Final Results

LONDON--()--

Company Registration No. 03802853 (England and Wales)

Mechan Controls Plc

Financial Statements

For the Year Ended

31 December 2016

MECHAN CONTROLS PLC

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2016

2016 and this year to date, has been a period where major decisions have had to be made about the future of the group.

  • In October 2016 the company returned capital to the shareholders, when the company bought back 198,900 shares;
  • in January 2017, PJO Industrial Limited ("PJO") was placed into administration; and
  • in May 2017, contracts were exchanged, subject to shareholder approval, to sell the trade and assets (other than its investment in its subsidiary Nirvana Engineering (Stafford) Limited ("Nirvana")) of Mechan Controls plc ("Mechan").

The administration of PJO was devastating to us, as the year had started well for all three companies and in our interim statement to the end of June 2016, I referred to an improved trend in the first half of the year especially for PJO, which was expected to continue in the second half. This optimism was based on the fact that PJO had been awarded a three year contract by a major UK utilities company and an order from Portland Stone for one of our V5 underground boring machines. But it was not to be.

As events turned out we got the V5 project but it overran on costs and made a marginal loss on the project. The three year contract from the utilities however was a different matter. Due to a monumental piece of administrative incompetence it turned out that the contract had not been awarded in its original form but altered and replaced by a much smaller contract (less than a tenth of the original value). The new deal on offer was totally inadequate and unacceptable, so we declined and retired in disgust.

Unfortunately the ongoing PJO losses continued to mount at an alarming pace. So with deep sadness and regret, we had no choice but to put PJO into administration on 25 January 2017. The subsequent losses and balance sheet write-off has of course impacted on group results, the details of which are set out in the Financial Statements. Earnings per share have decreased by 26.74 pence due to these impairment adjustments.

The Mechan Group continued throughout 2016 to persevere with our M&A agents, who were appointed in 2014. They failed to find a buyer for either the whole or part of the group. So after 2 years trying, we cancelled the contract. However, as a result of our own internal efforts I am pleased to announce that we have agreed, subject to shareholder approval, a deal to sell the assets of Mechan, to our Technical Director, Mabruk Farrah and contracts were exchanged on the 3rd May 2017 for a headline maximum sum of £2 million.

Whilst the group PLC is, despite the PJO write off, still cash rich and free of debt, it is considered prudent to maintain the final dividend at the same rate as last year at 2.27 pence per share.

On behalf of the board

Mr W Boardman

Chairman

Date: 24 May 2017

MECHAN CONTROLS PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 31 DECEMBER 2016

The directors present their strategic report for the year ended 31 December 2016.

Principal activities of the group

The group consists of the company Mechan Controls Plc ("Mechan") and it's wholly owned subsidiaries:

- Nirvana Engineering (Stafford) Limited ("Nirvana")

- PJO Industrial Limited ("PJO")

- PJO Group Limited ("PJO Group")

Mechan's principal activity during the year continued to be the research in, and manufacture and product enhancement of, electronic safety switches, control units and monitoring devices to provide the safeguarding of personnel and machinery.

Nirvana's principal activity continued to be the provision of manufactured structures for the safe and secure storage of backup power systems within a niche market sector.

PJO Group was a dormant company during the year, holding 100% of the shares of PJO Industrial Limited.

PJO's principal activity continued to be the provision of contracting, sale, hire and repair of specialist equipment for pipe services ancillary to pipe laying, together with the sale and servicing of equipment to the mining industry. Shortly after the year end the company ceased to trade and entered into administration in January 2017.

Fair review of the business

The group's results for the year show that an operating loss was made of £95,282 largely as a result of the impact of PJO going into administration. The resulting impairment of assets and goodwill totalled £689,171, turning the operating profit before exceptional items of £593,889 into a loss of £95,282.

To understand the underlying profitability of the group it is essential to analyse the profit before exceptional items.

         
2016 2015
Mechan Nirvana PJO Total Total
 
Revenue 1,659,696 1,703,043 633,060 3,995,799 3,789,421
 
Before exceptional items:
Gross Profit 889,982 899,286 210,134 1,999,402 1,912,953
Gross Profit 53.62% 52.80% 33.19% 50.04% 50.48%
Operating Profit/(Loss) 375,887 378,923 (160,921) 593,889 518,165
 
Exceptional items relating (689,171) (102,483)
to PJO
 
Operating loss/profit after (95,282) 415,682
Exceptional items
 

Fair review of the business continued

The group results show that:

  • Total revenue has increased by 5.45% on the prior year to £3,995,799
  • The gross profit margin has fallen slightly from 50.48% to 50.04% in 2016
  • The operating profit before exceptional items has increased by £75,724 - 14.61%

Mechan's market continues to grow worldwide partly due to constantly updated and refined international safety standards and legislation which continues to drive demand. This is likely to continue to be the case particularly in developing markets. Revenue increased by 15.52% to £1,659,696 (2015: £1,436,631). Gross profit has fallen from 56.25% in 2015 to 53.62%.

Nirvana's results for the year show that revenue has increased by 5.18% on the prior year to £1,703,043 (2015: £1,619,132). The gross profit margin has increased from 50.03% in 2015 to 52.80% in 2016. Operating profit margin for the company has increased from 19.49% to 22.25% this year.

PJO's results for the year show that revenue decreased by 13.71% on the prior year to £633,060 and the margin before exceptional items fell from 40.23% to 33.19%. The operating loss before exceptional items amounted to £160,921 compared to an operating loss before exceptional items of £70,803 in 2015. The assets have been stated at recoverable amounts resulting in impairments to tangible assets of £25,188, intangible assets of £22,393, inventory of £151,872 and goodwill of £489,718. The impairments shown of £689,171 are responsible for the operating loss of £95,282.

This in turn has reduced the earnings per share from 14.87p in 2015 to (11.87)p in 2016.

Despite the losses from PJO, at the year end the group had net current assets of £1,579,767, total net assets of £2,393,075, and and continues to meet its liabilities as they fall due.

The directors are obviously saddened by the administration of PJO, but without these losses on a continuing basis, the position of the group will be improved.

The directors are satisfied with the results of Mechan and Nirvana for the year and expect the general level of activity and profitability to be sustained in the forthcoming year.

Future developments

The long term plan of the group is to achieve a sale of the whole or part of the group. No progress was made during 2016 and so to return some value to shareholders on 31st October 2016, the company purchased 9.95% of its ordinary issued share capital at a cost of £492,267. This utilised the majority of the net cash inflow for the year, but the group was still left with a healthy cash balance of £829,126 at 31 December 2016 (2015: £813,439).

In 2017 an agreement (subject to shareholder approval) has been reached to sell the trade and assets of Mechan (excluding its investment in Nirvana) to Mabruk Farrah, the company's technical director. Contracts were exchanged on 3rd May 2017. This will leave Mechan as a dormant holding company with Nirvana as it's only trading subsidiary. The group will continue to seek potential purchasers for Nirvana.

Principal risks and uncertainties

Set out below are the principal risk factors relating to the group's business, along with the procedures to mitigate these risks and uncertainties.

The group's non-financial risks are maintaining our technological edge, ensuring we comply with health and safety regulations and most importantly retaining our key personnel.

Innovation

The group operates in a highly technological market. The risks faced include an influx of cheap competing imports, emergence of new competitors, changes in legislation or products becoming technologically obsolete. The group mitigates these risks by ensuring its commitment to research and development, ongoing product review and development with high quality procedures to ensure that products are relevant to market requirements, reliable and of high quality.

Health & Safety

The group recognises its obligations relating to health and safety and the risk to its reputation of any incident affecting the health and safety of its customers or employees. The directors are mindful of their responsibilities to maintain a safe environment. Regular reviews are conducted to ensure that a safe environment is maintained in the group's operations.

Reliance and retention of key personnel

Having the right people has always been the most important contributor to our success. Keeping them is a constant risk. Our small but technically advanced company has flourished under Mabruk Farrah, our technical director. Recognising his success the decision has been taken, subject to shareholder approval, to sell him the trade and assets of Mechan, so that Mechan can continue to grow under his ownership. Our director at Nirvana has been with the company many years and ensures that it remains a leader within a niche market sector.

The financial risks faced by the group are:

Currency and price risk

There is always pressure on prices in what is a competitive and international market. Movement in exchange rates can make a difference to prices. However, prices are raised appropriately in line with customer expectation, competition and the cost of living index. The Board continually seeks to capitalise upon available opportunities, recognising the importance of avoiding reliance on any one customer, geographical area or market sector.

Financial Instruments and Liquidity risk

The group makes use of financial instruments to provide a financing basis for the company. These comprise of trade debtors and creditors, and during the year a small amount of invoice discount financing which has now been repaid in full. The group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.

On behalf of the board

Mr W Boardman

Managing Director

Date: 24 May 2017

The directors present their annual report and financial statements for the year ended 31 December 2016.

Directors

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

Mr W Boardman  
Mr M F Farrah
Mr P K Knowles
Mr J Faulkner
Mr R W Shaw (resigned 16 January 2017)
Mr J O'Grady (resigned 21 April 2017)

Results and dividends

The results for the year are set out on page 10.

Whilst the group PLC is, despite the PJO write off, still cash rich and free of debt, it is considered prudent to maintain the final dividend at the same rate as last year at 2.27 pence per share.

Supplier payment policy

It is the group's policy that payments to suppliers are made in accordance with terms and conditions agreed between the group and its suppliers, provided that all terms and conditions have been complied with. The group has 38 days purchases outstanding as at 31 December 2016, based on the trade payables outstanding at that date and purchases made during the year.

Environment

The group recognises the importance of its environmental responsibilities, monitors its impact on the environment, and designs and implements policies to reduce any damage that might be caused by the group's activities. Initiatives designed to minimise the group's impact on the environment includes the safe disposal of waste and reducing energy consumption.

Research and development

The Mechan range of switches has more than trebled in the last 15 years. This has been achieved as a result of our extensive and intensive research and development efforts. We have now entered a period of product consolidation with a greater focus on enhancing and pushing our existing products through our distribution pipeline.

In the past Nirvana has developed two new products for which patents have been granted. These products are now being presented in the market place and we are hoping for a successful return. All new lines of potential development are investigated by the company in order to support its customer base. These patented products will enhance our efforts to penetrate further into export markets.

Purchase of own shares

In order to return value to the shareholders, on 31st October 2016, the company purchased 198,900 ordinary shares of 2.5p each in the company for total consideration of £484,819, equating to £2.4375 per share. Commission and professional fees were £7,500, giving a total purchase cost of £492,267. The shares purchased are held in treasury. The shares represent 9.95% of the called up share capital.

Post reporting date events

As detailed in the Strategic Report after having carefully considered the position of PJO Industrial Limited, on the 25th January 2017 an administrator was appointed by the directors to the company. PJO Industrial Limited ceased trading with immediate effect. In these accounts, the assets have been restated to their recoverable amounts on the grounds that the company is no longer trading and current assets have also been stated at recoverable amounts as advised by the administrator.

On 3rd May 2017, the company agreed, subject to shareholder approval to dispose of the business and assets of Mechan (other than its investment in its subsidiary Nirvana Engineering (Stafford) Limited), to a new company ultimately controlled by Mabruk Farrah, the current technical director of the company.

Political donations

The Group made no political donations in 2016 or 2015.

Indemnity of Officers and Directors

Under the Company's Articles of Association and subject to the provisions of the Companies Act, the Group may and has indemnified all directors and other officers against liability incurred in the execution or discharge of their duties or the exercise of their powers, including but not limited to any liability for the costs of any legal proceedings. The Group has purchased and maintains appropriate insurance cover against legal action brought against directors or officers.

Future developments

With the administration of PJO and the sale (subject to shareholder approval) of Mechan’s trade and assets the group will be reduced, so that Mechan will become a dormant holding company with Nirvana as its only subsidiary. The group continues to seek potential purchasers for Nirvana.

Until then, Nirvana will continue to develop its relationship with its key customers and is supporting them with two products which were granted patents in 2013. The business model is to retain the market leadership in the UK and by introducing new products to be able to progressively move into Europe and the USA.

Since the major battery manufacturers are the same on each continent and are known to us and us to them, the key to progress is new product development.

Auditor

The auditor, RSM UK Audit LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

Statement of directors' responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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. 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 applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business.

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

The directors are responsible for the maintenance and integrity of the company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information in the strategic report

The group has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the group's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report.

Statement of disclosure to auditor

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company and group is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company and group is aware of that information.

On behalf of the board

Mr W Boardman

Managing Director

Date: 24 May 2017

MECHAN CONTROLS PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2016

  2016   2015
£ £
 
Revenue 3,995,799 3,789,421
Cost of sales (1,996,397) (1,876,468)
Exceptional write down of inventory (151,872) (42,630)
 
 
 
Gross profit 1,847,530 1,870,323
 
Distribution costs (148,466) (149,480)
 
Administrative expenses:
Before exceptional items (1,258,161) (1,245,665)
Exceptional bad debt - (59,853)
Exceptional impairment of assets (47,581) -
Exceptional impairment of goodwill (489,718) -
 
 
 
Total administrative expenses (1,795,460) (1,305,518)
 
Other operating income 1,114 357
 
 
 
Operating profit before exceptional items 593,889 518,165
Exceptional items (689,171) (102,483)
 
 
 
Operating (loss)/profit (95,282) 415,682
 
Investment income 4,098 3,094
Finance costs (4,727) (7,789)
 
 
 
(Loss)/profit before taxation (95,911) 410,987
 
Taxation (117,914) (113,593)
 
 
 
(Loss)/profit for the financial year attributable to owners of the parent company (213,825) 297,394
 
Other comprehensive income
Deferred tax on revalued land and buildings 1,022 311
 
 
 
Total comprehensive income for the year attributable to owners of the parent company (212,803) 297,705
 
 
 
Earnings per share (pence)
 
Basic and diluted (11.87)p 14.87p
 

 

The income statement has been prepared on the basis that all operations are continuing operations.

MECHAN CONTROLS PLC

GROUP STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2016

    2016     2015
£ £ £ £
 
Fixed assets
Intangible assets 598,630 1,233,166
Property, plant and equipment 239,815 278,975
 
 
 
838,445 1,512,141
Current assets
Inventories 416,232 521,760
Trade and other receivables 832,694 818,705
Cash at bank and in hand 829,126 813,439
 
 
 
2,078,052 2,153,904
Current liabilities (483,029) (452,063)
 
 
 
Net current assets 1,595,023 1,701,841
 
 
 
Total assets less current liabilities 2,433,468 3,213,982
 
Non-current liabilities (89) (119)
 
Provisions for liabilities (25,048) (31,602)
 
 
 
Net assets 2,408,331 3,182,261
 
 
 
Equity
Called up share capital 50,000 50,000
Share premium account 653,000 653,000
Revaluation reserve 98,492 99,232
Treasury shares (492,267) -
Retained earnings 2,099,106 2,380,029
 
 
 
Total equity 2,408,331 3,182,261
 

The financial information for the period ended 31 December 2016 was approved by the Board of directors on

24 May 2017. The financial information in this announcement does not constitute full accounts within the meaning of section 434 (3) of the Companies Act 2006 but is derived from the accounts for the period ended 31 December 2016. The financial information is prepared on the same basis as set out in the statutory accounts for the period ended 31 December 2015. Those accounts upon which the auditors issued an unqualified opinion, also had no statement under section 498(2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2016 will be delivered to the Registrar of Companies following the Company’s Annual General Meeting.

These financial statements were approved by the board of directors and authorised for issue on 24 May 2017 and are signed on their behalf by:

Mr W Boardman

Managing Director

Company Registration No. 03802853

Short Name: MECP
Category Code: FR
Sequence Number: 584088
Time of Receipt (offset from UTC): 20170526T124556+0100

Contacts

Mechan Controls Plc

Contacts

Mechan Controls Plc