividend at 1.8p per share (2014: 1.40p) 671 435

2016 interim dividend at 0.95p per share (2015: 0.90p) 354 329

1,025 764

The Board proposes to pay a 2016 final dividend of 1.95p per share (2015: 1.80p) on 10 May 2017 to shareholders on the register on 7 April 2017, amounting to £727,000 (2015: £671,000).

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7. Goodwill2016£000

2015£000

Cost

At 1 January 15,379 11,149

Acquired during the year through business combinations — 4,230

At 31 December 15,379 15,379

Accumulated impairment loss

At 1 January — —

Charge for the year — —

At 31 December — —

Net book value

At start of year 15,379 11,149

At end of year 15,379 15,379

Goodwill acquired through business combinations has been allocated at acquisition to the cash generating units (CGUs) that are expected to benefit from that business combination. The Group’s identifiable CGUs are assessed as the core business strategies pursued by the Group and combine entities delivering the same core products. These CGUs are then combined as noted below to create the two recognised operating segments as defined in IFRS 8. Goodwill, however, is still assessed at an individual CGU level.

The carrying amount of goodwill has been allocated as per the table below:

2016 2015

TechnologyProducts

£000


£000Total£000

TechnologyProducts

£000


£000Total£000

UK – Power 5,218 — 5,218 5,218 — 5,218

UK – Interface & displays 2,464 — 2,464 2,464 — 2,464

UK – Wireless* 7,161 — 7,161 7,161 — 7,161

Asia – Electronic Assemblies — 536 536 — 536 536

14,843 536 15,379 14,843 536 15,379

* Consistent with Note 23 to the Company Balance Sheet, goodwill in relation to Stadium Zirkon Limited is assessed as part of the Wireless CGU.

Goodwill arises on the consolidation of subsidiary undertakings. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP net book value subject to being tested for impairment at that date.

In accordance with the requirements of IAS36, Impairment of Assets, goodwill is allocated to the Group’s CGUs which are identified by the way that goodwill is monitored for impairment. The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.

As part of the annual impairment test review, the carrying value of goodwill has been assessed with reference to value in use over a projected period of five years together with a terminal value. This reflects the projected cash flows of each CGI based on the actual operating results, the most recent Board-approved budget, strategic plans and management projections. Given that Stadium is a technology-led business and the established nature of the subsidiary investments and with regard to the expected longevity of clients, management considers this approach to be appropriate.

The key assumptions to the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to sales and overheads during the period. Management uses discount rates of 11% post-tax which reflect the current market assessment of the time value of money and the risks specific to the UK.

The growth rates are based on industry growth forecasts and the corporate strategy.

The Technology sector offers the opportunity for significantly higher growth than electronics industry averages. Therefore, nominal growth rates for the first five years were used of 20.0% for Wireless; 5.0% for Interface and displays; 3.1% for Power, and thereafter 1.5%. For Electronic Assemblies, a nominal growth rate of 0% was used throughout the years.

The growth rate assumed in the terminal value calculations is 1.5% for all sectors.

The following specific individual sensitivities of reasonably possible change have been considered for each CGU in relation to the value-in-use calculations, resulting in the carrying amount not exceeding the recoverable amount:

— if the long-term growth rate assumption was reduced to 0% and a 2% increase in the discount rate applied, there would still be sufficient headroom for no impairment to be required.

Given the level of headroom indicated by the impairment review no assumption is considered to be sufficiently sensitive to impact the conclusion of the review.


8. Property, plant and equipmentFreeholdland and

buildings£000

Plant andmachinery

£000

Fixtures andequipment

£000Total£000

Cost

At 31 December 2014 1,856 8,537 1,879 12,272

Other additions 19 438 1,027 1,484

Acquisitions — 75 48 123

Disposals — (1,511) (381) (1,892)

Foreign exchange movements — 231 58 289

At 31 December 2015 1,875 7,770 2,631 12,276

Additions — 224 205 429

Disposals — (654) (299) (953)

Foreign exchange movements 1 624 323 948

At 31 December 2016 1,876 7,964 2,860 12,700

Depreciation

At 31 December 2014 874 6,157 1,790 8,821

Charge in year 42 511 74 627

Disposals — (1,423) (371) (1,794)


At 31 December 2015 916 5,446 1,551 7,913


Disposals — (624) (293) (917)


At 31 December 2016 956 5,775 1,590 8,321

NBV

NBV at 31 December 2016 920 2,189 1,270 4,379

NBV at 31 December 2015 959 2,324 1,080 4,363

NBV at 31 December 2014 982 2,380 89 3,451

There were no outstanding commitments in respect of Group capital expenditure. The net book value (NBV) of property, plant and equipment includes £632,000 (2015: £755,000) in relation to plant and machinery held under finance leases. Freehold land and buildings includes assets with an NBV of £899,000 (2015: £935,000) which are the subject of the fixed charges referred to in Note 14.

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9. Investments At 31 December 2016 the subsidiaries of the Company included on consolidation, all of which were wholly owned, were as follows:

Name Nature of business Registration Operation

Stadium Asia Limited Electronic manufacturing services British Virgin Islands China/Hong KongSTMC Limited Electronic manufacturing services Hong Kong ChinaStadium Power Limited Custom power supplies England and Wales UKStadium IGT Limited Control panel assemblies England and Wales UKStadium United Wireless Limited Wireless M2M technology England and Wales UKStontronics Limited Custom power supplies England and Wales UKStadium Electrical Holdings Limited Dormant England and Wales UKStadium Electronics Limited Dormant England and Wales UKStadium Wireless Devices Limited Dormant England and Wales UKStadium Zirkon UK Limited Dormant England and Wales UKDongguan Arlec Electrical Products Company Limited* Electronic manufacturing services China ChinaFerrus Power Limited Dormant England and Wales UK Fox Industries Limited Dormant England and Wales UKHale End Holdings Limited Dormant England and Wales UKKingslo Limited Dormant England and Wales UKKRP Power Source (UK) Limited Dormant England and Wales UKShanghai Hongbian Electronics Co. Ltd* Technology design services China ChinaSGW Sweden AB Technology design services Sweden SwedenValuegolden Limited Dormant England and Wales UKYing Si Ke Electrical Products Company Ltd* Electronic manufacturing services China ChinaZirkon Holdings Limited Dormant England and Wales UK

* These subsidiary companies are held indirectly.

During the year the Group incorporated a subsidiary in Sweden, SGW Sweden AB. A second subsidiary was incorporated in China, Shanghai Hongbian Electronics Co. Ltd. Both businesses are design offices in the Technology Products sector of the Group. Registered addresses for the subsidiaries can be found in the corporate directory at the back of this report.

10. Other intangible assetsCustomer

order books£000

Customerrelationships

£000

Developmentcosts£000

Softwarecosts£000

Total£000

Cost

At 31 December 2014 680 2,178 731 — 3,589

Acquired through business combinations 100 672 — — 772

Other additions — — 385 — 385

Disposals — — — — —

At 31 December 2015 780 2,850 1,116 — 4,746

Acquired through business combinations — — — — —

Other additions — — 696 405 1,101


Foreign exchange movements — — 36 — 36

At 31 December 2016 780 2,850 1,848 405 5,883

Amortisation and impairment losses

At 31 December 2014 307 675 327 — 1,309

Amortisation for the year 410 616 188 — 1,214


At 31 December 2015 717 1,291 515 — 2,523

Amortisation for the year 63 798 281 2 1,144


Foreign exchange movements — — 22 — 22

At 31 December 2016 780 2,089 818 2 3,689

NBV

NBV at 31 December 2016 — 761 1,030 403 2,194

NBV at 31 December 2015 63 1,559 601 — 2,223

NBV at 31 December 2014 373 1,503 404 — 2,280


10. Other intangible assets continuedAmortisation of development costs is recognised in cost of sales as inventory is sold over periods of up to five years consistent with the revenue generation profile of the product. Customer relationships are amortised over a period of between three and five years from acquisition and customer order books over twelve months from acquisition. The intangible assets in respect of customer relationships and order books are acquired in business combinations and are only recognised on consolidation. Software costs are amortised over periods of between three to ten years. The main additions to software costs in the year were under development at the year end and were yet to be implemented, hence the minimal amortisation charge in the year.

11. Inventories2016£000

2015£000

Raw materials and consumables 3,399 3,650

Work in progress 1,481 1,143

Finished goods and goods for resale 3,268 2,725

8,148 7,518

Inventory provisions at the year end amounted to £1,063,000 (2015: £922,000). Inventory with a carrying amount of £7,971,000 (2015: £7,518,000) has been pledged as security for liabilities.

12. Trade and other receivables2016£000

2015£000

Non-current receivables:

Other non-trade receivables 119 156

Current receivables:

Trade receivables 12,093 12,841

Other non-trade receivables 1,146 503

Prepayments and accrued income 693 395

13,932 13,739

Other non-trade receivables includes the deferred portion of the consideration for a property disposal which was made in 2007. The amount of the deferred consideration outstanding at the year end was £157,000 (2015: £170,000), which falls due for repayment in January 2020 (2015: January 2020).

In the opinion of the Directors, there is no material difference between the book value and the fair value of the above assets in view of their short-term nature.

13. Current payables2016£000

2015£000

Overdrafts — 2,289

Current portion of secured bank borrowings 637 525

Invoice securitisation — 2,399

Finance leases 143 153

Trade payables 9,994 8,773

Current tax payable 237 576

Other payables:

Tax and social security 1,006 1,244

Other non-trade payables 512 473

Accruals and deferred income 2,377 1,755

Deferred consideration 667 667

Provisions (Note 21) 270 315

15,843 19,169

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14. Non-current payables2016£000

2015£000

Long-term portion of secured bank borrowings – between one and five years 6,713 7,350

Finance leases – between one and five years 385 455

Deferred consideration – between one and five years 1,108 2,150

8,206 9,955

The net bank borrowings, including overdrafts and invoice securitisation, of Group companies are secured by fixed and floating charges over the assets of the Group. There is a guarantee relating to indebtedness of all Stadium Group companies to HSBC Bank plc, which is secured by a fixed and floating charge over the assets of all Group companies.

The Group has two structured loans bearing interest at an annual rate equal to LIBOR plus 1.9% to 2.3%, based on total net leverage ratio. The first is repayable in increasing instalments across the period to July 2019. At the year-end £2,350,000 (2015: £2,875,000) remained repayable. The second loan of £5,000,000 is repayable in July 2019 and has no formal repayment schedule prior to that date.

The Group has additional flexible credit for working capital from invoice securitisation in the form of invoice discounting with the Group’s bankers, HSBC. These facilities allow the Group to draw money against its sales invoices before the customer has actually paid. Any borrowings are secured by a fixed charge over those sales invoices borrowed against and a floating charge over remaining Group assets. At the year end the Group had undrawn invoice discounting facilities of £3,726,000.

15. Financial instrumentsSet out below are the narrative and numerical disclosures which the Directors consider to be material and required by International Financial Reporting Standard (IFRS) 7 Financial Instruments.

Financial instrumentsThe Group’s financial instruments comprise borrowings, some cash and liquid resources and various items such as trade receivables, trade payables, etc. that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group’s operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Credit riskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers and cash balances.

Exposure to credit risk arises on trade receivables on sales to customers and other non-trade receivables totalling £13,358,000. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are carried out on all significant prospective customers and all existing customers requiring credit beyond a certain threshold. Varying approval levels are set on the extension of credit depending upon the value of the sale.

Where credit risk is deemed to have risen to an unacceptable level, remedial actions, including the variation of terms of trade, are implemented under the guidance of senior management until the level of credit risk has been normalised.

Trade receivables at 31 December 2016 comprised:

2016£000

2015£000

Gross amount:

Neither impaired nor past due 10,990 11,543

Past due and impaired 93 105

Past due but not impaired:

– 1–30 days 921 1,256

– 31–60 days 147 10

– 61–90 days 26 32

– 91–120 days — —

– more than 121 days 9 —

12,186 12,946

Less: provisions held (93) (105)

Carrying amount 12,093 12,841


15. Financial instruments continuedCredit risk continuedThe movement in the provision for doubtful debts is as follows:

2016£000

2015£000

Provision for doubtful debts:

Opening balance 105 85

Bad debts previously provided for now written off or released (105) (85)

New and increased doubtful debts provided for 93 105

Closing balance 93 105

The Group allows an average debtor’s payment period of between 45 and 75 days from invoice date. Trade receivables that are neither impaired nor past due are made up of approximately 200 balances. The largest individual balance was 21% of the total balance and the three largest balances combined represented 39% of the total balance. Historically, these debtors have always paid balances when due, unless the balance or the quality of goods delivered is disputed. The average age of these debtors is 60 days.

The Group held cash of £4,601,000 at 31 December 2016 (2015: £8,489,000). The cash is held around the world with HSBC Bank plc and its subsidiaries. It is rated as AA- by Fitch, A1 by Moody’s and A by Standard & Poor’s.

Interest rate riskThe Group finances its operations through a mixture of equity, retained earnings and bank borrowings. The Group holds cash and borrows in Sterling, US Dollars and Hong Kong Dollars at floating rates of interest and does not undertake any hedging activity in this area. (Fixed rate finance leases are also used, denominated in Hong Kong Dollars and Euros.)

The Group’s exposure to interest rate risk all relates to the floating rates at which it borrows and lends. This exposure is monitored continually to ensure that the Group remains able to meet its financing commitments from operational cash flows.

The Group’s financial liabilities are denominated in Sterling, US Dollars, Hong Kong Dollars and Euros, and have fixed and floating interest rates. The financial liabilities with floating interest rates comprise:

— bank borrowings in Hong Kong Dollars that bear interest on a floating rate of LIBOR plus 2.0%;

— loans in Sterling that bear interest at rates based on a floating rate of LIBOR plus 1.9%–2.3%;

— an overdraft in Sterling that bears interest on a floating rate of LIBOR plus 2.0%–2.3% after offset of Sterling deposits; and

— invoice securitisation that bears interest on a floating rate of LIBOR plus 1.65%.

The interest rate profile of the Group’s financial assets and liabilities at 31 December was as follows:

Interest rate2016£000

2015£000

Assets

Sterling 3.25% 157 170

Liabilities

Sterling 0.0% — 2,289

Sterling 2.5% 7,350 7,879

Sterling 2.2% — 2,241

Euros 2.0% 495 522

US Dollars 2.0% — 158

HK Dollars 2.2% 33 82

7,878 13,171

The financial liabilities comprise bank loans and overdrafts bearing interest rates set by reference to the relevant LIBOR rate and finance leases bearing interest at a fixed rate. The financial assets comprise the deferred consideration on the sale of surplus property bearing interest set by the relevant base rate.

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15. Financial instruments continuedInterest rate risk continuedThe maturity profile of the Group’s loans and overdrafts and undrawn facilities at 31 December was as follows:

2016 2015

Liabilities£000

Undrawn£000

Liabilities£000

Undrawn£000

On demand – overdraft facilities — 565 2,289 506

In one year or less 799 3,726 3,116 2,739

In more than one year but not more than two years 995 — 813 —

In more than two years but not more than five years 5,935 — 6,948 —

In more than five years — — — —

7,729 4,291 13,166 3,245

Future finance charges (379) — (603) —

Present value 7,350 4,291 12,563 3,245

The maturity profile of the Group’s finance leases is included in Note 22.

It is estimated that a 1% change in relevant LIBOR rates would have an annual impact of £65,000 (2015: £79,000) on interest costs.

Liquidity riskThe Group’s exposure to liquidity risk reflects its ability to readily access the funds to support its operations. The Group’s policy is to maintain undrawn overdraft borrowing facilities in order to provide the flexibility required in the management of the Group’s liquidity. The Group’s liquidity requirements are continually reviewed and additional facilities put in place as appropriate.

At the year end the Group had overdraft facilities under a cash pooling arrangement across all Group companies of £565,000 (2015: £506,000) of which £Nil (2015: £Nil) was being utilised. Invoice discounting and factoring facilities offered £3,726,000 (2015: £5,138,000) of which £Nil (2015: £2,399,000) was being utilised.

Foreign currency riskThe Group’s exposure to currency risk arises from transactions which are not in the functional currency of the operating unit and from the retranslation of the operating unit’s results into Sterling, being the Group’s presentational currency.

The Group manages its exposure to currency risk by matching the currency of payments and receipts in order to minimise exposure and buys currency when the liability falls due. The Directors do not believe that the Group has significant foreign currency exposure on transactions.

The Group foreign currency risk exposure from recognised assets and liabilities arises primarily from its investment in Stadium Asia Limited denominated in Hong Kong Dollars (Notes 1 and 9).

There is no significant impact on the income statement from foreign currency movements associated with these assets and liabilities as the effective portion of foreign currency gains and losses arising is recorded through the translation reserve.

At 31 December 2016 the Group had net borrowings denominated in US Dollars of £Nil (2015: £159,000), in Hong Kong Dollars of £33,000 (2015: £82,000) and in Euros of £495,000 (2015: £522,000).

It is estimated that a 1% movement in the exchange rate would have an impact of £16,000 (2015: £6,000) on the Group’s operating profit and £112,000 (2015: £83,000) on the Group’s net assets.

Fair values of financial assets and liabilitiesSet out below is a comparison by category of book values and fair values of the Group’s financial assets and liabilities as at 31 December 2016:

2016 2015

Book value £000

Fair value £000

Book value £000

Fair value£000

Loans and receivables

Cash at bank 4,601 4,601 8,489 8,489

Loans receivable 157 157 170 170

Trade receivables 12,093 12,093 12,841 12,841

Other receivables 1,108 1,108 489 489

17,959 17,959 21,989 21,989

Other financial liabilities at amortised cost

Bank loans and overdrafts repayable within one year (637) (637) (2,814) (2,814)

Bank loans repayable after more than one year (6,713) (6,713) (7,350) (7,350)

Invoice securitisation — — (2,399) (2,399)

Trade payables (9,994) (9,994) (8,773) (8,773)

Other payables (6,764) (6,705) (7,971) (7,788)

(24,108) (24,049) (29,307) (29,124)


15. Financial instruments continuedFair values of financial assets and liabilities continuedIn the opinion of the Directors, there is no material difference between the book value and the fair value of cash, bank borrowings, trade receivables, and trade and other payables in view of their short-term nature, with the exception of deferred consideration, which has been discounted to reflect the time value of money. Within other payables is contingent consideration of £1,775,000 (2015: £2,817,000), which is measured at fair value rather than amortised cost. The fair value is estimated by discounting the expected future contractual cash flows at the current market interest rate. These payables are deemed to fall within fair value hierarchy level 1. Within the period, £500,000 has been released to the income statement as disclosed in Note 2 and described in the Strategic Report and £667,000 has been settled by the issue of ordinary shares to that value. The remaining movement in the period of £125,000 relates to the unwinding of the interest charge.

16. Deferred taxDeferred tax assetsDeferred taxation has been calculated at a rate of predominantly 17% (2015: 20%) following enactment of the 2016 Finance Bill in the United Kingdom.

Deferred tax asset on pension liability (Note 19) 2016£000

2015£000

Movement on the deferred asset was as follows:

At 1 January 2016 1,041 1,330

Recognised directly in equity 163 (225)

Recognised in income statement (54) (64)

At 31 December 2016 1,150 1,041

Deferred tax assets have not been recognised in relation to capital allowances in the UK subsidiaries, as profits in these subsidiaries have been predominantly covered by losses arising in the parent company. The total amount unrecognised is £1,704,000 (2015: £1,774,000). Future tax charges will be affected by the extent to which these unprovided deferred tax assets are recognised.

Deferred tax liabilities

Deferred tax liability 2016£000

2015£000

On property, plant and equipment (23) (41)

On acquired intangibles (199) (359)

On other temporary differences 7 (21)

At 31 December 2016 (215) (421)

Deferred tax liability on property, plant and equipment 2016£000

2015£000

Movement on the deferred liability was as follows:

At 1 January 2016 (41) (53)

Acquisitions through business combinations — (18)

Change in rate (3) —

Recognised in income statement 23 30

Adjustment in respect of previous periods (2) —

At 31 December 2016 (23) (41)

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16. Deferred tax continuedDeferred tax liabilities continued

Deferred tax liability on acquired intangibles 2016£000

2015£000


At 1 January 2016 (359) (372)

Fair value determination — (154)

Change in rate 54 —

Recognised in income statement 109 167

Adjustment in respect of previous periods (3) —

At 31 December 2016 (199) (359)

Deferred tax liability on other temporary differences 2016£000

2015£000


At 1 January 2016 (21) —

Recognised in income statement 27 (3)

Adjustment in respect of previous periods 1 (18)

At 31 December 2016 7 (21)

17. Equity share capital2016£000

2015£000

Authorised:

40,140,000 ordinary shares of 5p each 2,007 2,007

Allotted, called up and fully paid:

1 January 2016: 36,527,096 ordinary shares of 5p each 1,826 1,554

Issued during the year: 1,651,026 (2015: 5,454,546) ordinary shares of 5p each 83 272

31 December 2016: 38,178,122 ordinary shares of 5p each 1,909 1,826

Shares issued during the year included 641,026 in settlement of the first tranche of deferred consideration for the purchase of Stadium United Wireless Limited.

Option agreements existed at 31 December 2016 to purchase ordinary shares of 5p each as follows:

Date granted Number of options Exercisable between Price

25 March 2015 245,000 25 March 2018 and 25 September 2018 5.0p3 May 2016 90,000 3 May 2019 and 3 November 2019 5.0p

During 2014 the Group acquired all of the shares of Stadium United Wireless Limited. The Group will give additional consideration for the acquisition dependent upon certain EBIT targets being achieved over the following three years. One third of the additional consideration was settled during the year ended 2016. The maximum further earn-out that can be achieved is the issue of further Stadium shares of market value equal to £1,333,333 based on the future share price at the time of the award. The Directors are of the opinion that the profit will exceed the target set for the additional maximum consideration to be made.

Share based paymentsThe Company has operated two schemes offering share based incentives to employees. The Executive Share Option Scheme provided employees the option to buy shares, subject to certain performance criteria being met, between three and ten years from the date of grant (between five and ten years for certain categories of option) at an exercise price equivalent to the share price on the date of grant. The scheme ceased to offer new grants of options in 2005.

The Performance Share Plan offers employees the option to buy shares, subject to certain performance criteria being met, three years from the date of grant at an exercise price equivalent to the nominal value of 5p each. The last grant of options under this scheme took place in May 2016.


17. Equity share capital continuedShare based payments continuedDetails in respect of options outstanding and movements during the year are as follows:

2016 2015

Number ofoptions

Weightedaverageexercise

price£

Number ofoptions

Weightedaverageexerciseoptions

£

Executive schemeAt 1 January — — 172,000 0.86Options lapsed — — (172,000) 0.86Options exercised — — — —

At 31 December — — — —

Out of which exercisable — — — —

Performance Share PlanAt 1 January 1,905,000 0.05 1,555,000 0.05Granted in year 100,000 0.05 400,000 0.05Options lapsed (660,000) 0.05 (170,000) 0.05Options reinstated 2011 issue — 0.05 120,000 0.05Options exercised (1,010,000) 0.05 — 0.05

At 31 December 335,000 0.05 1,905,000 0.05

Out of which exercisable — 0.05 — 0.05

The weighted average share price of options exercised during the year was £0.82 (2015: £Nil).

Total share options outstanding at 31 December 2016 had a weighted average exercise price of £0.05 (2015: £0.05) and a weighted average contractual life of four years (2015: two and three quarter years).

The charge to the income statement account during the year, based on the fair value of options using Black-Scholes, was as follows:

2016£000

2015£000

Fair value of options recognised 346 374

Credit in respect of options lapsed during vesting period (353) (10)

Charge to income statement (7) 364

The credit includes a total of £25,000 (2015: £221,000 charge) relating to the two Executive Directors who served during the year.

Measurement of share based paymentsThe fair value of services received in return for share options granted is based on the fair value of share options granted, measured internally using a Black-Scholes model. The key inputs to the model were:

OptionsgrantedOctober

2013

Optionsgranted

September2014

Optionsgranted

March2015

Optionsgranted

May2016

Fair value at measurement date £0.34 £0.78 £0.95 £0.98

Share price £0.51 £1.05 £1.16 £1.19

Exercise price £0.05 £0.05 £0.05 £0.05

Expected volatility 54.1% 47.6% 38.3% 34.4%

Risk-free interest rate 0.8% 1.3% 0.6% 0.6%

Managing capitalThe Group’s objectives when managing capital are:

— to safeguard the entity’s ability to continue as a going concern so that it can continue to provide returns to shareholders and benefits to other stakeholders; and

— to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the gearing ratio. Gearing is calculated as net debt divided by total equity. During 2016 the Group maintained gearing in the range between 17% and 26%, which, in the opinion of the Directors, is appropriate to the business activities undertaken. Details of the Group’s gearing are given in the “Analysis of changes in net debt” note to the Consolidated Statement of Cash Flows.

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18. Earnings per share2016 2015

Earnings£000

EPSPence

Earnings£000

EPSPence

From continuing operations

Basic earnings per ordinary share 1,838 4.9 1,383 4.2

Fully diluted earnings per ordinary share 1,838 4.7 1,383 3.8

The calculation of basic earnings per share is based on the profit for the financial year of £1,838,000 (2015: £1,383,000) and the weighted average number of ordinary shares in issue during the year of 37,226,717 (2015: 33,149,761).

As Stadium United Wireless Limited is expected to meet the earn-out criteria for contingent consideration to be payable, 1,550,387 shares are treated as outstanding and included in the calculation of diluted earnings per share. However, this performance expectation does need to be maintained for a further year for the shares to become fully dilutive. Fully diluted earnings per share therefore reflects both dilutive options granted and shares to be issued as part of contingent consideration resulting in a weighted average number of shares of 39,094,262 ordinary shares (2015: 36,826,317) and profit for the financial year of £1,838,000 (2015: £1,383,000).

Adjusted earnings per share from continuing operations is stated before amortisation of acquired intangibles and excluding non-recurring items as follows:

2016£000

2015£000

Profit attributable to equity holders of the parent 1,838 1,383

Adjustments:

Amortisation of acquired intangibles 861 1,026

Interest charge on the fair value of deferred consideration 125 134

UK site rationalisation/reorganisation projects 1,290 334

Asia factory relocation works — 615

Directorate change 179 —

Acquisition costs of subsidiaries 67 201

Release of deferred consideration no longer payable (500) —

Tax effects of above adjustments (466) (395)

Adjusted profit from continuing operations 3,394 3,298

2016Pence

2015Pence

Adjusted basic earnings per share 9.1 9.9

Adjusted fully diluted earnings per share 8.7 9.0

19. Retirement benefit obligationsThe Group pension arrangements for current employees are operated through a defined contribution scheme. Two Group defined benefit schemes exist but are closed to new entrants.

Defined contribution scheme2016£000

2015£000

Amount recognised as an expense 300 254

Defined benefit schemesThe Stadium Group plc 1974 Pension Scheme and the Southern & Redfern Limited Scheme are final salary pension plans operating for qualifying employees of the Group. The Stadium Group plc 1974 plan was closed to new entrants in 1995 and to future accruals in 2011. The Southern & Redfern plan was closed to new entrants in 1997 and future accruals in 2001.

Both schemes provide employees with a pension on retirement equal to 1/60th per annum of the higher of either:

— their salary at leaving; or

— their salary at the date of closing to future accruals.

The Stadium Group plc 1974 plan provides employees with life insurance of nine times salary in employment.


19. Retirement benefit obligations continuedDefined benefit schemes continuedBoth schemes are legally separate from the Group and administered by separate funds. The board of the Stadium Group plc 1974 Scheme is made up of representatives of the Group and former employees as well as an independent chair. The Board of the Southern & Redfern Limited Scheme is made up of representatives of the Group. By law, the boards are required to act in the best interests of the participants to the schemes and have the responsibility of setting investment, contribution and other relevant policies.

The schemes are exposed to a number of risks, including:

— investment risk: movement of discount rate used (high-quality corporate bonds) against the return from plan assets;

— interest rate risk: decreases/increases in the discount rate used (high-quality corporate bonds) will increase/decrease the defined benefit obligation;

— longevity risk: changes in the estimation of mortality rates of current and former employees; and

— salary risk: increases in future salaries increase the gross defined benefit obligation.

The schemes are funded by the Company. Employees do not contribute to the schemes. Contributions by the Company are calculated by a separate actuarial valuation based on the funding policies detailed in the scheme agreement. A full actuarial valuation of the defined benefit scheme takes place on a triennial basis. The last such valuation was 1 April 2014 and updated to 31 December 2014, 2015 and 2016 by a qualified independent actuary. Contributions to the scheme are made by the Company based on the advice of the actuary and with the aim of making good the deficit over the remaining working life of the employees. In 2017, the Group expects to contribute £500,000 into its defined benefit schemes. The weighted average duration of the defined benefit obligation at 31 December 2016 was approximately 15 years. Employees not participating in the defined benefit scheme are eligible to join a defined contribution scheme.

The amounts recognised in the balance sheet are as follows:

2016 2015

Southern& Redfern

£000

StadiumGroup

1974 £000

Southern& Redfern

£000

StadiumGroup

1974£000

Present value of funded obligations (1,294) (37,842) (1,217) (33,692)

Fair value of plan assets 1,394 31,075 1,353 28,487

Funded status at end of year 100 (6,767) 136 (5,205)

Effect of asset ceiling (100) — (136) —

Net defined benefit liability — (6,767) — (5,205)

Related deferred tax asset — 1,150 — 1,041

Net liability after taxation — (5,617) — (4,164)

The amounts recognised in the income statement are as follows:

2016 2015

Southern& Redfern

£000

StadiumGroup

1974 £000

Southern& Redfern

£000

StadiumGroup

1974£000

Current service cost — — — —

Interest on obligation (43) (1,181) (43) (1,164)

Expected return on plan assets 43 1,002 47 950

Total in income statement — (179) 4 (214)

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19. Retirement benefit obligations continuedDefined benefit schemes continuedChanges in the present value of the defined benefit obligation are as follows:

2016 2015

Southern& Redfern

£000

StadiumGroup

1974 £000

Southern& Redfern

£000

StadiumGroup

1974£000

Opening defined benefit obligation (1,217) (33,692) (1,288) (35,692)

Current service cost — — — —

Interest cost (43) (1,181) (43) (1,168)

Included in profit and loss (43) (1,181) (43) (1,168)

Experience gains and losses on liabilities 1 198 84 430

Changes in underlying assumption – financial (116) (4,965) 30 1,100

Changes in underlying assumption – demographic — — — —

Included in other comprehensive income (115) (4,767) 114 1,530

Other movements – benefits paid 81 1,798 — 1,638

Closing defined benefit obligation (1,294) (37,842) (1,217) (33,692)

Changes in the fair value of plan assets are as follows:

2016 2015

Southern& Redfern

£000

StadiumGroup

1974 £000

Southern& Redfern

£000

StadiumGroup

1974£000

Opening fair value of plan assets 1,353 28,487 1,390 29,038

Expected return 48 1,002 47 954

Included in profit and loss 48 1,002 47 954

Actual return less expected return on assets 79 2,889 (84) (398)

Included in other comprehensive income 79 2,889 (84) (398)

Contribution by employer — 495 — 530

Benefits paid (86) (1,798) — (1,637)

Other movements (86) (1,303) — (1,107)

Closing fair value of plan assets 1,394 31,075 1,353 28,487

Principal actuarial assumptions at the balance sheet date (expressed as weighted averages) were as follows:

2016 2015

Southern& Redfern

StadiumGroup

1974 Southern

& Redfern

StadiumGroup

1974

Discount rate at 31 December 2.60% 2.60% 3.60% 3.60%

Expected return on plan assets at 31 December 2.60% 2.60% 3.60% 3.60%

Future salary increases N/A 2.65% N/A 2.55%

Future pension increases 3.20% 3.10% 2.05% 2.95%

Proportion of employees opting for early retirement N/A 0.00% N/A 0.00%

Investigations have been carried out within the past three years into the mortality experience of the Group’s scheme.


19. Retirement benefit obligations continuedDefined benefit schemes continuedThese investigations concluded that the current mortality assumptions include sufficient allowance for future improvements in mortality rates.

The assumed life expectations on retirement at age 65 are:

2016 2015

Southern & Redfern

StadiumGroup

1974Southern

& Redfern

StadiumGroup

1974

Retiring today:

Males 24.6 23.2 24.6 23.2

Females 25.7 24.5 25.7 24.5

Retiring in 20 years:

Males 26.5 25.1 26.4 25.1

Females 27.3 26.1 27.2 26.1

Changes in the fair value of plan assets are as follows – Stadium Group 1974 scheme:

2016 £000

2015 £000

2014 £000

2013 £000

2012£000

Actuarial gains and losses recognised in the SOCI (1,715) 906 (1,309) 443 (1,130)

Cumulative actuarial gains and losses recognised in the SOCI (13,578) (11,863) (12,769) (11,460) (11,903)

Experience adjustments on plan liabilities 198 430 363 (23) (79)

Experience adjustments on plan assets 2,889 (398) 1,222 913 1,043

Changes in the fair value of plan assets are as follows – Southern & Redfern scheme:

2016 £000

2015 £000

2014 £000

2013 £000

2012£000

Actuarial gains and losses recognised in the SOCI — (6) 18 57 (168)

Cumulative actuarial gains and losses recognised in the SOCI (99) (99) (93) (111) (168)

Experience adjustments on plan liabilities 1 84 (138) 73 (106)

Experience adjustments on plan assets 74 (84) (9) 5 78

Pension plan assets are made up as follows – Stadium Group 1974 scheme:

2016 £000

2015 £000

Insured pensions in payment 14,127 13,388

UK equities 4,037 3,857

Overseas equities 4,458 3,408

Property 2,057 1,998

LDI 2,690 2,096

Diversified growth funds 3,683 3,725

Cash 23 15

31,075 28,487

Pension plan assets are made up as follows – Southern & Redfern scheme:

2016 £000

2015 £000

Insured pensions in payment 1,087 1,042

UK equities 70 108

Overseas equities 70 27

Property 28 27

UK fixed interest 98 108

UK fixed gilts 27 27

Cash 14 14

1,394 1,353

Pension plan assets do not include any of the Group’s own shares or any property occupied by, or other assets used by, the Group.

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19. Retirement benefit obligations continuedDefined benefit schemes continuedThe overall expected rate of return on assets is the weighted average expected rate of return on each asset class, based upon long-term historical rates adjusted to take account of current market conditions.

Defined benefit pension plans – Stadium Group 1974 scheme:

2016 £000

2015 £000

2014 £000

2013 £000

2012£000

Defined benefit obligation (37,842) (33,692) (35,692) (33,074) (33,153)

Plan assets 31,075 28,487 29,038 27,497 26,229

Net pension liability (6,767) (5,205) (6,654) (5,577) (6,924)

Related deferred tax asset 1,150 1,041 1,330 1,115 1,592

Net liability (after taxation) 5,617 (4,164) (5,324) (4,462) (5,332)

Defined benefit pension plans – Southern & Redfern scheme:

2016 £000

2015 £000

2014 £000

2013 £000

2012£000

Defined benefit obligation (1,294) (1,217) (1,288) (1,467) (1,469)

Plan assets 1,394 1,353 1,390 1,405 1,291

Net pension liability 100 136 102 (62) (178)

Effect of asset ceiling (100) (136) (102) — —

Related deferred tax asset — — — 12 41

Net liability (after taxation) — — — (50) (137)

Sensitivity analysis – Stadium Group 1974 scheme:

The impact to the value of the defined benefit obligation of a reasonably possible change to one actuarial assumption, holding all other assumptions constant, is presented in the table below:

Reasonablypossible Defined benefit obligation

Actuarial assumption ChangeIncrease

£000Decrease

£000

Discount rate increased by 0.25% — 1,314

RPI inflation assumption increased (with corresponding increase to CPI inflation and pension increase assumptions) 0.25% 562 —

Post-retirement mortality rated down by one year — 982 —

These sensitivities were chosen due to being the key assumptions within the pension liability calculations.

The Directors do not consider the sensitivity analysis in respect of the Southern & Redfern scheme to be sufficiently material to require calculation.

20. Operating lease commitmentsAt the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable as follows:

2016 2015

Land &buildings

£000Other£000

Land & buildings

£000Other£000

Future minimum lease payments under non-cancellable operating leases:

Within one year 583 95 534 119

From one to five years 2,072 60 1,667 70

After five years 150 — 274 —

2,805 155 2,475 189

The Group does not sub-lease any of its leased premises. Lease payments recognised in profit for the period amounted to £809,000 (2015: £867,000).


21. ProvisionsRestructuring

£000Warranty

£000Total£000

Balance at 1 January 2015 101 163 264

Business acquisitions — 139 139

New provisions — 176 176

Provisions released (101) (163) (264)

Balance at 31 December 2015 — 315 315

Business acquisitions — — —


Provisions released — (315) (315)


Warranties are provided over the manufacturing quality of products in the normal course of business. Provisions for expected future costs are made based upon the historical level of the claim rate relative to the level of sales. The costs of such claims are generally incurred within 18 months of the original sale. The actual level of costs incurred in remedying a warranty claim could vary significantly from claim to claim, so the Directors have applied current experience in assessing the appropriate level of provision.

22. Finance lease liabilities2016£000

2015£000

Gross finance lease liabilities – minimum lease payments

In one year or less 150 161

In more than one year but not more than two years 116 129

In more than two years but not more than five years 275 339

541 629

Future finance charges on finance leases (13) (21)

Present value of finance lease liabilities 528 608

The present value of finance lease liabilities is analysed as follows:

2016£000

2015£000

Not later than one year 143 153

Later than one year and not later than five years 385 455

528 608

Lease liabilities are secured over property, plant and equipment.

23. Post balance sheet eventsAcquisition of Cable Power Limited’s assetsOn 11 January 2017 the Group acquired the assets of Cable Power Limited, a specialist manufacturer and distributor of bespoke cable and power products and accessories to single board computing providers, for £0.75m in cash. There is no contingent consideration payable. This transaction will be accounted for in accordance with IFRS 3 in the 31 December 2017 financial statements.

The provisional assessment of the acquisition is net assets acquired of £156,000, intangible customer contracts of £322,000 and goodwill of £272,000.

For the year ended 31 December 2016, Cable Power recorded sales of circa £0.7m and profit before interest and tax of circa £0.1m.

Colchester-based Cable Power’s customers include RS Components, Rapid Electronics, Farnell, CPC and Raspberry Pi, with whom it has exclusivity for several accessories, including HDMI cables, power connectors and other accessory bundles. Cable Power will join Stadium’s power division, Stadium Stontronics, which announced in March 2016 that it had become the only approved external power supply manufacturer for the Raspberry Pi 3. Cable Power is an excellent fit which complements the Company’s strategy to grow its design-led range of technology products.

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23. Post balance sheet events continuedCapital ReductionStadium announced on 15 February 2017 that the Court granted an order approving the reduction of the Company’s share premium account (the “Capital Reduction”), as approved by shareholders on 19 January 2017. The Company has filed this order with the Registrar of Companies and it is therefore now effective as at 15 February 2017. The purpose of the Capital Reduction was to create additional distributable reserves which will provide the Company with further flexibility in relation to the payment of future dividends.

The background to and reasons for the Capital Reduction relate to the adverse movement on the Group’s legacy defined benefit pension scheme, The Stadium Group plc 1974 Pension Scheme. As at 31 December 2015, the deficit on the pension scheme, measured under IAS 19, was £5.2m. Subsequent to the EU referendum result on 23 June 2016, corporate bond yields have fallen significantly in the UK and, as this yield is used to discount the Group’s pension liability under IAS 19, if the corporate bond yield remains at the current low levels then it is likely to result in a significant increase in the Group’s pension deficit. This likely increased IAS 19 pension deficit would have the effect of materially reducing the Company’s available distributable reserves, affecting the Company’s ability to distribute profits to shareholders as dividends.

As a result of the 2015 fundraising, the Company’s share premium account was increased by £5.3m and, as at 31 December 2015, stood at £10.6m, see Note 24. A share premium account is an undistributable reserve and, accordingly, the purposes for which the Company can use it are extremely restricted. In particular, it cannot be used for paying dividends.

Therefore, given the enlarged share premium account as a result of the 2015 fundraising the Board recommended that the share premium account be reduced by £5.3m, which would restore it to its level prior to the 2015 fundraising. This was approved by the shareholders on 19 January 2017. This has had the effect of creating distributable reserves of this amount, which has provided the Board with additional flexibility to distribute profits to shareholders as dividends, subject to the financial performance of the Company and the Act.

Following the implementation of the Capital Reduction, there is no change in the nominal value of the ordinary shares or the number of ordinary shares in issue. No new share certificates were issued as a result of the Capital Reduction.

Stadium Group IncOn 8 February 2017 Stadium incorporated a new legal entity in the state of Delaware, namely Stadium Group Inc. This is currently a non-trading entity. It is anticipated in 2017 that this legal entity will facilitate the increase in US business the Group is currently transacting and will support new business wins.

Directors are not aware of any other post balance sheet events.

24. Prior year adjustmentsThe Share premium account has been restated to reflect the reallocation of £924,000 to the Merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. This is in accordance with S610 of the Companies Act 2006.

A third balance sheet to restate 2014 has not been included as the adjustment has no net effect on shareholders’ funds.

2014£000

Adjustment£000

2014restated

£000

As previously reported 31 December 2014

Equity share capital 1,554 — 1,554

Share premium 5,302 (924) 4,378

Merger reserve — 924 924

Capital redemption reserve 88 — 88

Translation reserve 30 — 30

Retained earnings 3,263 — 3,263

Equity shareholders’ funds at 31 December 2014 10,237 — 10,237

2015£000

Adjustment£000

2015restated

£000

As previously reported 31 December 2015

Equity share capital 1,826 — 1,826

Share premium 10,597 (924) 9,673

Merger reserve — 924 924

Capital redemption reserve 88 — 88

Translation reserve 501 — 501

Retained earnings 5,146 — 5,146

Equity shareholders’ funds at 31 December 2015 18,158 — 18,158



Note2016£000

2015restated*

£000

2014restated*

£000

Fixed assets

Tangible assets 5 1,937 1,911 2,224

Investments 6 25,581 26,077 19,347

Goodwill 7 1,117 684 737

Other intangible assets 8 722 — 3

29,357 28,672 22,311

Current assets

Stocks 9 3,085 2,227 2,161

Debtors due after one year 10 1,269 1,197 1,330

Debtors due within one year 10 12,036 7,603 6,439

Cash at bank and in hand 559 194 9

16,949 11,221 9,939

Creditors: amounts falling due within one year

Bank overdrafts 11 — (2,289) (2,328)

Creditors 11 (17,633) (7,261) (5,592)

(17,633) (9,550) (7,920)

Net current assets (684) 1,671 2,019

Total assets less current liabilities 28,673 30,343 24,330

Creditors: amounts falling due after more than one year 12 (8,206) (9,927) (10,035)

Provisions for liabilities and charges 17 (145) (169) (264)

Net assets excluding pension liability 20,322 20,247 14,031

Gross pension liability 18 (6,767) (5,205) (6,654)

Net assets 13,555 15,042 7,377

Capital and reserves

Called up equity share capital 14 1,909 1,826 1,554

Share premium account* 15 9,673 9,673 4,378

Merger reserve* 16 1,559 924 924

Capital redemption account 17 88 88 88

Profit and loss account 326 2,531 433

Equity and shareholders’ funds 13,555 15,042 7,377

* Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. 2014 comparative figures have been restated for the valuation of investments as disclosed in Note 23.

The Directors have taken advantage of the exemption under Section 408 of the Companies Act 2006 and have not presented a profit and loss account of the Company alone.

The profit for the year dealt with in the accounts of the holding Company amounted to £542,000 (2015: £1,598,000 restated).

The accounts were approved and authorised for issue by the Board on 13 March 2017 and signed on its behalf by:

Charlie PeppiattDirector

Company balance sheetat 31 December 2016

Company number: 00236394

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Note

Ordinaryshares

£000

Sharepremiumrestated*

£000

Mergerreserve

restated*£000

Capitalredemption

reserve£000

Retainedearningsrestated

£000

Totalrestated

£000

Balance at 31 December 2014 1,554 5,302 — 88 761 7,705

Prior period adjustment 23 — (924) 924 — (328) (328)

Balance at 31 December 2014 as restated 1,554 4,378 924 88 433 7,377


Profit for the period — — — — 1,598 1,598

Actuarial gain on defined benefit plan 18 — — — — 900 900

Total comprehensive income for the period — — — — 2,498 2,498


Equity settled share based payment transactions 14 — — — — 364 364

Issue of share capital 14 & 15 272 5,727 — — — 5,999

Payment of transaction costs — (432) — — — (432)

Dividends — — — — (764) (764)

Balance at 31 December 2015 1,826 9,673 924 88 2,531 15,042


Profit for the period — — — — 542 542

Actuarial loss on defined benefit plan 18 — — — — (1,715) (1,715)

Total comprehensive income for the period — — — — (1,173) (1,173)


Equity settled share based payment transactions 14 — — — — (7) (7)

Issue of share capital 14 & 15 83 — 635 — — 718

Payment of transaction costs — — — — — —

Dividends — — — — (1,025) (1,025)

Balance at 31 December 2016 1,909 9,673 1,559 88 326 13,555

* Restated to reflect the reallocation of £924,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. 2014 comparative figures have been restated for the valuation of investments as disclosed in Note 23.

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

Reserve Description and purpose

Ordinary shares Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

Share premium Amount subscribed for share capital in excess of nominal value.

Merger reserve The excess of the fair value over nominal value of shares issued by the Company for the acquisition of businesses is credited to the merger reserve. This is in accordance with S610 of the Companies Act 2006.

Capital redemption reserve Amounts transferred from share capital on redemption of issued shares.

Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

Company statement of changes in equityfor the year ended 31 December 2016


Stadium Group plc (the “Company”) is a company incorporated in England and is listed on AIM. The consolidated financial statements of the Company for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group”). The financial statements were authorised for issue by the Directors on 13 March 2017.

1. Statement of accounting policies Basis of accounting The financial statements have been prepared in accordance with Financial Reporting Standard (FRS) 102 the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group’s accounting policies.

Financial Reporting Standard 102 – Reduced Disclosure ExemptionsThe Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”:

— the requirements of Section 4 Statement of Financial Position paragraph 4.12(a)(iv);

— the requirements of Section 7 Statement of Cash Flows;

— the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d);

— the requirements of Section 11 Financial Instruments paragraphs 11.39 to 11.48A;

— the requirements of Section 12 Other Financial Instruments paragraphs 12.26 to 12.29; and

— the requirements of Section 33 Related Party Disclosures paragraph 33.7.

This information is included in the consolidated financial statements of Stadium Group plc as at 31 December 2016 preceding these Company financial statements.

RevenueRevenue is measured at the fair value of goods provided to customers net of returns, discounts, value added tax and other sales taxes. Revenue from the sales of goods is recognised when the Company has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Company will receive the previously agreed upon payment. These criteria are considered to be met when the goods are delivered to the buyer. Where warranties are offered to customers, revenue is recognised in the period where the goods are delivered less an appropriate provision for returns based on past experience.

Provided the amount of revenue can be measured reliably and it is probable that the Company will receive any consideration, revenue for services is recognised in the period in which they are rendered.

In addition to the above revenue from sales may also be recognised on bill and hold transactions. When a customer specifically requests that the Company delays delivery of the goods for a legitimate business reason, revenue on these goods will be recognised before delivery takes place. Revenue on bill and hold sales is recognised when the customer takes legal title of the goods, accepts the invoice and the product is ring-fenced and available for their collection.

DividendsDividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

Fixed assets Fixed assets are stated at cost less accumulated depreciation and any recognised impairment losses. Depreciation is provided at rates calculated to write down the cost of assets (excluding freehold land) over their estimated useful lives by equal annual instalments at the following rates:

Freehold buildings 2%

Plant and machinery 10%–25%

Fixtures and equipment 10%–25%

Useful lives and residual values are reviewed annually and adjusted prospectively, if appropriate, if there is an indication of a significant change since the last reporting date.

The gain or loss arising on disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income.

Valuation of investmentsInvestments in subsidiary undertakings in the accounts of the Company are stated at cost less provision for impairment.

Other intangible assets Other intangible assets are shown at historical cost less accumulated amortisation and impairment losses.

Amortisation is charged to the profit and loss account on a straight line basis over the estimated useful lives of the intangible assets. Intangible assets are amortised from the date they are available for use. The useful lives are as follows:

Goodwill up to 20 years

Development costs up to five years consistent with the revenue generation profile of the product

Software costs three to ten years

Notes to the Company financial statementsfor the year ended 31 December 2016

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Notes to the Company financial statements continuedfor the year ended 31 December 2016

1. Statement of accounting policies continuedStocks and work in progress Stocks and work in progress are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis including transport and handling costs and, in the case of manufactured products, includes all direct expenditure and production overheads based on normal levels of activity.

Current and deferred taxationThe tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except when a charge is attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except for:

— the recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;

— any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and

— where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Company can control their reversal and such reversal is not considered probable in the foreseeable future.

Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Share based payments Employee share options are measured at fair value at grant date using the Black-Scholes model. The fair value is expensed on a straight line basis over the vesting period, based on an estimate of the number of options that will eventually vest.

Termination benefits Termination benefits are employee benefits payable as a result of either:

— a decision to terminate an employee’s employment before the normal retirement date; or

— an employee’s decision to accept voluntary redundancy in exchange for those benefits.

The Company may be committed by legislation, by contractual or other agreements with employees or by a constructive obligation based on business practice, custom or a desire to act equitably, to make payments (or provide other benefits) to employees when it terminates their employment. Such payments are termination benefits.

Such termination payments do not provide the Company with future economic benefits. Therefore such costs are recognised as an expense in profit or loss immediately that the Company becomes demonstrably committed to make such payments.

Pension costs Defined benefit scheme There is no contractual agreement or stated policy for charging the net defined benefit cost of the defined benefit plan as a whole to individual group entities, so this shall be recognised in the individual financial statements of the Group entity which is legally responsible for the plan.

The multi-employer scheme, for which the net pension liability cannot be split between entities, is accounted for as a defined benefit pension scheme in the financial statements of the Company. Assets and liabilities arising from retirement benefit obligations and the related funding are reflected at fair value in the financial statements and operating and finance costs are recognised in the financial periods in which they arise. Gains and losses arising from actuarial experience during the accounting period are recognised in other comprehensive income.

Defined contribution schemes Contributions payable are charged to the profit and loss account in the accounting period in which they are incurred.

Foreign currencies Transactions denominated in foreign currencies are translated into the entity’s functional currency at the prevailing rate on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into Sterling (the Company’s presentational currency) at the rate prevailing at the period end. Gains and losses arising on the translation of foreign currencies are dealt with as part of operating profit.

ProvisionsA provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. A warranty provision is recognised when the related goods are sold. The provision is based upon historical customer claims data relative to levels of sales activity.


1. Statement of accounting policies continuedLeased assetsLeases of property, plant and equipment where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. Assets held under finance leases are capitalised at fair value of the leases, unless the present value of the lease payments is lower. The corresponding leasing commitments, net of finance charges, are included in liabilities.

Leasing payments are analysed between capital and interest components so the interest element is charged to the income statement over the period of the lease at the constant periodic rate of interest on the remaining balance of the liability outstanding.

Depreciation on assets held under finance leases is charged to the income statement over the useful life of the asset.

All other leases are treated as operating leases with annual rentals charged to the income statement, net of any incentives granted to the lessee, over the term of the lease.

Financial instruments The Company’s financial instruments comprise borrowings, some cash and liquid resources and items such as trade debtors and trade creditors that arise directly from its operations.

The main purpose of these financial instruments is to manage the finance of the Company’s operations.

Financial assets and financial liabilities are recognised in the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.

Trade debtors Trade receivables do not carry any interest and are stated at their nominal value less appropriate allowances for estimated irrecoverable amounts. Such allowances aim to ensure that receivables are only recognised to the extent to which they are recoverable. Provisions created for irrecoverable amounts are recorded in a separate allowance account with the loss being recognised within the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value is written off against the associated provision.

Bank borrowingsInterest bearing bank loans and overdrafts are recorded at the fair value of proceeds received net of any transaction costs. Such loans 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. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Trade creditors Trade payables do not carry any interest and are stated at their nominal value.

Invoice discounting Amounts due in respect of invoice discounting are separately disclosed as current liabilities. The Company can use these facilities to draw down a percentage of the value of certain sales invoices. The management and collection of trade receivables remains with the Company and it therefore retains the risks and rewards of ownership.

Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

It has been, throughout the period under review, the Company’s policy that no trading in financial instruments shall be undertaken. The Company does not consider that it has any obligations or rights under derivative financial instruments.

The main risks arising from the Company’s financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and these policies are set out in Note 15 of the Group accounts.

Accounting estimates and judgements In preparing these consolidated financial statements, management has made estimates, assumptions and judgements that affect the application of the Company’s accounting policies and the reported amounts of assets and liabilities. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Assumptions and estimation uncertaintiesKey sources of estimation uncertainty are:

Asset useful life estimates – Tangible and intangible assets are depreciated and amortised over their estimated useful lives. Risk arises in determining the actual period that the assets will continue to generate income and therefore the depreciation and amortisation charges appropriate to each financial reporting period.

Development cost useful – Development expenditure is stated at cost less accumulated amortisation. Risk arises in assessing life estimates the future period that matches the anticipated revenue generation profile of the product and

therefore the amortisation charges appropriate to each financial reporting period.

Stock provisions – The stock provision is based on the age of stock to identify items for which there is no current demand or for which net realisable value (NRV) is lower than cost.

Retirement benefit – Refer to Note 19 of the Group accounts for disclosure of the key sources of estimation uncertainty obligations relating to the retirement benefit obligation.

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1. Statement of accounting policies continuedAccounting estimates and judgements continuedAssumptions and estimation uncertainties continued

Goodwill – Goodwill is evaluated for impairment at each reporting date. The recoverable amounts of cash generating units have been estimated based on value-in-use calculations.

Credit risk – Trade and other receivables are recognised to the extent that, in the opinion of the Directors, they are recoverable in the ordinary course of business. Risk arises from the potential of any customer failing to meet their contractual obligations and settle debts when due. It is Company policy to assess creditworthiness of new customers, to review and, where necessary, renegotiate terms of trade from customers with which it has a good trading history, and to actively monitor customer compliance, ensuring that trading terms are adhered to.

JudgementsKey judgements relate to:

Non-recurring items – Transactions classified as non-recurring require judgement to be exercised in identifying which items are of a nature that they will not be expected to recur in the ordinary course of trade and are material for the financial statements to present a true and fair view.

2. Profit on ordinary activities before taxation Auditor’s fees during the year for the audit of the Company were £57,000 (2015: £56,000). Other fees paid to the auditor during 2016 are detailed in Note 2 to the Group accounts.

3. Employees2016 2015

Average number of employees (including Directors) during the year was:Direct production 101 105Selling and administrative (including indirect production) 32 31

133 136

2016£000

2015£000

Aggregate payroll costs were as follows:Wages and salaries 3,294 3,054Social security costs 430 288Pension costs 513 115

4,237 3,457

In addition to the above there were also severance costs of £162,000 (2015: £142,000) within the reorganisation costs disclosed in Note 2 to the Group accounts and costs paid during the year that had been previously provided for of £Nil (2015: £57,000).

4. Directors’ remuneration2016£000

2015£000

Salaries, termination and benefits in kind 478 624

Severance costs 90 —

Pensions 36 33

Social security costs 71 77

Share based payments (25) 221

650 955

Details of the highest paid Director are shown in the Report of the Remuneration Committee. The Directors are considered to be the key management personnel.


5. Tangible fixed assetsFreehold land and

buildings£000

Plant and machinery

£000

Fixtures and equipment

£000Total£000

CostAt 1 January 2016 1,825 3,217 630 5,672

Additions — 333 2 335

Disposals — — — —

At 31 December 2016 1,825 3,550 632 6,007

DepreciationAt 1 January 2016 890 2,267 604 3,761


Disposals — — — —

At 31 December 2016 926 2,523 621 4,070

NBVNBV at 31 December 2016 899 1,027 11 1,937

NBV at 31 December 2015 935 950 26 1,911

There were no outstanding commitments in respect of capital expenditure. The net book value of property, plant and equipment includes £511,000 (2015: £621,000) in relation to plant and machinery held under finance leases. Freehold land and buildings includes assets with a net book value of £899,000 (2015: £935,000) which are the subject of the fixed charges referred to in Note 14 to the Group accounts.

6. InvestmentsInvestments in subsidiary companies at net book amount:

2016£000

2015restated

£000

At 1 January 26,077 19,347

Additions 4 6,730

Deferred consideration no longer payable (500) —

At 31 December 25,581 26,077

Comparative figures have been restated to reflect the change in accounting for investments as disclosed in Note 23. The investment in Stadium Zirkon Holdings Limited has been reduced by £1,065,000 to reflect a transfer of this value to Goodwill.

At 31 December 2016, the principal subsidiaries of the Company included on consolidation, all of which were wholly owned, were as follows:

Name Nature of business Registration Operation

Stadium Asia Limited Electronic manufacturing services British Virgin Islands China/Hong Kong

STMC Limited Electronic manufacturing services Hong Kong China

Stadium Power Limited Custom power supplies England and Wales UK

Stadium IGT Limited Control panel assemblies England and Wales UK

Stadium United Wireless Limited Wireless M2M technology England and Wales UK

Stontronics Limited Custom power supplies England and Wales UK

Stadium Electrical Holdings Limited Dormant England and Wales UK

Stadium Electronics Limited Dormant England and Wales UK

Stadium Wireless Devices Limited Dormant England and Wales UK

Stadium Zirkon UK Limited Dormant England and Wales UK

Dongguan Arlec Electrical Products Company Limited* Electronic manufacturing services China China

Ferrus Power Limited Dormant England and Wales UK

Fox Industries Limited Dormant England and Wales UK

Hale End Holdings Limited Dormant England and Wales UK

Kingslo Limited Dormant England and Wales UK

KRP Power Source (UK) Limited Dormant England and Wales UK

Shanghai Hongbian Electronics Co. Ltd* Technology design services China China

SGW Sweden AB Technology design services Sweden Sweden

Valuegolden Limited Dormant England and Wales UK

Ying Si Ke Electrical Products Company Ltd* Electronic manufacturing services China China

Zirkon Holdings Limited Dormant England and Wales UK


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6. Investments continuedDuring the year the Company incorporated a subsidiary in Sweden, SGW Sweden AB. A second subsidiary was incorporated in China, Shanghai Hongbian Electronics Co. Ltd. Both businesses are design offices in the Technology Products sector of the Group. Registered addresses for the subsidiaries can be found in the corporate directory at the back of this report.

Stontronics Limited was acquired in 2015. The Group will give additional consideration for the acquisition dependent upon certain EBIT targets being achieved across the following two years. The minimum earn-out that could be achieved is a payment of £400,000 subject to turnover targets being achieved. As not all targets have been achieved, the maximum earn-out is now restricted to £500,000 and provision for £500,000 has been released.

7. GoodwillRestated

£000

Cost

At 1 January 2016 1,065

Acquired during the year from subsidiary undertaking Stadium United Wireless Limited 486

At 31 December 2016 1,551

Amortisation

At 1 January 2016 381

Charge for the year 53

At 31 December 2016 434

NBV

NBV at 31 December 2016 1,117

NBV at 31 December 2015 684

Comparative figures have been restated to reflect the change in accounting for investments as disclosed in Note 23.

8. Other intangible assetsDevelopment

costs£000

Softwarecosts£000

Total£000

Cost At 1 January 2016 3 — 3Other additions 363 405 768Disposals — — —

At 31 December 2016 366 405 771

Amortisation and impairment losses At 1 January 2016 3 — 3Amortisation for the year 44 2 46Disposals — — —

At 31 December 2016 47 2 49

NBV NBV at 31 December 2016 319 403 722

NBV at 31 December 2015 — — —

Amortisation of development costs is recognised in cost of sales as inventory is sold over periods of up to five years consistent with the revenue generation profile of the product.

9. Stocks2016£000

2015£000

Raw materials and consumables 1,792 1,037Work in progress 584 296Finished goods and goods for resale 709 894

3,085 2,227

Inventory provisions created during the year amounted to £69,000 (2015: £4,000). Inventory with a carrying amount of £3,085,000 (2015: £2,227,000) has been pledged as security for liabilities. Inventories recognised as costs of sale totalled £9,711,000 (2015: £6,366,000).


10. Debtors2016£000

2015£000

Amounts due after more than one year:Other debtors 119 156Deferred tax asset on pension liability 1,150 1,041

1,269 1,197

Amounts due within one year:Trade debtors 4,839 1,856Amounts due from Group companies 6,901 5,569Other debtors 38 26Prepayments accrued income 258 152

12,036 7,603

Other debtors includes deferred consideration on a property sale made during 2007 (see Note 12 to the Group accounts). The amount of the deferred consideration outstanding at the year end was £157,000 (2015: £170,000), which falls due for repayment in January 2020 (2015: January 2020). In the opinion of the Directors, there is no material difference between the book value and the fair value of the above assets in view of their short-term nature.

11. Creditors: amounts falling due within one year2016£000

2015£000

Overdrafts — 2,289

Current portion of secured bank borrowings 637 525

Invoice securitisation — 1,290

Finance leases 110 99

Trade payables 3,045 1,601

Amounts owed to Group companies 11,565 2,043

Tax and social security 769 406

Accruals and deferred income 840 630

Deferred consideration 667 667

17,633 9,550

12. Creditors: amounts falling due after more than one year2016£000

2015£000

Long-term portion of secured bank borrowings – between one and five years 6,713 7,350

Finance leases – between one and five years 385 427

Deferred consideration – between one and five years 1,108 2,150

8,206 9,927

The net bank borrowings, including overdrafts and invoice securitisation, of Group companies are secured by fixed and floating charges over the assets of the Group. There is a guarantee relating to indebtedness of all Stadium Group companies to HSBC Bank Plc, which is secured by a fixed and floating charge over the assets of all Group companies.

The Group has two structured loans bearing interest at an annual rate equal to LIBOR plus 1.9% to 2.3%, based on total net leverage ratio. The first is repayable in increasing instalments across the period to July 2019. At the year-end £2,350,000 (2015: £2,875,000) remained repayable. The second loan of £5,000,000 is repayable in July 2019 and has no formal repayment schedule prior to that date.

The Company has additional flexible credit for working capital from invoice securitisation in the form of invoice discounting with the Group’s bankers, HSBC plc. These facilities allow the Company to draw money against its sales invoices before the customer has actually paid. Any borrowings are secured by a fixed charge over those sales invoices borrowed against and a floating charge over remaining Company assets. At the year end the Company had undrawn invoice discounting facilities of £1,895,000.

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13. Financial instrumentsInformation on financial instruments is provided in Note 15 to the Group accounts.

14. Equity share capital2016£000

2015£000

Authorised:

40,140,000 ordinary shares of 5p each 2,007 2,007

Allotted, called up and fully paid:

1 January 2016: 36,527,096 ordinary shares of 5p each 1,826 1,554

Issued during the year: 1,651,026 (2015: 5,454,546) ordinary shares of 5p each 83 272

31 December 2016: 38,178,122 ordinary shares of 5p each 1,909 1,826

Option agreements existed at 31 December 2016 to purchase ordinary shares of 5p each as follows:

Date granted Number of options Exercisable between Price

22 September 2014 430,000 22 September 2017 and 22 March 2018 5.0p

25 March 2015 245,000 25 March 2016 and 25 September 2018 5.0p

3 May 2016 90,000 3 May 2019 and 3 November 2019 5.0p

During 2014 the Company acquired all of the shares of Stadium United Wireless Limited. The Company will give additional consideration for the acquisition dependent upon certain EBIT targets being achieved over the following three years. One third of the additional consideration was settled during the year ended 2016. The maximum earn-out that could be achieved is the issue of further Stadium shares of market value equal to £1,333,333 based on the future share price at the time of the award. The Directors are of the opinion that the profit will exceed the target set for the additional maximum consideration to be made.

Share based paymentsThe Company has operated two schemes offering share based incentives to employees. The Executive Share Option Scheme provided employees the option to buy shares, subject to certain performance criteria being met, between three and ten years from the date of grant (between five and ten years for certain categories of option) at an exercise price equivalent to the share price on the date of grant. The scheme ceased to offer new grants of options in 2005.

The Performance Share Plan offers employees the option to buy shares, subject to certain performance criteria being met, three years from the date of grant at an exercise price equivalent to the nominal value of 5p each. The last grant of options under this scheme took place in May 2016.

Details in respect of options outstanding and movements during the year are as follows:

2016 2015

Number ofoptions

Weightedaverageexercise

price£

Number ofoptions

Weightedaverageexerciseoptions

£

Executive schemeAt 1 January — — 172,000 0.86Options lapsed — — (172,000) 0.86Options exercised — — — —

At 31 December — — — —

Out of which exercisable — — — —

Performance Share PlanAt 1 January 1,905,000 0.05 1,555,000 0.05Granted in year 100,000 0.05 400,000 0.05Options lapsed (660,000) 0.05 (170,000) 0.05Options reinstated 2011 issue — 0.05 120,000 0.05Options exercised (1,010,000) 0.05 — 0.05

At 31 December 335,000 0.05 1,905,000 0.05

Out of which exercisable — 0.05 — 0.05

The weighted average share price of options exercised during the year was £0.82 (2015: £Nil).

Total share options outstanding at 31 December 2016 had a weighted average exercise price of £0.05 (2015: £0.05) and a weighted average contractual life of four years (2015: two and three quarter years).


14. Equity share capital continuedShare based payments continuedThe charge to the income statement account during the year, based on the fair value of options using Black-Scholes, was as follows:

2016£000

2015£000

Fair value of options recognised 346 374Credit in respect of options lapsed during vesting period (353) (10)

Charge to income statement (7) 364

The credit includes a total of £25,000 (2015: £221,000) relating to the two Executive Directors who served during the year.

Measurement of share based paymentsThe fair value of services received in return for share options granted is based on the fair value of share options granted, measured internally using a Black-Scholes model. The key inputs to the model were:

OptionsgrantedOctober

2013

Optionsgranted

September2014

Optionsgranted

March2015

Optionsgranted

May2016

Fair value at measurement date £0.34 £0.78 £0.95 £0.98Share price £0.51 £1.05 £1.16 £1.19

Exercise price £0.05 £0.05 £0.05 £0.05Expected volatility 54.1% 47.6% 38.3% 34.4%Risk-free interest rate 0.8% 1.3% 0.6% 0.6%

Managing capitalThe Company’s objectives when managing capital are:

— to safeguard the entity’s ability to continue as a going concern so that it can continue to provide returns to shareholders and benefits to other stakeholders; and

— to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

15. Share premium account

2016£000

2015restated

£000

Balance at 1 January 9,673 4,378

Nil shares issued at premium (2015: 5,454,546 shares at 110p each) — 5,727

1,010,000 shares issued at 5p each (2015: Nil shares at 5p each) — —

Payment of transaction costs — (432)

Balance at 31 December 9,673 9,673

16. Merger reserve account

2016£000

2015restated

£000

Balance at 1 January 924 924

641,026 shares issued at 104p each (99p premium) 635 —

Balance at 31 December 1,559 924

17. Capital redemption reserve2016£000

Balance at 31 December 2015 and 31 December 2016 88

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18. ProvisionsRestructuring

£000Warranty

£000Total£000

Balance at 1 January 2015 101 163 264


Provisions released (101) (163) (264)



Provisions released — (169) (169)


Warranties are provided over the manufacturing quality of products in the normal course of business. Provisions for expected future costs are made based upon the historical level of the claim rate relative to the level of sales. The costs of such claims are generally incurred within 18 months of the original sale. The actual level of costs incurred in remedying a warranty claim could vary significantly from claim to claim, so the Directors have applied current experience in assessing the appropriate level of provision.

19. Retirement benefit obligationsThe Group pension arrangements for current employees are operated through a defined contribution scheme. Two Group defined benefit schemes exist but are closed to new entrants.

Defined contribution scheme2016£000

2015£000

Amount recognised as an expense 128 115

Defined benefit schemesThe Company is legally responsible for the multi-employer defined benefit scheme plan and it has therefore recognised the plan in its individual financial statements. Information on the scheme is provided in Note 19 to the Group accounts.

20. Operating lease commitmentsThere are no operating leases in respect of land and buildings.

2016£000

2015£000

Future minimum lease payments under non-cancellable operating leases:

Within one year 51 41

From one to five years 43 16

94 57

Lease payments recognised in profit for the period amounted to £75,000 (2015: £75,000).

21. Finance lease liabilities2016£000

2015£000

Gross finance lease liabilities – minimum lease payments



508 543

Future finance charges on finance leases (13) (17)

Present value of finance lease liabilities 495 526

The present value of finance lease liabilities is analysed as follows:



495 526

Lease liabilities are secured over property, plant and equipment.


22. Post balance sheet eventsRefer to Note 23 of the Group accounts for disclosure of events since the balance sheet date.

23. Prior year adjustmentsThe Share premium account has been restated to reflect the reallocation of £924,000 to the Merger reserve in relation to shares issued as part of the consideration for the purchase of Stadium United Wireless Ltd in July 2014. The amount is equal to the difference between the fair value on issue and the nominal value. This is in accordance with S610 of the Companies Act 2006.

A third balance sheet to restate 2014 has not been included as the adjustment has no net effect on shareholders’ funds.

Share premium

£000

Merger reserve

£000

As previously reported 31 December 2014 5,302 —

Adjustment (924) 924

Restated at 31 December 2014 4,378 924

Share premium

£000

Merger reserve

£000

As previously reported 31 December 2015 10,597 —

Adjustment (924) 924

Restated at 31 December 2015 9,673 924

Following the acquisition of Stadium Zirkon Limited on 31 October 2018, its business and goodwill were transferred subsequently to Stadium Group plc on 31 December 2010. The business was transferred up but no consideration was paid for the goodwill, the consideration being only equal to the value of the net separable assets, hence part of the investment’s carrying value should have been re-allocated to goodwill. The amount that should have been transferred from cost of investment to goodwill should have been limited to the amount of goodwill that would have arisen had the hive-up taken place immediately post-acquisition, less the amortisation that would have been charged on that goodwill amount. Accordingly, a reduction in the investment balance should also have been recorded as a result of goodwill amortisation and/or post-acquisition losses. This should have been recognised as an adjustment to equity arising from the use of merger accounting principles because it would have been recognised in previous periods if the hive-up had occurred immediately post-acquisition. Comparative figures have been restated to reflect the change in accounting. As a result, the net assets for the years ended 31 December 2014 and 31 December 2015 have been adjusted as follows:

£000

As previously reported 31 December 2014 7,705

Prior year adjustment – amortisation of goodwill to 31 December 2014 (328)

Equity shareholders’ funds at 31 December 2014 in accordance with FRS 102 7,377

£000

As previously reported 31 December 2015 15,423

Prior year adjustment – amortisation of goodwill to 31 December 2014 (328)

Prior year adjustment – amortisation of goodwill charge for the year ended 31 December 2015 (53)

Equity shareholders’ funds at 31 December 2015 in accordance with FRS 102 15,042

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Five year financial summary

This summary does not form part of the Notes to the financial statements.

2012£000

2013£000

2014£000

2015£000

2016£000

Revenue*1 40,989 42,215 41,747 53,872 53,069

Operating profit*2 1,708 2,363 3,178 4,578 4,561

Amortisation of acquired intangibles (89) (254) (639) (1,026) (861)

Non-recurring items 416 (1,174) (286) (1,150) (1,036)

Net interest (265) (505) (470) (698) (463)

Profit before taxation 1,770 430 1,783 1,704 2,201

Earnings per share*2 3.1p 5.3p 7.8p 9.9p 9.0p

Ordinary dividend per share 2.8p 1.2p 2.1p 2.7p 2.9p

Interest cover*1 6.1x 4.2x 5.4x 4.6x 5.5x

Dividend cover*1 1.0x 3.7x 2.6x 2.5x 2.7x

Property, plant and equipment, intangible assets and goodwill 9,380 8,931 16,880 21,965 21,952

Working capital 6,469 5,730 4,310 5,772 6,298

Bank balances/loans (net) 115 113 (4,094) (4,074) (2,749)

Other (liabilities) (1,332) (1,263) (1,535) (1,341) (1,017)

Net assets (before net pension liability) 14,632 13,511 15,561 22,322 24,488

Net assets per share (before net pension liability) 50p 46p 50p 61p 64p

Bank gearing (before net pension liability) (1)% (1)% 32% 21% 13%

Net pension liability (5,469) (4,511) (5,324) (4,164) (5,617)

*1 From continuing activities, before non-recurring items.

*2 From continuing activities, before amortisation of acquired intangibles and before non-recurring items.

All amounts are stated on an IFRS basis.


Corporate directory

Stadium Group plcRegistered officeUnit 4 Chancerygate Business CentreCradock RoadReadingBerkshireRG2 0AH

Registered number: 00236394

Independent auditorBDO LLP1 Bridgewater PlaceWater LaneLeedsLS11 5RU

AdvisorNplus1 Singer1 Bartholomew LaneLondonEC2N 2AX

BankersHSBC Bank plcNorth East Corporate Banking CentreMaingateKingsway NorthTeam Valley Trading EstateGatesheadNE11 0BE

RegistrarCapita Asset Services34 Beckenham RoadKentBR3 4TU

Financial media Walbrook PR Limited4 Lombard StreetLondonEC3V 9HD

Technology mediaPublitek Limited18 Brock StreetBathBA1 2LW

Registered addressesStadium Group plc Unit 4 Chancerygate Business Centre, Cradock Road, Reading, Berkshire, RG2 0AH, United Kingdom

Stontronics Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium Power Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium United Wireless Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium Electrical Holdings Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium Electronics Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium Wireless Devices Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium Zirkon UK Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Ferrus Power Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Fox Industries Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Hale End Holdings Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Kingslo Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

KRP Power Source (UK) Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Valuegolden Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Zirkon Holdings Limited Stephen House, Brenda Road, Hartlepool, United Kingdom, TS25 2BQ

Stadium IGT Limited Unit 4 Woodside Road Ind Est, Woodside Road, Eastleigh, Hampshire, SO50 4ET

Stadium Asia Limited Room A, 3/F Bamboos Centre, 52 Hung To Road, Kwun Tong, Kowloon, Hong Kong

STMC Limited Room A, 3/F Bamboos Centre, 52 Hung To Road, Kwun Tong, Kowloon, Hong Kong

Dongguan Arlec Electrical 4th Building, F Zone, Zheng Wei Science Park, Dongkeng Town, Dongguan, Products Company Limited* Guangdong Province, P.R. China

Ying Si Ke Electrical 4th Building, F Zone, Zheng Wei Science Park, Dongkeng Town, Dongguan, Products Company Ltd* Guangdong Province, P.R. China

Shanghai Hongbian Room 404-A69, East Of Building 1, 29 Jia Tai Road, China (Shanghai) Pilot Free Trade Zone Electronics Co. Ltd*

SGW Sweden AB SGW Sweden AB, Gullfossgatan 3, 16440 Kista, Sweden


Stadium Group plc’s commitment to environmental issues is reflected in this annual report which has been printed on Symbol Freelife Satin, an FSC® Mix Certified paper, which ensures that all virgin pulp is derived from well-managed forests and other responsible sources.

Design Portfolio is committed to planting trees for every corporate communications project, in association with Trees for Cities.

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Stadium Group plc

Head office:Chancerygate Business CentreCradock RoadReadingBerkshire RG2 0AH UK

Tel: +44(0) 118 931 1199

www.stadiumgroupplc.com www.stadiuminvestors.com

stadium group plc annual report and accounts 2016

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