Professional Documents
Culture Documents
closer to
customers
Exova Group plc
Annual Report & Accounts 2016
Exova at a glance
Getting closer to customers
Our vision
To be recognised globally as the supplier of choice in our chosen fields
of testing, calibration and advisory services.
Our mission
We aspire to be the best. We believe that being at the forefront of our
industry requires expertise, exceptional people and excellent processes,
which we seek to improve continuously.
33 4,200 135
Countries Employees Laboratories/
Offices
A connected world of expertise
15
73
17 1
4
10
2 2
4
1
1
Laboratories
and offices
Americas
Europe
Rest of World
35 73 27
Total Total Total
Rest of World
Infrastructure, 16%
Health and
Environment Industries
25% 38%
Europe
52%
Americas
32%
Products
37%
Testing, calibrating, advising
Exova is one of the world’s leading laboratory-based
testing groups, trusted by organisations to test and
advise on the safety, quality and performance of
their products and operations. Our capabilities help
to extend asset life, bring predictability to applications
and shorten the time to market for customers’
products, processes and materials
Proprietary
operating
platform
to drive
Market growth and
Highly
leading profitability
attractive
testing Strategic across the
financial
business, focus on Group – the Clear profile and
strategically technically Exova model opportunity strong historic
positioned in demanding, for continued track record
attractive mission- organic and
growth critical and M&A-driven
markets high margin growth in a
services fragmented
industry
Strategic report Report of Directors Financial statements
Shareholder information
Shareholder information 146
Directors and advisers 147
Definitions 148
2016 Highlights
I am delighted to report another Research and development related In Transportation, as expected, overall
year of strong progress for Exova. revenues were driven primarily by volumes were down as a result of
My first year as Chairman has seen testing for aircraft engine materials reduced engine-testing activity as
the business continue to deliver through and in the second half by testing for projects have completed.
an increasingly customer-centric materials produced by additive layer
approach in the sectors that we serve. manufacturing. The Infrastructure, Health and
This is underpinned by deep technical Environment Division delivered strong
expertise, a committed team and an We experienced another challenging organic growth overall, driven by very
unwavering focus on health, safety year in oil and gas, with lower levels good performance in the Middle East,
and quality across the whole business. of activity across all geographies. where testing contracts associated with
In response, we continued to take large transport infrastructure projects
In 2016, our core values of innovation, the necessary cost actions to mitigate continued to support revenues. The
teamwork, performance and integrity volume and price pressures and maintain UK Environment business experienced
underpinned our success. We continued our margins. We also developed our strong sales in core segments such as
with strong organic revenue growth offer to diversify away from oil and stack emissions testing, asbestos testing
at constant currency in most sectors, gas to customers in the infrastructure, and occupational hygiene assessments.
offset by weakness in Oil & Gas and agriculture and industrials segments. In Health Sciences, we delivered good
Industrials. This was supplemented In this regard we enjoyed some success growth as a result of several complex
by further development through our in Canada as well as securing several development projects; increased
continued programme of acquisitions. long term agreements with key accounts manufacturing support and
Once again, our diverse business model in Europe. We did experience an overall biotherapeutics testing.
– from both a geographical and sector decline in sales in Oil & Gas and
perspective – allowed us to successfully Industrials in 2016, but the prompt actions Adding value to our laboratory network
navigate the ongoing challenges in the we have taken mean that we are well We continued to focus on pursuing
Oil & Gas and Industrials sector. I take positioned for what we expect to be market leadership in our chosen sectors
great pride in knowing that the results for another difficult year in the global and successfully extended the reach
the year ended 31 December 2016 were energy market. of our business in a number of sectors.
achieved through all Exova colleagues We made three acquisitions in the year,
living our values day in day out. In the Products Division, we saw very starting with the acquisition of a 70%
good growth in the Fire, Building interest in Admaterials Technologies
Organic growth ¹ Products and Certification business, Private Limited (Admaterials) in February,
The Group delivered strong organic driven by the introduction of new a Singapore-based business specialising
growth in the majority of its sectors. standards in many parts of the world, in testing in the construction sector, as
Within the Industries Division, Aerospace together with an increase in demand well as chemical, environmental and
delivered strong organic growth, with for inspection and certification services. mechanical testing and certification
production release testing particularly We achieved steady growth in our services. Admaterials gives a platform
good for a second successive year. Calibration business, with technology for further growth in the South East
driving our broadening scope of service. Asian region.
1. Organic growth represents growth at constant currency for each year excluding the growth attributable to acquisitions until the acquisition has been
owned for a 12 month period and excluding disposals in the year of disposals and the preceding year.
Our inputs
People Technology Accreditations and approvals
Teams of highly-skilled people with extensive Appropriate investment in equipment, Dynamic understanding of standards
experience and unique knowledge often highly specialised, to conduct and regulations that determine customers’
in their particular technical fields, testing; deliver accurate measurement; testing and certification needs, and how
who are often in limited supply. and facilitate in depth analysis. these evolve over time.
Regulation,
End user
Innovation safety Outsourcing Pricing
volumes
and quality
Our impact
Our outputs
Customers Shareholders People
Delivering testing, certification and advisory Improving total returns to shareholders through Growing our people through the development
solutions to an international customer base, careful investments in our laboratory network of technical and business skills within
sometimes global, often highly localised, and acquisitions; seeking to deliver sustainable a high performing, engaging and
who value our longstanding expertise, long-term growth in revenues and earnings. rewarding culture.
technical bench strength and ability
to solve complex problems.
Strategy
Strategic priorities
the provision • Delivering services across a broad but clearly defined Page 8
range of sectors
of technically • Maintaining high standards of safety and quality in all
of our operations
demanding • Nurturing our team and investing in the development
services of their technical abilities
service range • Executing acquisitions that meet our defined target Pages 16
criteria and where Exova’s business model can
and the global be applied 30
reach of
our business
Strategic priorities
Focusing on the
provision of technically
demanding services
3.5 billion
Globally, 3.5 billion pre-filled
syringes are produced each
year and Exova is strategically
placed to service this market
Exova’s investment in
time-of-flight accurate mass
spectroscopy has played
a crucial role in allowing
highly sensitive and accurate
identification of unknown
contaminants through
rigorous testing
Operational risks
Risk Description Strategic priorities Possible impact Mitigation
Health The Group’s work Focusing on Failure to operate Health and safety is always the
and safety environment the provision safely could adversely first item on Board and Executive
presents various of technically impact the Group’s Committee agendas. Overall strategy
potential risks demanding employees or visitors, and compliance is monitored by the
within our services. lead to legal action Group HSE director who reports to
laboratories and from regulators, the Group technical director. Clear
when operating Managing our reputational damage guidance is given on appropriate
on customers’ laboratories or loss of customer procedures and maintenance of
premises. efficiently. confidence. equipment, supported by regular
training, supervision and compliance
audits. Bulletins are issued in response
to any significant incidents which
might have group-wide implications.
Global The strength of our Generating A prolonged Our business is well diversified both
economic end markets is an organic revenue economic downturn geographically and by end user
important driver growth. would limit our ability markets and our focus on technically
and market for growth. to grow the business demanding services gives us
conditions Extending our in line with our some resilience.
service range and strategic plan.
the global reach We engage regularly with our
of our business. customers to understand their
plans and requirements which are
recorded in our group-wide customer
relationship management (CRM)
system. This provides consolidated
visibility of future revenues and allows
us to plan capacity efficiently.
Operational risks
Risk Description Strategic priorities Possible impact Mitigation
UK The UK business Building Loss of revenue due to Many of the standards and
withdrawal trades within the long-term client changes in standards schemes under which we operate
EU and assesses relationships. or legislation are international or client specific
from the EU whether products impacting our ability and we anticipate little or no impact
meet European Generating to provide certain in these areas.
standards. organic revenue services that can only
growth. be provided by an We will monitor the impact on
In addition the EU member. testing regimes and certification
UK sits on various programmes and will engage with
committees that Additional import the relevant representative bodies
determine future and export costs. and working groups as required.
standards and
methods of Financial performance Since a large portion of the Group’s
testing. will be impacted by profit is derived from activities outside
fluctuations in sterling. of the UK and Europe, the weakening
The Group of sterling has had a beneficial
operates in 33 impact on results, the Group does
countries and is not, at this point in time, envisage
therefore exposed a material adverse impact in the
to currency risk. future. We will continue to monitor
developments.
Business The business Managing our Lack of operational Business continuity plans are in place
infrastructure depends on laboratories capacity could affect across the Group and our substantial
its laboratory efficiently. our ability to service laboratory network often allows work
network to service existing customers to be transferred to alternative sites.
customers’ needs. and win new business.
IT systems The business Managing Lack of timely A global Information Security policy
depends on our laboratories information could is in place.
the effective efficiently. affect our ability to
operation of service customer Regular system maintenance and
global IT systems Building requirements and back-ups are taken.
for its key business long-term client make good business
processes. relationships. decisions. Disaster recovery plans in place
across the network which are tested
Major IT systems Reputational damage and improved regularly.
integrity issue from loss of systems
or data security or data. We continually review and improve
breach due to our cyber defences.
either internal or Potential legal
external factors. implications
associated with
potential loss of
sensitive data.
Acquisitions The process Extending our Failure to deliver We have a well-developed screening
of identifying, service range and expected results due process to ensure that potential
acquiring and the global reach to poor acquisition acquisitions meet the criteria in our
integrating new of our business. selection. strategic plans for market penetration
businesses is and geographical expansion and
fundamental Managing our Unforeseen liabilities our target returns on investment.
to our overall laboratories arising from failure to
growth plan. efficiently. understand business Thorough due diligence is carried
risks fully during due out by our in-house experts
diligence. supplemented by the use of specialist
advisers. Customary legal protection
Reduced financial is included in the purchase contract.
performance arising
from poor integration Detailed integration plans are
of acquired approved prior to completion and
businesses. are closely monitored in line with
an agreed timetable.
Litigation The Group’s Building long-term Reputational damage We have a process for monitoring
operations are client relationships. leading to customer compliance with laws and regulations
subject to wide- loss and brand and internal Group procedures and
ranging laws Managing our damage. reporting any significant deviations to
and regulations laboratories the Board. We also monitor changes
including business efficiently. Diversion of in regulations and communicate these
conduct, management as appropriate.
employment, time away from
environmental and the operation of We have a clear delegation of
health and safety the business. authority for business decisions and
legislation. There is detailed training is provided on key
also exposure to Penalties for breaching areas of risk e.g. contract negotiation.
contractual risk. contracts, laws or
regulations. We carry insurance cover against
certain losses.
Business The activities of Building long-term Reputational damage Our business activities are conducted
integrity the business are client relationships. leading to customer in multiple jurisdictions and are
governed by loss and brand exposed to a wide range of business
and ethics various ethical Generating damage. practices. We have a strong Group
requirements organic revenue culture of integrity and ethical
including anti- growth. Diversion of behaviour to ensure a consistent
corruption and management time approach regardless of local custom.
bribery laws, Extending our away from the
competition service range and operation of the We have group-wide policies covering
laws, and trade the global reach business. ethical conduct and regular training
sanctions and of our business. is provided, backed up by external
export laws. Penalties for legal and professional support where
breaching laws required.
or regulations.
We encourage reporting of any
concerns about wrongdoing or
impropriety and have a whistleblowing
service managed by a third party.
Financial risks
Risk Description Strategic priorities Possible impact Mitigation
Financial The Group could Managing our Significant financial The Group has a well established
irregularity suffer financial laboratories irregularity could lead system of operational and financial
loss either through efficiently. to loss of confidence controls including documented
misappropriation by key stakeholders procedures and delegation of
of assets or the and reputational authorities supported by an
misrepresentation damage to the internal audit function.
of financial results. business. This might
impact our financial
position and ability to
raise funds and could
affect the share price.
Viability statement
The Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as
they fall due, for the next three years to December 2019. The Directors’ assessment has been made with reference to the resilience
of the Group and its strong financial position, the Group’s strategy, the Board’s risk appetite and the Group’s principal risks and
how these are managed, as described in this Strategic Report.
The Group has a broad spread of customers across different geographical areas and market sectors and a high level of customer
retention and repeat business. The Group is also supported by strong operational cash flows.
The assessment period of three years has been chosen as it is consistent with the Board’s annual review of the Group’s three
year rolling strategic plan. This review covers the prospects for each business, assumptions regarding entry into new markets and
geographies, future growth rates and performance of the business. A robust financial model of the Group has been built and the
metrics for the Group’s KPIs have been reviewed for the assessment period. These metrics are also subject to sensitivity analysis
which includes flexing a number of these assumptions, namely, future organic revenue growth, operating margins and operational
cash flow. This is supplemented by an overlay of assumptions on the future level of inorganic growth from acquisitions. The results
of flexing these assumptions, both individually and in aggregate, are used to determine whether additional bank facilities will be
required during this period.
This review and analysis also considers the principal risks and uncertainties facing the Group, as described on pages 10 to 13
and the potential impact these risks would have on the Group’s business model, future performance, solvency and liquidity over
the assessment period. The Board considers that the diverse nature of the market sectors and geographies in which the Group
operates acts significantly to mitigate the impact any of these risks might have on the Group.
Organic revenue growth at constant Inorganic revenue growth at constant Adjusted EBITA margin is operating
currency measures revenue growth currency measures revenue growth for profit from continuing operations
for each year excluding the growth each year attributable to acquisitions before separately disclosed items
attributable to acquisitions until the until the acquisition has been owned and management fee to private
acquisition has been owned for a for a 12 month period and including the equity investor expressed as a
12 month period and excluding the revenue attributable to disposals in the percentage of revenue.
revenue attributable to disposals in year of disposal and the preceding year,
the year of disposal and the preceding all at constant currency. Adjusted EBITA margin decreased by
year, all at constant currency. 50bps from 15.8% to 15.3%. This reflects
Inorganic revenue growth at constant the continuing challenges within the
We had continued strong organic currency was 2.6% with acquisitions Oil & Gas and Industrials sector which
revenue growth at constant currency contributing 6.2% partly offset by three negatively affected margins, offsetting
in most sectors offset by weakness disposals which resulted in a reduction the improvements elsewhere, including
in Oil & Gas and Industrials. All other of 3.6%. the positive contribution from acquisitions
sectors had 5.5% organic growth with and the favourable translation impact.
Oil & Gas and Industrials (15.5)%.
The cash conversion rate measures the This ratio is calculated as net debt Lost work day incidents measure
Group’s free cash flow as a percentage of divided by Adjusted EBITDA (Adjusted incidents that cause employees to be
Adjusted EBITDA. Free cash flow is defined EBITA before depreciation). Net debt unavailable for normal duties for more
as Adjusted EBITDA (Adjusted EBITA before represents the carrying value of all than one day. The rate is expressed as
depreciation), less movements in net bank financing and finance leases, the number of incidents per 200,000
working capital, excluding the movement net of cash and short-term deposits. hours worked.
in IPO related cost accruals, less net
capital expenditure. Net debt to Adjusted EBITA ratio is lower Compared with 2015, the number of lost
principally due to higher cash balances work day incidents frequency rate rose
Free cash flow increased by £11.7m as a held at year-end from business disposals. slightly to 0.43% (2015: 0.39%); despite
result of increased EBITDA and improved Based on the definition in the bank this, over a four year period, we have
working capital management. This had covenant, net debt to Adjusted EBITDA reduced LWDIs by 31%, which is very
a positive impact on cash conversion at ratio is 2.1x (2015: 2.4x). encouraging. The nature of the incidents
72% (2015: 59%). has changed from more equipment-
related injuries, such as lacerations, to
soft tissue type injuries arising from slips,
trips, falls and manual handling, which
are much less severe. We are pleased
to report that we had no LWDIs relating
to lacerations in 2016 representing a
reduction from 31% of all LWDIs in 2015.
We believe that our focus on behaviours
in 2017 will have a significantly positive
impact on the remaining categories
of incident.
Generating growth
and building client
relationships in Mexico
Strategic priorities
10 year
relationship with
Frisa into a
20 year
long term partnership
Exova delivered another solid performance in 2016. Strong organic growth in most
sectors, coupled with continued success in our M&A programme, allowed us to
overcome the continuing challenges in the oil & gas sector and continue developing
Exova’s strong market positions in testing, calibration and advisory services
Overview aspects of safety, with proactive in October to receive the prestigious 2017
In 2016 Exova took further steps towards reporting of ‘near misses’ an expectation NACE Distinguished Organization Award,
delivering its strategic vision of being for all laboratories. Overall the number in recognition of the contribution Exova
recognised globally as the supplier of of proactive reports rose once again, has made in the field of corrosion science
choice in our chosen fields of testing, to 10,439. This demonstrates the culture and engineering over a sustained period
calibration and advisory services. of openness that we believe we have of time.
The business delivered modest overall created, with an organisational willingness
growth, with further targeted acquisitions to share and learn from ‘near misses’. In Western Canada, Exova used its
supplementing broadly flat organic Of course, we continue to learn environmental expertise to play a
growth performance. Once again, from all aspects of health and safety key role in supporting the Petroleum
we experienced a year of challenging and I am delighted to see the number Technology Alliance Canada’s (PTAC)
headwinds in the oil & gas sector, but of improvements that we have identified Soil and Groundwater Research
our business was able to weather this and implemented across the business. Committee on the development of
successfully, with strong progress made In terms of external recognition of our new boron soil-contact guidelines which
in several sectors to consolidate or progress we won three Royal Society take plant toxicity into account. The new
grow our leadership positions. I remain for the Prevention of Accidents (RoSPA) risk-based criteria will ultimately reduce
immensely proud of the way all our awards, including two Silver awards harmful impacts from contamination and
people responded to the challenge and for a second year running. reduce destructive, wasteful and costly
the difficult choices that we sometimes remediation of otherwise healthy soil.
had to make. Our technical leadership Supporting our clients to solve their
and our increasingly customer-centric complex problems was once again the We had another solid year with
approach served us well and will bedrock of our service provision, allowing our Technical Career Development
continue to be the foundations of us to demonstrate our technical expertise Programme (TCDP), which is fundamental
our business. right across the business. Alongside this, to us maintaining the high levels of
we once again worked with a range of technical expertise that characterise our
Focusing on the provision of national and international regulatory organisation. There were 100 colleagues
technically demanding services authorities, helping to develop or revise on the programme at the end of 2016
Health and safety continues to be the standards with our technical leaders and, since its inception in 2012, over
number one priority for Exova and in often taking the lead. Our global 300 technical colleagues have been
2016 we continued to work hard towards corrosion expert, Dr. Chris Fowler, led supported in their development through
our goal of an incident-free business. an industry group that completed and a combination of on the job learning
Compared with 2015, the number of lost launched a revised BSI Standard (BS8701 and academic study. We also acquired
work day incidents (LWDIs) rose slightly ‘Full ring ovalisation test for determining new expertise in the fields of forensic
to 18 (2015: 16); despite this, over a four the susceptibility to cracking of line analysis on contaminated land and
year period, we have reduced LWDIs pipe steels in sour service’). Exova was building materials testing through the
by 31%, which is very encouraging. Our also honoured by NACE, the worldwide Jones Environmental Forensics and
focus is very much on the behavioural corrosion authority, after being selected Admaterials acquisitions.
Building long-term client relationships In the Middle East, we secured Exova Net Promoter Score®
In 2016 we moved to a new a global partnership agreement Programme 2013-2016
organisational structure, motivated with Samsung C&T for its operations
by the desire to get even closer to our throughout the Middle East and Africa.
customers. We are now organised purely Again, this built on previous projects
along sector lines, which allows us to that have included environmental +48 +47
better leverage our technical expertise monitoring, fire safety and building
across geographies and also allows materials testing for major construction
us to meet customer needs in a more projects in Abu Dhabi and Riyadh. +40
integrated way, highly relevant for some Deeper collaboration will be delivered
of our more global sectors. During the in advancing supply chain integration +35
year we had a number of contract and performance improvement.
successes that demonstrated the
value of moving to this approach. Our customer satisfaction programme
has continued to mature and we now
In the oil & gas segment we secured have approaching four years of data
a three year framework deal with from the Net Promoter Score (NPS)® +19
Saipem, and a two year framework programme, which measures the
agreement with Subsea 7. In both cases likelihood that customers will recommend
the agreements were global in scope us. We maintained our high-level of
and involved capital investment to performance finishing with a score of
ensure we could meet their evolving +47 for the whole business (2015: +48), 2013 2014 2015 2015 2016
requirements. While the initial focus of having adjusted for the two disposals.
the support will be from Italy and the UK As the chart below indicates, our score No. of Surveys
respectively, Exova’s worldwide network is high for our type of business and the 582 2,106 1,903 Benchmark* 2,704
of laboratories will be able to meet local programme has become richer with a
needs, facilitating the development of significant increase in the number of Net Promoter Score & NPS are registered
revenues in new geographies. In both surveys being completed across the trademarks of Bain & Company, Inc.,
cases, the arrangements also extend Group, together with analysis of the Fred Reichheld and Satmetrix Systems, Inc.
long-standing relationships, testament customer journey and how we can * Source: 2015 Satmetrix on data from
to the value we bring to both clients’ better engage with our clients from the 91 industrial B2B companies.
operations and the important role we ‘need’ stage onwards. We continue
continue to play in materials testing to link the insight from the programme Generating organic revenue growth
and analysis for the oil & gas industry. directly to service provision, particularly and increasing market share
in relation to on time delivery, turnaround We delivered strong organic growth ¹
In the Aerospace sector, we secured times and communication and we have of 5.5% (at constant currency) across
preferred supplier status with Airbus for recently initiated a mystery shopper all sectors, excluding Oil & Gas and
the aircraft manufacturer’s operations programme in order to understand the Industrials. As in 2015, this meant that
throughout Europe, further cementing customer experience even more deeply. we were able to absorb the extremely
a long-standing and successful adverse conditions in the global oil &
partnership. Airbus is able to use We also enjoyed a strong year for gas market, which worsened year on
Exova’s extensive network of Airbus- customer-related approvals. In January, year. We ended the year with organic
approved laboratories in the fields of we secured Boeing approval for our growth broadly flat at (0.2)% at
mechanical and non-mechanical Aerospace laboratory in Monterrey, constant currency.
testing including fatigue and fracture Mexico, making it the fifth facility in
mechanics, metallurgical investigations, North America to have this client-specific In our Industries Division, which consists
and physical tests on a variety of metallic approval. In the autumn, our Teesside of Oil & Gas and Industrials and
and non-metallic materials, with the (UK) laboratory received additional Aerospace, organic growth was (7.7)%,
facilities carrying over 380 approved test Nadcap accreditation for 24 codes all driven by the continued downturn in
methods, one of the largest of any Airbus including chemical analysis. Exova oil & gas. Aerospace performance was
supplier globally. We also signed a new now holds one of the largest scopes strong, reflecting continued strength in
ten-year framework agreement with Frisa, for Nadcap standards for inspection, demand for materials testing across all
which will see Exova conduct a range measurement and testing in Europe geographies, as well as an encouraging
of aerospace testing services, including and has Nadcap accreditation at 17 contribution from testing associated with
mechanical, metallurgical, chemical laboratories globally, more than any ceramic composites and additive layer
analysis and non-destructive testing for other aerospace testing provider. In our manufacturing. In the oil & gas segment,
the Mexico-based global leader in the industrials segment we announced the we saw further price and volume pressure
manufacture of rolled rings. To deliver establishment of an in-house testing around the world; we continued to try
the full scope of Frisa’s requirements, facility at Grainger and Worrall, a UK and offset the impact with greater focus
Exova will invest more than £1m over structural castings supplier and a few on the industrials segment and there
the initial few years of the agreement. months later it had achieved UKAS were some encouraging signs in the
accreditation, meaning we were second half.
accredited to ISO 17025 as a recognised
and independently audited laboratory.
1. Organic growth represents growth at constant currency for each year excluding the growth attributable to acquisitions until the acquisition has been
owned for a 12 month period and excluding disposals in the year of disposals and the preceding year. Constant currency growth figures are provided in
order to remove the impact of currency translation. We calculate growth at constant rates by translating the current and prior period revenue at the same
exchange rates.
Our Products Division delivered 3.5% a complete service to customers from a In 2016 we delivered an adjusted EBITA 2
overall organic growth at constant single laboratory, with all tests conducted margin of 15.3% (2015: 15.8%), which
currency. This was underpinned by in-house. reflects the ongoing challenges in
strong performance in the Fire, Building Oil & Gas and Industrials, good margin
Products and Certification (FBP&C) The challenging market conditions in oil development in other sectors and
business, founded on continuing & gas meant that we continued to take investments in growth and acquisitions.
harmonisation of European standards the necessary cost actions to mitigate
and the introduction of new standards the impact on margin as well as to meet Statutory operating profit of £43.5m grew
in other parts of the world. While the the evolving needs of customers who 47.5% largely due to business growth from
Calibration business saw modest sought a more global approach. In the acquisitions and a gain on disposal of
organic growth, the third sector in the Netherlands we rationalised our oil & gas businesses. The prior year also included
Division, Transportation, had a mixed operations from two facilities into one a higher amortisation of intangibles
year, with solid growth in our Michigan and in Singapore, we moved our oil & charge as the Bodycote customer
(USA) laboratories offset by our engine- gas testing capability and colleagues relationships are now amortised in full.
testing operations. The latter is a function into the Admaterials laboratory. Where
of new model releases and after a strong possible and appropriate, we also Extending our service range and the
2015, volumes were down as a number reduced hours to reflect the lower levels global reach of our business
of new engine release programmes of activity being seen across the whole Our M&A programme continued to
came to an end. sector, while at the same time being deliver a significant contribution to total
mindful of retaining our full technical growth for the business. We established
The Infrastructure, Health and capability for the point at which recovery a strong initial presence in the Singapore
Environment Division had an excellent begins. In those oil & gas laboratories construction testing market and improved
year, growing organically 9.3% at with the capability to deliver services for our presence and technical capability in
constant currency. This was driven other sectors, we drove up utilisation with two existing markets, Environmental and
by double-digit growth in the Middle Industrials customers and began to see Non-Destructive Testing (NDT) in the UK.
East Infrastructure sector, and well some encouraging signs in the UK and In all three cases, we applied our usual
supported by the Environment business the Americas in the second half of discipline to the selection, due diligence
in the UK and the North America Health the year. and integration processes so that all the
Sciences business. There were some businesses acquired are already
good contract wins in the Middle East All general managers are tasked with embedded in the Group and contributing
including mining company, Ma’aden, to effectively managing their laboratory’s additional value. We began the year by
provide on-site environmental monitoring cost base and we have an established integrating those businesses that we had
services across the Kingdom of Saudi range of management and reporting acquired at the tail end of 2015 – WTS
Arabia; and SEPCO Arabia Company tools that help to do this, including the and the environmental monitoring
to support construction on the main Laboratory Performance Dashboard; division of REC – and we also took the
gas pipeline across Saudi Arabia, where Laboratory Information Management opportunity to revisit our target screening
we have been testing and validating Systems (which are tailored to the and scoring criteria and the improvements
materials and environments associated individual characteristics of end user we made to our approach contributed
with the second phase of the Kingdom’s markets); and a Customer Relationship to the ongoing success of our M&A
master gas system. Testing is being Management system that supports the programme in 2016.
conducted both onsite and in Exova’s effective taking on of new business.
Dammam laboratory. All laboratories are supported by In February we acquired a majority
operationally-focused finance managers stake in Admaterials Technologies Private
Managing our laboratories efficiently and our monthly reporting and review Limited (Admaterials), a Singapore-based
We continued to make important cycle means that leaders across Exova business that provides testing in the
investments in our laboratory network, have a regular view of performance construction sector, as well as chemical,
in order to meet existing and future and the opportunity to support environmental and mechanical testing
customer needs. We made particularly continued improvement in all and certification services. With national
strong progress in our Aerospace laboratory operations. and international customers in the private
business, further optimising the and government sectors, the business
global laboratory network through As part of this process we constantly provides the foundation for growth in the
strengthening capability and extending review the performance of the whole ASEAN region and we quickly established
our reach as well as making us more cost portfolio and in 2016, we took the capability in our existing Johor Bahru,
efficient. We invested in 24 new frames decision to divest two significant parts Malaysia laboratory. Confirming the
across the Lancaster (UK), Mississauga of our business – our Food, Water and progress that we have made, we recently
(Canada) and Anaheim (USA) facilities, Pharmaceutical operations in the UK announced that this facility had been
expanding services in high temperature and Ireland and then, at the end of the accredited to International Standard ISO/
fatigue and creep testing, including the year, our Environment business in Eastern IEC 17025:2005 for civil engineering by
proprietary testing of ceramic based Canada. In both cases, we concluded SINGLAS, improving our ability to serve
composite materials for future use in that these businesses were sub-scale our customers in Malaysia who need
aerospace and defence applications. and would benefit from a different owner SINGLAS accreditation for products
Alongside this, we consolidated our to develop them. We also divested a supplied to the construction industry
capabilities in Plzeň (Czech Republic) to small non-core fire-testing equipment in Singapore.
create Europe’s largest creep and stress manufacturing operation in Gent.
rupture laboratory, with over 270 creep We expect these disposals will have a
and stress rupture test points. With these positive effect on Group margins in 2017.
enhanced capabilities, Exova now offers
2. Adjusted EBITA is operating profit from continuing operations before separately disclosed items. Refer to Note 1(d) of the financial statements on pages
102 to 103 for the explanation as to why EBITA is used as a performance measure.
Industries Oil & Gas and Industrials quarter seeing some possible green
The Division reported a mixed In Europe continued impact of low shoots of recovery.
performance with strong growth in oil prices led to contraction and price
Aerospace and some encouraging signs pressure in the oil & gas testing market. We also faced very strong headwinds in
in Industrials in the second half, offset by Although some 2015 projects completed our Asia Pacific oil & gas business, with
the continued weakness in the oil & gas successfully in the first part of the year, a significant reduction in subsea project
market, leading to an overall contraction we experienced lower levels of new activity. We have closed our Malaysia
in organic revenues. approved projects from Q2 2016 onwards. oil & gas laboratory and reduced
As part of the focus on diversification, headcount in Singapore, retaining
Aerospace we successfully secured a number of key capability co-located with the
The Aerospace sector delivered strong contracts with non-oil & gas customers Admaterials laboratory. Our India facility
organic growth, driven by high rates of such as Tata Steel and Sellafield in the UK; held up well, with good organic growth
production release testing, as a result of and with the acquisition of Insight NDT despite a heavy reliance on oil & gas
improved aircraft build rates, notably in Limited, we gained greater access to customers; we successfully extended
the Americas. Testing revenues associated opportunities in the industrials segment. our range of technically demanding
with research and development were services and saw good growth from
driven primarily by developments in As in Europe, the US oil & gas market the new corrosion facility.
aircraft engine materials and more latterly continued to experience strong
by emergent technologies such as headwinds, resulting in revenue decline Products
additive layer manufacturing, which is versus 2015, as major Gulf of Mexico The Products Division showed growth
being increasingly adopted by aerospace research and development and capital in all sectors apart from Transportation,
OEMs. Following a flat 2015 our Swedish projects were delayed and/or cancelled. with particularly strong performance in
aerospace business returned to good During the year we took restructuring Fire, Building Products and Certification.
organic growth in 2016, driven by strong actions to mitigate volume and price
demand from the Swedish aerospace pressures in line with the market. The Fire, Building Products and Certification
and defence sectors, with a particular Americas industrials segment had an Ongoing European standardisation
focus on NDT services. encouraging end to the year. Despite and the introduction of new standards in
some softening in the US primary and many parts of the world have continued
We continued to invest in our aerospace secondary steel markets, we saw to create a positive market for fire testing.
testing facilities across the world, with improvement in the second half and In Europe we saw continued focus on
new test frames installed in the USA, UK overall growth in the segment, helped the harmonisation of standards in the
and Canada, as well as consolidation by a strong performance in Canada due areas of doors and door hardware,
of our European creep and stress rupture to demand from the rail and automotive as well as more general penetration
test capability in Plzeň, Czech Republic. sectors. In 2017, further sales focus on seals and joints. In Australia we saw
Our 2016 investments in fatigue capacity industrials will help to reduce our exposure the introduction of new standards and
and modern testing technologies look to oil & gas market conditions and allow guidelines in the area of façade fire
set to position the sector for continued us to utilise laboratory capacity and protection and façade testing, which
organic growth in 2017. expertise as fully as possible. in turn drove growth in the Exova
Warringtonfire businesses.
Our Western Canada oil & gas
business managed the downturn by Overall the market for fire engineering
diversifying its client base to include was positive but some concerns arising
more infrastructure and agricultural from Brexit were apparent in the UK and
customers. We continued to benefit from Europe. In the Middle East, projects were
providing excellent service and using not as abundant as in 2015, while North
Divisional Performance targeted sales campaigns, with the final America had a successful year through
Industries
Products
the introduction of new tests and Infrastructure, Heath and Environment Integration has been completed
renewed sales effort in fire testing. The Infrastructure, Health and successfully and the laboratory has
The sector was further supported by an Environment Division had a very strong continued to win some excellent
increase in inspection and certification year, with revenue growth in all three projects, growing ahead of plan.
services, and also benefitted from the sectors leading to a 9.3% improvement
final integration of BM TRADA into Exova. at constant currency. Revenues were Health Sciences
also boosted by two acquisitions in the Our Americas pharmaceutical
Transportation Division, each of which gave us strong business demonstrated good growth,
Our Warren and Troy laboratories both positions in new segments. driven by complex development
delivered strong performances, with projects, increased manufacturing
the former upgrading its approach to Infrastructure support and biotherapeutics testing
interiors testing and adding several Our Middle East business enjoyed strong for both Canada and US based
pieces of new equipment to drive growth in the year, overcoming difficult pharmaceutical and medical
customer growth and deeper economic conditions due to the fall in device companies. Several long-term
relationships. As in 2015, the Troy energy prices. Our laboratories in Saudi agreements with pharmaceutical
laboratory executed some major Arabia, the UAE and Oman improved companies helped to ensure a solid
structures and durability projects for their market share delivering impressive base of continuous testing projects.
key clients contributing to good growth year-on-year growth. In Saudi Arabia, Investment in IT systems continues to
throughout 2016. Nevertheless, in line materials and environmental testing help us provide an improved customer
with expectations, total revenue for were strong, with services being service experience. Our food laboratory
Transportation was slightly behind in provided to support further development in Portland, Oregon had a very strong
2016, as a result of lower volumes of of the Kingdom’s master gas system. The year with the growth of several key clients
engine testing compared with those region also benefited from the full year in a very competitive market segment.
seen in 2015. There is a healthy impact of the metro projects in Riyadh
opportunity pipeline for 2017 across and Doha, which offset a slowdown in Environment
both our Troy and Warren laboratories. infrastructure projects in Abu Dhabi. The UK and Ireland environment
business experienced very strong overall
Calibration We were also awarded a sizeable growth in 2016. Underpinned by good
The calibration business delivered contract with a government entity in organic growth in our market-leading
modest organic growth, with increases in Qatar to provide full production-to-sale stack emissions business, our asbestos
demand from many large clients partially QA/QC testing and inspection services testing and occupational hygiene
offset by one major client deciding for aggregate materials. The project businesses, we acquired the UK’s leading
to move their operations away from required the establishment of three third contaminated land laboratory, Jones
Scandinavia. Life sciences and energy party-accredited large site laboratories Environmental in July. The integration of
clients were a more significant part of the in two different countries. We expect this business and that of the emissions
client mix during 2016, a trend that we activity on this contract to be significantly testing division of REC (acquired at the
expect to continue in 2017. We increased lower in 2017. In February 2016 we very end of 2015) were both completed
the scope of calibration services that acquired Admaterials Technologies in line with agreed plans.
we offer and we also initiated the coming Private Limited, a multi-disciplinary
together of our operations in the Czech laboratory based in Singapore,
Republic and Germany to drive operating specialising in infrastructure materials
efficiencies. testing and environmental chemistry.
2016 saw us deliver strong earnings growth and improved cash conversion
as a result of strong performance in most of our Sectors, supplemented by
favourable foreign exchange movements, but moderated by the continuing
challenges in Oil & Gas and Industrials
Revenue
2016
£m Growth2
1. Constant currency growth figures are provided in order to remove the impact of currency translation. We calculate growth at constant rates by translating
the current and prior period revenue at the same exchange rates.
2. Growth percentages are calculated on constant currency revenue.
Revenue for the year was £328.6m which represented organic growth at constant currency of (0.2)%.
Acquisitions contributed 6.2% of growth, in part offset by three disposals, two being significant non-core businesses, which resulted
in a reduction of 3.6%. The Group reports in sterling which weakened during the course of the year over the currencies in the
territories in which the Group operates. This resulted in a positive translational effect of 8.4%.
1. Adjusted EBITA is operating profit from continuing operations before separately disclosed items. Refer to Note 1(d) of the financial statements on pages
102 to 103 for the explanation as to why EBITA is used as a performance measure.
Adjusted EBITA margin decreased by 50bps from 15.8% to 15.3%. This reflects the continuing challenges within the Oil & Gas and
Industrials sector which negatively affected margins, offsetting the improvements elsewhere, including the positive contribution
from acquisitions and favourable translation impact.
Statutory operating profit of £43.5m grew 47.5% largely due to business growth from acquisitions, favourable foreign exchange
movements, and a gain on disposal of businesses. The prior year also included a higher intangible assets amortisation charge,
as the Bodycote customer relationships are amortised in full.
The Group presents, as separately disclosed items on the face of the Group income statement, those material items of income
and expense which, because of their nature, merit separate presentation to allow users to understand better the elements of
financial performance in the year. The Group believes this presentation facilitates a comparison with prior periods and a better
assessment of trends in financial performance.
The sale of the UK and Ireland Food, Water and Pharmaceuticals business to international life sciences company, Eurofins
Scientific, completed 1 July 2016, for a cash consideration of £18.0m including a selling price adjustment of £0.1m. The cash
consideration was net of certain working capital balances retained and liabilities transferred (gross consideration £20.0m).
The net gain was £5.3m.
The sale of the Environmental East business in Canada, also to international life sciences company, Eurofins Scientific, completed
on 5 December 2016, for a cash consideration of £7.5m, subject to a further selling price adjustment. The cash consideration was
net of certain working capital balances retained and liabilities transferred (gross consideration £9.1m). The net gain was £0.6m.
The sale of a division of WFR Gent NV completed 24 March 2016 for a cash consideration of £0.2m. The net gain was £0.2m.
Summarised financial information relating to the sale of the businesses is shown in the table below.
UK and Ireland WFR Gent
Food, Water and Environmental Fire-testing
Pharmaceuticals East division Total
£m £m £m £m
Restructuring costs
Oil & gas restructure
To mitigate the poor trading conditions in oil & gas, we have undertaken further cost actions globally to right size the business.
This restructuring programme totalled £3.3m and included onerous lease provisions of £1.8m, staff redundancies of £1.2m and
other property related costs of £0.3m.
Other
Having undertaken a strategic review of our laboratory footprint within our Aerospace sector and Products Division, we restructured
certain laboratories which resulted in costs of £0.6m, largely relating to staff redundancies.
Net cash interest payable in the year increased from £5.1m to £5.5m. The increase relates to the term loans due to the weakening
of sterling against the currencies that the bank loans are denominated.
Income tax
2016 2015
£m £m
The total tax charge for corporate income tax and deferred tax is £7.9m (2015: £4.7m).
The Group is in a tax paying position in a number of overseas jurisdictions, in which it operates, with a total overseas income tax
charge of £4.9m (2015: £4.2m). UK taxable profits were partially offset by UK losses which resulted in a UK tax charge of £1.2m
(2015: £0.5m).
Deferred tax includes amortisation of £0.3m (2015: £2.3m) of the deferred tax liability relating to customer relationships.
Across the Group there are tax losses of £99.0m (2015: £102.0m) most of which are available to carry forward indefinitely to offset
future taxable profits in the companies in which they arose. Deferred tax assets of £1.1m being £0.5m in USA, £0.3m in India and
£0.3m elsewhere (2015: £1.6m being £1.2m in USA and £0.4m other) have been recognised in respect of certain losses where it is
sufficiently certain that these losses will be utilised against taxable profits in the foreseeable future.
Acquisitions
During 2016 the Group completed three acquisitions.
On 15 February 2016, the Group acquired 70% of the share capital in Admaterials Technologies Private Limited (Admaterials) for a
cash consideration of £5.4m (£4.8m net of cash acquired). In addition, the consideration to acquire Admaterials includes a put
and call option to purchase the remaining shareholding three years after the acquisition based on the same earnings multiple
as the original offer of £3.8m. The acquisition has been accounted for as though 100% of the share capital had been acquired,
with a liability recognised as contingent consideration in relation to the put option. Acquisition costs incurred in the year in
respect of Admaterials amounted to £0.1m. This Singapore based business provides testing in the construction sector, as well as
chemical, environmental and mechanical testing and certification services. Founded in 2008, Admaterials is one of the leading
construction testing businesses in Singapore, as well as providing chemical, environmental and mechanical testing to a range of
customers in the private and government sectors. The business has annual revenues in the region of £3.5m and a team of more
than 70 specialists.
On 1 July 2016, the Group acquired 100% of the share capital of Jones Environmental Forensics Limited (Jones) for a purchase
consideration of £15.5m (£16.1m net of finance lease settled and cash acquired). This includes deferred consideration of £1.0m
and an amount of up to £1.6m is contingent upon future profitability of the business. The purchase consideration is subject to
further purchase price adjustments. Acquisition costs incurred in the year in respect of Jones amounted to £0.3m. Jones is a
North Wales-based independent environmental laboratory business and the UK’s market leader in contaminated land analysis
and a specialist in environmental forensics, with an excellent reputation for both quality and service. Jones has built a strong
reputation as the laboratory of choice for contaminated soil and water analysis, primarily selling its services to leading global
environmental consultants, with the ultimate end customers covering a variety of market segments, many of which Exova has
an existing presence with. The business has a team of over 150 specialists and has annual revenues of £8.0m.
On 2 December 2016, the Group acquired 100% of the share capital of Insight NDT Limited (Insight), a South Yorkshire-based
non-destructive testing (NDT) and radiographic inspection business for a purchase consideration of £7.6m (£7.1m net of cash
acquired). The purchase consideration includes deferred consideration of £0.1m and an amount of up to £1.5m is contingent
upon future profitability of the business. Acquisition costs incurred in the year in respect of Insight amounted to £0.2m. Insight is
at the forefront of the NDT market in the UK, providing its specialist services to the industrial sector since 1997. Insight’s reputation
is built on consistently providing high quality, high capacity and fast turnaround radiographic inspection services for manufacturers
of specialised castings and forgings within the industrials market, as well as providing testing for the nuclear, medical, rail and oil
& gas sectors. The business has an experienced team of 20 specialists and achieved revenues of around £2m in 2015.
Cash flow
2016 2015
£m £m
1. Adjusted EBITA is operating profit from continuing operations before separately disclosed items and depreciation. Refer to Note 1(d) of the financial
statements on pages 102 to 103 for a reconciliation of profit before tax to Adjusted EBITA, Adjusted EBITDA and free cash flow.
2. Purchase of property, plant and equipment and computer software, net of disposals.
3. Excludes effect of accrual of IPO related costs.
4. Free cash flow divided by adjusted EBITDA.
5. Comprising restructuring, acquisition and integration charges, IPO cash costs and financing items.
Free cash flow increased by £11.7m as a result of increased EBITDA and improved working capital management. This had a
positive impact on cash conversion at 72% (2015: 59%).
Net capital expenditure includes proceeds on disposals of £0.1m. Gross capital expenditure of £18.3m represents 5.6% of revenue
(2015: 5.9%).
At 31 December 2016, our term loans comprised £193.6m of non-amortising borrowings denominated in sterling, euro, Canadian
dollars, US dollars and Swedish krona. The increase in the term loan is due to the weakening of sterling against the major
currencies that the loans are denominated in. There are no repayments scheduled on our term loans until 2019.
The amounts drawn down on the revolving credit facility are denominated in sterling. In addition, £82.0m of the revolving credit
facility was undrawn at 31 December 2016.
The net debt to Adjusted EBITDA ratio was 2.3x at 31 December 2016 (2015: 2.6x). Based on the definition in the bank covenant,
net debt to Adjusted EBITDA ratio is 2.1x (2015: 2.4x).
Basic adjusted earnings per share for the 12 months ended 31 December 2016 was 13.1p (2015: 12.2p). This measure calculates
EPS before separately disclosed items.
Dividend
The Board is recommending a final dividend of 2.35p per share (2015: 2.2p per share). This will absorb an estimated £6m of
shareholders’ funds. The total dividend for 2016 will therefore be 3.4p per share representing an increase of 6.3% (2015: 3.2p).
The dividend will be paid on 9 June 2017 to shareholders on the register at the close of business on 26 May 2017.
Going concern
The Group’s business activities, together with the factors likely to affect its future development and performance are described
in this Strategic report. The Group’s cash flows, liquidity position and borrowing facilities are described in this Financial review.
In addition, Notes 19 and 20 to the financial statements include the Group’s financial risk management objectives and policies,
and processes for managing its capital.
The Directors have reviewed the Group’s budget for 2017 and its financial trading projections and cash flows to 31 December
2018, taking account of possible sensitivities to the risks outlined on pages 10 to 13. This review considered the projected financial
performance in relation to the Group’s existing borrowing facilities described above. As a result of this review, the Directors have
a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable
future. As a result the Board continues to adopt the going concern basis in preparing the financial statements.
Foreign exchange
Exchange rates for the most significant currencies used by the Group during the year were:
Average rate Closing rate Average rate Closing rate
2016 2016 2015 2015
Philip Marshall
Chief Financial Officer
27 February 2017
Proactive laboratory
portfolio management
Strategic priorities
30 countries
Exova’s portfolio
management activities
provide more evidence
of its aim to focus resources
on strengthening its market
leading positions in the
provision of technically
demanding services
Working with integrity improve the safety, quality and structure implemented in September
During 2016, we have continued to performance of their products, services 2016;
develop our approach to Corporate and operations; we have helped some • achieved a 50% reduction in incident
Social Responsibility (CSR) so that of the world’s leading organisations reports remaining open on the internal
we meet the expectations of all our to minimise the health, safety and reporting system, with particular focus
stakeholders and to ensure that we environmental impacts of their activities, on those over 30 days old; and
comply with all relevant legislation as well as enabling them to bring critical • rolled out behaviour-based safety
and regulations. products and services to the market. training to 70% of all Exova locations.
At Exova, we believe that developing
Our commitment to conducting business strong relationships with our customers Although we have achieved a 31%
in a socially responsible and sustainable and working with them as a strategic reduction in lost work day incidents since
manner has enabled us to integrate partner enables us all to build more 2012, we are disappointed to report that
new operations into the Exova Group, sustainable businesses. we have seen an 11% increase in the
no matter where those businesses are number of LWDIs in 2016 compared
located and to divest some of our Food, As we further develop our business, with 2015. However, the nature of the
Water and Pharmaceutical business we will continue to improve our policies, incidents has changed from more
which we believed would have a stronger processes and procedures in order to equipment-related injuries, such as
future, under different ownership. As a fully embed CSR into our operations lacerations, to soft tissue type injuries
result of the acquisitions and divestments and culture, thereby building a more arising from slips, trips, falls and manual
carried out during 2016 we now operate sustainable business for the future. handling, which are much less severe.
135 permanent facilities in 33 countries Indeed, we are pleased to report that we
across the world. Health, safety and environment (HSE) had no LWDIs relating to lacerations in
During 2016, we worked in accordance 2016 representing a reduction from 31%
Our approach to CSR builds on the with our three-year strategy for HSE which of all LWDIs in 2015. We believe that our
Exova values of Innovation, Teamwork, is designed to support a safe, healthy focus on behaviours in 2017 will have
Performance and Integrity, with Integrity and environmentally robust delivery of a significant positive impact on the
at the heart of everything we do so that business objectives and future growth. remaining categories of incident.
we can: We have built on the significant progress
2016 2015 2014 2013 2012
made over the last four years in improving
• protect the health and safety of our performance, maturity and culture LWDI 18 16 18 24 26
people and visitors to our facilities; across the business. The approach we
LWDI
• manage the impact of our operations adopted, which is based on the seven
frequency
on the environment; themes of leadership, compliance,
rate 0.43 0.39 0.48 0.63 0.72
• support our people so that they enjoy people, resourcing, equipment/assets,
rewarding careers and can develop culture and HSE management systems,
their skills and knowledge for the has proved successful and we continue Notes:
benefit of our customers and deliver to use this as the foundation for further A LWDI is one where the injured party is absent
from work for one full day after the day of the
advances in our industry; improvement. To support this, we have
incident.
• maintain the highest ethical practices implemented a set of group-wide key
in all our business activities; and performance indicators (KPIs), standards, The LWDI frequency rate is based on the number
• deliver a sustainable business by systems and procedures that define our of LWDIs per 200,000 hours worked.
supporting future generations of HSE expectations which are also linked
experts and working with customers to the Group risk-based HSE auditing Exova received two Silver and one
to develop solutions that help them protocol. Bronze award from the Royal Society
to protect and enhance the world for the Prevention of Accidents (RoSPA)
around us. In 2013 we published our long-term HSE in 2016, building on the two Silver awards
strategy in which we set out our specific achieved in 2015.
During 2016 we have continued to drive objectives and targets. In the following
improvement in our health and safety two years, we reported that we had Our focus on proactive reporting
culture through the implementation of made significant progress against those identified an opportunity to reduce
a behaviour-based safety programme; key objectives, and this year we are the risk of amputation or laceration by
continued focus on proactive reporting; pleased to report that further progress reducing the stopping time for band saw
and robust root cause corrective actions. has been made. For example, during blades. The band saw manufacturers
Although the direct environmental 2016 we have: were unable to provide a solution which
impact of our operations remains low led us to develop an in-house upgrade
compared with many industries, we are • reduced behavioural causes of Lost that reduced the blade stopping time
proud of the progress we have made Work Day Incidents (LWDIs) by 20%; during normal use by 75% to 3 seconds,
in this area. Indirectly, the services • reassessed and realigned HSE with no detrimental impact on the
we provide enable our customers to resources to support the Divisional performance of the equipment. This has
not only reduced the risk of injury relating to the Sector and Divisional senior reached the required level of health
to moving blades but has also improved management teams, Group Executive and safety cultural maturity and
the throughput of work on these Committee and Board. therefore ready to take the next step
machines. towards a world class safety culture.
In 2016 our colleagues in Warren, This has resulted in us providing training
Over the past year we have continued USA, used an on-site defibrillator to at 70% of Exova sites with the remaining
our emphasis on “the standard you walk great effect to resuscitate an employee planned for 2017. Our internal reporting
past is the standard you accept” and with a pre-existing medical condition systems have also been upgraded to
proactive incident reporting (non-injury and treated him until the emergency allow us to monitor the progressive use
related near misses and hazard services arrived. As a result of this of the SEA programme.
identifications). This remains a central incident we reviewed our approach and
part of our approach to engaging with consequently agreed to provide such At Exova, we are certain that through
colleagues across the business. We are equipment at sites where it would be direct engagement with our colleagues,
pleased that there were 10,439 proactive most valuable. We will report back in clients and other stakeholders we can
reports during 2016 compared with 2017 to show the progress we have made collectively deliver continuous HSE
2,059 in 2013, giving an average of 2.4 with this. We are proud of the way our performance improvement, and by
proactive reports per person in 2016. local team responded to the emergency doing this we are creating a sustainable,
In every case, the report was reviewed and the role they had in saving the life world-class business. For the next three
to identify the root cause and allow for of their colleague. years we will build on our successes and
appropriate control or risk prevention/ support our goal of creating a mature
reduction measures to be implemented. In 2013, we developed a simple world-class HSE culture that permeates
employee engagement process called throughout the Group, and where safety
All incidents, including proactive See, Engage, Act (SEA) which has now is an intuitive part of all business activities
reports, are reported using our internal become the basis of our behavioural and decisions.
system and are discussed weekly safety programme. In 2016 we continued
through operational and functional line the roll-out of the process to all of the
management, with onward reporting sites that were identified as having
Our environment The scope of our analysis and reporting simplest way of ensuring the impact
Exova is committed to conducting covers all operations where Exova has of organic and inorganic growth is
its activities in an environmentally full operational and management reflected in our energy consumption
sustainable way to minimise negative control, except for sites which are is to normalise our data using employee
impacts on the environment, prevent embedded in clients’ premises and numbers.
pollution and maximise any positive for which we do not have visibility of
benefits or opportunities. As a testing the relevant data. The data for 2016 shows a decrease
and advisory business our environmental in the Total Gross Emissions reported,
impact is not inherently high, but does Our analysis has shown that our key especially within the Scope 1 (Direct
vary considerably from site to site impacts are: Emissions) category. These reductions
depending on the nature of the work have been influenced by a number
carried out. • Energy: The work we have done of factors including the nature of the
in 2016 confirms that energy energy used for heating in the Americas
During 2016 we have used the systems consumption remains our main (gas) compared to other regions,
we introduced in 2015 for improving environmental impact. We have growth through the acquisition of new
our data collection and reporting to collected data using the following businesses, divestment of the Environment
allow us to improve the detail and scope definitions: East business in Canada and the Food,
of reporting. This ensures that what we Water and Pharmaceutical businesses
report is representative of our business –– Scope 1: Greenhouse gas (GHG) in the UK and Ireland.
and associated environmental impacts. direct emissions: Annual quantity
We can confirm that the KPIs we of GHG emissions in tonnes of CO2 We continue to consider the potential for
introduced in 2014 remain appropriate equivalent (CO2e) from the improved energy efficiency in all aspects
for measuring the effectiveness of our combustion of fuel and the of business activities including capital
environmental performance and we operation of any facility. expenditure decisions and operational
continued to use these in 2016. In –– Scope 2: Greenhouse gas indirect improvements.
2016 we reviewed our previous year’s emissions: Annual quantity of GHG
performance and, as a result, have emissions in tonnes of CO2e resulting • Materials used: There has been
updated our three year strategy to from the purchase of electricity, no change to the limited volumes
deliver measurable improvement in heat, and steam or cooling by of hazardous materials in the form
our energy and waste performance. the company for its own use. of gas, liquid, solid and powders
used in our operations. We therefore
Our UK operations are subject to the Greenhouse gas emissions conclude that our environmental
requirements of the Carbon Reduction impact on non-renewable resources
Global Global Global
Commitment (CRC) phase 2. We are remains very limited and, as a result,
emissions emissions emissions
pleased to report that Exova achieved 2016 2015 20141
do not report usage data.
compliance with this regulatory (Tonnes (Tonnes (Tonnes • Water: There has been no change
requirement ahead of the required dates of CO2) of CO2) of CO2) to the limited volumes of water usage
with our UK operations achieving a 4% identified in 2014 and as such it does
Scope 1 8,148 16,431 14,825
reduction in CRC emissions (total CO2). not represent a material impact for
In order to allow direct year-on-year Scope 2 16,168 17,065 16,610 Exova and therefore we do not report
comparisons, we report our Group water usage data.
Total gross
environmental data based on the • Waste: During 2016 we have improved
emissions 24,316 33,496 31,435
number of full-time employees (FTE) the data collection process for waste
in the business for the reporting year, Intensity and initiated a number of projects to
and this is the basis for the figures (Tonnes of improve waste recovery, recycling
used in the following sections. CO2e per FTE) 5.71 8.12 8.47 and re-use of waste materials such as
reviews of contracted services and
Impact 1. 2014 has been restated due to discrepancies further extension of waste separation
We have made a number of acquisitions arising mostly from inaccurate supply meters. and recycling programmes across
and divestments during 2016 with a full the business to meet our objective of
environmental review included in the Note: Methodology for calculating GHG emissions introducing waste recovery, recycling
due diligence process. These acquisitions is given in the DEFRA Conversion Factors 2016 and reuse programmes at every
and divestments have not had a material guidance document. permanent facility.
impact on the high-level Environmental
Impact Assessment (EIA) that was In 2015 we said that we would look at In 2016 we have reported a 39% increase
completed in 2014. a way of accounting for inorganic and in the amount of non-hazardous solid
organic growth impacts on the way we waste and doubling of hazardous liquid
report energy data. Following a review waste disposal. However, the increases
of our data, we concluded that the
are not considered material as the total Our people technical disciplines and 83 delegates
volumes and weights disposed of across Exova aims to recruit, develop, motivate attending our third European Technical
the Group are very low to start with and and retain the best talent. Our people Conference in November 2016. Seven
even quite minor local actions, such are at the heart of our business and colleagues presented on their technical
as the instruction not to dispose of we are committed to creating a high specialism and demonstrated the
any liquid waste to land drains in performing, engaging and rewarding advancements they have made in
the Kingdom of Saudi Arabia, can culture. We achieve this by focusing support of critical customer requirements,
have a significant impact on the on the development of technical skills and the event included 23 ‘poster
volumes reported. and capabilities across our global presentations’ also showcasing technical
operations, engaging our employees innovations and developments. The
Waste disposal across the Group through effective communications, feedback from those who attended the
ensuring the highest standards of event was overwhelmingly positive.
2016 2015 2014
ethical conduct and developing
Hazardous industry standards. In 2016, 16 of our general managers,
waste 123 194 246 sales and functional leaders from
– solid Tonnes Tonnes Tonnes In 2016 we completed the successful across the Group participated in our
acquisitions of Admaterials Technologies ‘Leading the How’ global management
Non- Private Limited, Jones Environmental development programme hosted at
hazardous Forensics Limited and Insight NDT Limited. Ashridge Business School in the UK,
waste 8,541 6,143 6,174 We also completed the successful sale the fourth time we have run this event,
– solid Tonnes Tonnes Tonnes of the UK and Ireland Food, Water and and again, this received very positive
Hazardous Pharmaceuticals business in July 2016 feedback. We also re-invigorated
waste 2,096,913 868,944 1,111,779 and the Environmental East business in our recognition programme in 2016,
– liquid Litres Litres Litres Canada in December 2016. As a result which focuses on the Exova Values
of the divestment of these businesses a of Innovation, Teamwork, Performance
number of colleagues transferred their and Integrity. At each Group Executive
employment and we welcomed 240 Committee meeting, nominations for
• Transportation and travel: Exova’s colleagues who have demonstrated
new colleagues to our global Group.
fleet of commercial vehicles remains the Exova Values are presented. During
At year end we had 4,167 colleagues.
relatively small and the associated the year over one hundred colleagues
impact is therefore limited. We have
Development received awards, demonstrating their
collected the data for these vehicles commitment going above and beyond
Our people are some of the best
and this has been rolled-up into the to live the Exova Values.
scientists, engineers and technical
GHG figures quoted in the Greenhouse
specialists in the world. Our Technical
Gas Emissions table above. The sale Finally, as part of our Group strategy
Career Development Programme
of the Food, Water and Pharmaceutical review, we recognised that in charting
(TCDP) underlines our commitment to
business in the UK and Ireland has the course for the next stage of our
develop our technical talent, ensuring
reduced our commercial fleet journey, a more global approach to
that they can advance their careers
significantly and has therefore reduced sectors would better facilitate their
whilst continuing to offer our customers
our vehicle-related environmental growth and performance and as
innovative solutions to address market
impact. The rolling renewal programme a result we implemented a new global
opportunities. Through individually-
for our commercial vehicle fleet helps Divisional structure across the Group.
tailored development plans, participants
us to ensure that our vehicles meet This focus means we are better placed
can gain from a combination of in-role
the latest emissions control standards to share expertise, drive innovation
development, external training and
and further helps us to ensure our across geographies and ensure our
academic or professional study.
environmental impact is minimal. We customers have access to the best
continue to encourage our colleagues resources from across our global
As part of the TCDP, in 2016 a number of
to use technological solutions such as network. The new structure also
our key technical colleagues successfully
videoconferencing, teleconferencing provides enhanced opportunities
gained Registered Science Technician,
and VoIP to minimise the impact that for colleagues to move around the
Scientist or Chartered status with the UK
business travel has on the environment. business and develop their careers
Science Council. Almost one hundred
employees actively participated in and a number of our managers and
the TCDP programme globally with a leaders have undertaken new and
number of colleagues gaining formal broader developmental roles and
educational qualifications in relevant responsibilities as a result.
Internal Communications
Given Exova’s global footprint, effective
Exova successfully communicates
with internal and external stakeholders
communications communications are critical to the involved in the acquisition process.
programme success of the business by ensuring
that our colleagues are informed, During August and September we carried
engaged and empowered. The Group out an internal communications survey
4
Communications department was of colleagues across the business. The
further enhanced in 2016 with a key results formed part of a broader internal
objective to support the business communications audit and provided
strategy through effective communication data to inform where further analysis is
Exova Leadership and best practice sharing through required. The findings will be used to
Team calls internal communications. We deploy a support and inform the creation of our
number of communication channels for internal communications strategy and the
programmes that will deliver the strategy.
3
our people to collaborate; to keep up to
date with all the latest Exova news; and
to access the information they need to Ethical business
perform at their best, including making Exova is committed to conducting
Editions it easier to find people, policies and business in an ethical manner. With
templates. During the year we continued customers in diverse markets worldwide,
of Exova Live to work on optimising these channels for it is essential that we conduct our
maximum effectiveness. business with the highest standards of
60
integrity and adhere to international
We continued to publish our colleague laws and regulations. We are an equal
e-magazine, Exova Live, which highlights opportunities employer and promote a
the work of our people and helps working environment free from any form
Group colleagues better understand the Group’s of discrimination, bias or harassment, no
Communications strategy, strengths and successes. Exova matter where in the world we are located.
Live is shared electronically which enables
e-shots an improved user experience and allows We provide a confidential whistleblowing
us to direct our people to a wealth of service, which is managed by a specialist
2
additional content that helps improve third party provider, across our global
engagement across the business. This business, giving all colleagues the
format also helps minimise our impact opportunity to raise concerns. The
on the environment. We continued outcome of any report or incident
HSE bulletins to use our email alert service to keep investigation is summarised and provided
colleagues informed, with 60 separate to the Audit Committee for their review.
1st
Group Communications e-shots
distributed to the business across We require all managers to undertake
the year, as well as our quarterly annual training in Anti-Bribery and
leadership team webinars, where Corruption and Competition Law policies.
ever Exova-wide our senior managers get to hear This mandatory training ensures a
directly from our CEO and CFO. consistent understanding of our individual
communications and collective responsibilities and an
survey Improved social media activity habits e-learning induction is carried out by
were encouraged by engaging with new employees including modules on
colleagues to help inform a revised our Ethics, Anti-Bribery and Corruption
media policy and social media guidance, policies and the whistleblowing service.
both of which are displayed across our
laboratories and offices. These highly Human rights and the Modern Slavery Act
visible documents equip colleagues Whilst Exova does not have a formalised
with a clear understanding of how our human rights policy, we are committed
actions can have a positive impact by to ensuring that our people are treated
playing a crucial role in raising Exova’s in accordance with the Universal
profile, reputation and reach. 2016 also Declaration of Human Rights and the
saw the further development of our UN Global Compact’s ten principles.
M&A communications, culminating in We seek to prohibit forced, compulsory
the creation of a good practice guide and underage labour and any form of
that formalises, in an informative and discrimination based on race, gender,
instructive way, the process by which religion, age, disability, the right to
collective bargaining or political Exova’s business and supply chain. On that it makes sound business sense
affiliation. In November 2016, Exova 27 February 2017, Exova published its first as it helps to enhance productivity,
adopted a Modern Slavery Policy that Modern Slavery transparency statement. quality and innovation.
can be found on the Company website
at www.exova.com. Our Modern Slavery Supplier Code of Conduct Our Board recognises the benefit of
Policy states that Exova has a zero Exova is committed to conducting diversity and is committed to having a
tolerance approach to Modern Slavery business to the highest possible ethical Board that engages the best combination
and that the following principles apply and business standards. We have of gender, skills, qualities, background
to our business and supply chain: therefore adopted a Supplier Code of and professional experience and our
Conduct setting out the behaviours and Nomination Committee actively
• child labour must not be used; principles that we expect our suppliers to considers these factors when making
• any form of forced or compulsory follow. Suppliers of goods and services, appointments to the Board. In 2016
labour must not be used; contractors, joint venture partners, female representation at Board level
• passports, visas and other personal consultants, advisers and all other third remained at 11% as there were no new
documentation should not be taken parties engaged by Exova are expected appointments to the Board. The Board
from employees unless requested to adhere to the principles set out in remains committed to increasing the
to be held by the employee for this Supplier Code of Conduct and are level of female representation and will
safekeeping purposes; encouraged to develop their own codes, continue to give careful consideration to
• all forms of debt bondage are policies and procedures to adhere to this in terms of any future appointments.
prohibited; the principles of this Supplier Code of
• compensation and benefits must Conduct. The Supplier Code of Conduct At 31 December 2016 Exova employed
comply with local laws relating to can also be found on the Company 4,167 colleagues. Our gender diversity
minimum wages, overtime hours website at www.exova.com. reflects the specialist industries and
and other benefits; and colleague profiles typical of those
• the formation of trade unions and Diversity working in the countries and sectors
powers of collective bargaining We believe the diversity of our people in which we operate.
should be respected. should reflect that of our customers
and the markets in which we operate.
As required by the Modern Slavery Act Our commitment to diversity means
2015, Exova will publish on an annual creating a working environment that
basis a Modern Slavery transparency is respectful and engaging and that
statement which will set out our approach creates opportunities for all. We not only
to preventing Modern Slavery within believe this is the right thing to do, but
11%
25% 17%
Female
Male
* Senior managers, excluding Executive Directors, who have responsibility for planning directing or controlling the activities of the Group.
Thought leadership Unit D part of his three-year National Centre in Dudley has helped a
We strongly believe that it is essential Diploma in Occupational Health and student to complete her Level 4
for any interaction with our customers Safety. He was presented with the Best apprenticeship and she is now
to occur not just via our commercial Candidate award at the National furthering her career by working
relationships but through membership Examination Board in Occupational as a corrosion technician with
and participation in industry bodies and Safety and Health’s graduation Exova while studying for a HND in
professional institutions. A number of ceremony, held at Warwick University. applied chemistry and laboratory
our senior technical colleagues have • Exova received the 2017 NACE management at Halesowen College.
leadership roles in these organisations Distinguished Organisation Award.
and we are incredibly proud that our This award is given to organisations The strategic report on pages 2 to 38
experts are among the most respected and companies in recognition of of the Annual Report 2016 has been
and qualified in their chosen fields. contributions to the field of corrosion approved by the Board of Directors in
Around the world they lead and inform science and engineering over a accordance with the Companies Act
new industry regulations, develop new sustained period of time. 2006 (Strategic Report and Directors’
test procedures and work together with • We played a key role supporting Report) Regulations 2013.
customers to find solutions to a range the Petroleum Technology Alliance
of technical challenges. There is also a Canada’s (PTAC) Soil and
commitment to improving safety and Groundwater Research Committee
quality standards within the industries on the development of new boron Neil MacLennan
we serve, and in understanding and soil-contact guidelines which take General Counsel & Company Secretary
minimising the environmental impact plant toxicity into account. Exova 27 February 2017
of those industries. We encourage Edmonton worked with the Boron
our people to take these leadership Working Group, drawing on its
positions, providing them with the industry leading capabilities in
time and resources needed to do so. environmental and soil testing, to
help develop the new guidelines.
Some key highlights and achievements
from 2016 were as follows: Looking to the future
Our global commitment to being a
• Dr. Chris Fowler, Group technical sustainable business revolves around our
director of corrosion and protection, efforts to identify and encourage future
supported the development through generations of scientists and engineers.
to publication of a new British Standard By ensuring visibility of the rewarding
for corrosion testing. By chairing the career choices available at Exova and
BSI Standards Committee, who had supporting those in the early stages of
been developing BS8701 ‘Full ring their education and careers, we are
ovalisation test for determining the committed to investing and supporting
susceptibility to cracking of line pipe the development of our future technical
steels in sour service’, a test method talent.
developed by Chris, he played a key
role in taking the new British Standard • Exova sponsored two doctoral
forward to publication in 2016. students based at Surrey University
• Phil Dent, Group corrosion strategy and Nottingham University. The
development manager, received sponsorship includes a commitment
two prestigious accolades in 2016 to provide a placement in an Exova
by attaining a Master of Philosophy laboratory during the second year of
degree from the University of their degree.
Birmingham and achieving • Apprentices in the West Midlands
registration as a Chartered Engineer (UK) are being supported by Exova.
by the Engineering Council. In conjunction with the Coombs
• Dr. Iain Wood, HSEQ manager, beat Wood Science and Technology
more than a thousand candidates Centre at Halesowen College, the
by obtaining the highest marks in the team at Exova’s specialist Corrosion
Corporate Governance
Letter from the Chairman
Dear Shareholder
On behalf of the Board, I am pleased
to present Exova Group plc’s Corporate
Governance Report for the year ended
31 December 2016
As a global business operating in 33 countries, Exova is committed to conducting its business in a socially responsible manner,
respecting the needs of its customers, employees, investors and other stakeholders. Corporate governance and integrity are
at the heart of everything we do and, in this report, we aim to provide shareholders and other stakeholders with details of the
Company’s corporate governance framework and activities in 2016.
The Board places great importance on Corporate Governance and has sought to present a fair, balanced and understandable
assessment of the Group’s position and prospects in the Annual Report & Accounts for 2016, providing the information necessary
for shareholders to assess the Group’s position and performance, business model and strategy.
The members of the Board are aware of their duties and responsibilities and the Board has put in place Audit, Remuneration and
Nomination Committees, further details of which are set out in this report.
In April 2014, the Company and TABASCO B.V, the Company’s principal shareholder and the holding company which is owned
by CD&R Fund VII L.P., entered into a Relationship Agreement to ensure that the Company and its subsidiaries are capable of
carrying on business independently of TABASCO B.V. and its associates and that transactions with them are at arm’s length and
on normal commercial terms. As at 27 February 2017, TABASCO B.V. held approximately 54% of the issued share capital of the
Company. Under the Relationship Agreement, TABASCO B.V. is currently able to appoint two Non-Executive Directors to the Board.
Fred Kindle and Christian Rochat are both Directors appointed by TABASCO B.V.
On 12 March 2014 in advance of the IPO, Helmut Eschwey and Andrew Simon, both Independent Non-Executive Directors,
became Directors of the Company. From 27 November 2008 until 12 March 2014, both Helmut Eschwey and Andrew Simon
were Directors of the former Parent Company of the Group. After taking into account their time as Directors of the former Parent
Company of the Group, Helmut Eschwey and Andrew Simon will have served nine years as Directors as at the end of November
2017. The composition of the Board will continue to be kept under review and Board succession will be considered further at the
meetings of the Nomination Committee to be held in 2017. It is expected that Helmut Eschwey will stand down as a Director of the
Company at or in advance of the annual general meeting in May 2018. In the interests of preserving the continuity of the Board
and its Committees, it is intended that Andrew Simon will stand down as a Director of the Company thereafter and by no later
than the time of the annual general meeting in May 2019. In accordance with the Company’s articles of association, each of
the Directors, including Helmut Eschwey and Andrew Simon, shall submit themselves for annual re-election at each annual
general meeting.
Our approach to applying the principles of the September 2014 edition of UK Corporate Governance Code and how we
comply with its provisions are described in the Corporate Governance Report that follows. In the Annual Report & Accounts for
the year ended 31 December 2017, the Company will report against the April 2016 edition of the UK Corporate Governance Code.
On 1 January 2016, I replaced Fred Kindle as Chairman, on appointment becoming the Group’s first independent Chairman.
I continued to chair the Nomination Committee with Helmut Eschwey (an Independent Non-Executive Director) and Fred Kindle (a
Non-Executive Director appointed to the Board by TABASCO B.V.) also remaining as members. Under the UK Corporate Governance
Code, a majority of the members of the Nomination Committee should be independent Non-Executive Directors. As I am now
Chairman, I am not treated as an independent Non-Executive Director for this purpose and, in 2016, the Company no longer
complied with the UK Corporate Governance Code provisions in this regard. Throughout the financial year ended 31 December
2016, save in respect of the composition of the Nomination Committee, the Company complied with the UK Corporate Governance
Code published in September 2014 by the Financial Reporting Council. With effect from 20 December 2016, Bill Spencer (Senior
Independent Non-Executive Director) and Vanda Murray (an Independent Non-Executive Director) also joined the Nomination
Committee and a majority of the members of the Nomination Committee are now independent Non-Executive Directors.
In 2016, we made significant progress in enhancing the Group’s corporate governance structure and the Board will continue to
lead the development of a corporate governance framework that promotes transparency, accountability and challenge. I am
confident that the Board retains an appropriate balance of skills, experience, independence and knowledge of the Group’s
business to ensure continued challenge, debate and effective decision making in the best long-term interests of the Group.
Allister Langlands
27 February 2017
Biography Allister became Senior Ian joined the Group as Chief Philip joined the Group Bill became a Non-Executive
Independent Director of Executive Officer in early 2011 on 28 September 2015. Director of Exova Group plc
Exova Group plc upon the and became a Director of On 30 November 2015, on 12 March 2014. Bill was a
Company’s IPO on 16 April Exova Group plc on 12 March he became Chief Financial Non-Executive Director of the
2014. On 1 January 2016, 2014. He was a Director of the Officer and a Director of previous Parent Company of
Allister replaced Fred Kindle previous Parent Company of Exova Group plc. the Group from July 2011 until
as Chairman. the Group prior to the IPO. the IPO. On 1 January 2016, Bill
Philip joined Exova most became Senior Independent
Allister was Chairman of Ian joined Exova from recently from Wood Mackenzie, Non-Executive Director.
John Wood Group PLC Compass Group plc where he where he was Chief Financial
(Wood Group) from November was Group Managing Director, Officer from April 2014 until Bill's early career was in the
2012 until May 2014. He was UK & Ireland and a member of June 2015. Philip previously industrial, manufacturing
formerly Chief Executive of its Group Executive Committee. spent 17 years with General and technology sectors. He
Wood Group (from 2007) Electric Company where he began working in the testing
and Deputy Chief Executive Prior to Compass, Ian’s was latterly President and inspection and certification
(from 1999). Allister served career included positions Chief Executive Officer of the industry in 1992 and he was
as Group Finance Director with Centrica plc and the European, Middle East and the Chief Financial Officer of
of Wood Group from 1991 global management Africa (EMEA) Consumer and Intertek Group Plc for 15 years
to 2000. Prior to joining Wood consultancy Accenture. Industrial Solutions business, until 2010. Since then, he has
Group, he was a partner with having also been Chief developed a varied non-
Coopers & Lybrand Deloitte Ian has a BSc (Hons) in Financial Officer of this executive career. He was a
(now Pricewaterhouse Economics and Statistics business from 2005 to 2008. Non-Executive Director and the
Coopers LLP). from University College London Audit Committee Chairman of
and an MBA from INSEAD. Philip holds a Bachelor of Arts UK Mail Group Plc from 2011
Allister has an MA (Hons) in Degree from University of West until the sale of the business
Economics from the University London and is a Chartered in 2016.
of Edinburgh. Management Accountant.
Bill is a Chartered Management
Accountant and Corporate
Treasurer and has a BSc in
Management Sciences from
the University of Manchester.
1. Provision A.3.1 of the UK Corporate Governance Code published by the Financial Reporting Council in September 2014 states that the chairman should,
on appointment, meet the independence criteria, but thereafter the test of independence is not appropriate in relation to the chairman.
Helmut Eschwey Fred Kindle Vanda Murray OBE Christian Rochat Andrew Simon OBE
Independent Non-Executive Director Independent Non-Executive Director Independent
Non-Executive Director Non-Executive Director Non-Executive Director
Helmut became a Fred became a Director and Vanda became a Christian became a Andrew became a
Non-Executive Director of Non-Executive Chairman of Non-Executive Director of Non-Executive Director Non-Executive Director
Exova Group plc on 12 Exova Group plc on 12 March Exova Group plc upon the of Exova Group plc on of Exova Group plc on
March 2014 prior to its IPO. 2014 prior to the IPO. On Company’s IPO on 16 April 12 March 2014. Christian 12 March 2014. Andrew
From 27 November 2008 1 January 2016, Fred stood 2014. She has over 20 years was a Non-Executive was a Non-Executive
until the IPO, Helmut was a down as Chairman and is of senior management Director of the previous Director of the previous
Non-Executive Director of the now a Non-Executive Director. experience across a range Parent Company of the Parent Company of the
previous Parent Company Fred was Non-Executive of industrial, manufacturing Group from November Group from 27 November
of the Group. Chairman of the previous and support services sectors 2008 until the IPO. 2008 until the IPO.
Parent Company of the in the UK, Europe, USA
Helmut served until 2008 Group from November 2008 and Asia. Christian joined Clayton, Andrew spent the first
as Chairman of the until the IPO in April 2014. Dubilier & Rice LLP in 2004. 23 years of his career at
Management Board and Vanda was the Chief Prior to joining Clayton, the Evode Group variously
Chief Executive Officer of Fred joined Clayton, Dubilier Executive Officer of Blick plc Dubilier & Rice LLP, Christian as Chief Executive and
Heraeus Holding GmbH. & Rice LLP as a partner in from 2001 to 2004, before was managing director at Chairman. Since 1993 he
Before joining Heraeus 2008. On 1 January 2016, becoming President of Morgan Stanley Capital has built a varied career of
Holding GmbH, he held Fred retired as a partner Europe for Stanley Security Partners, having previously non-executive directorships
senior positions at Henkel, and became an operating Solutions. She was the UK been a director at Schroder in the UK and overseas in
Pirelli, Freudenberg and the adviser to Clayton, Dubilier Managing Director and Ventures (now Permira). He both private equity and
SMS Group. & Rice LLP. Fred is the Group Marketing Director also worked in the London public companies.
former President and Chief at Ultraframe plc from 2004 and New York offices of
Helmut holds a PhD in Executive Officer of ABB to 2006. She was also a Morgan Stanley’s mergers Andrew has a BSc in social
chemistry from the University Limited. Prior to joining ABB, Non-Executive Director of and acquisitions sciences from the University
of Freiburg in Breisgau. Fred served from 1999 to Carillion plc from June 2005 department. of Southampton and an
2004 as President and Chief until May 2014. MBA from the Wharton
Executive Officer of Sulzer Ltd. Christian holds a BA and Business School at the
Previously Fred worked for Vanda holds a BA (Hons) PhD in law from the Université University of Pennsylvania.
McKinsey and Company in European Business de Lausanne and an MBA
in New York and Zurich. Administration from from the Stanford Graduate
Middlesex University and a School of Business.
Fred graduated from the Swiss DESEM (Diplome d'Etudes
Federal Institute of Technology Superieures Europeenes
in Zurich with a masters de Management) from
degree in engineering. He Neoma Management
also holds an MBA from School in Reims, France.
Northwestern University.
12 March 2014 12 March 2014 16 April 2014 12 March 2014 12 March 2014
Helmut is Non-Executive Fred is Chairman of Vanda is currently a Partner at Clayton, Dubilier Andrew is on the board of
Chairman and board VZ Holding AG and a Non-Executive Director & Rice LLP and a director iCON Infrastructure Partners II,
member of a number member of the boards of of Manchester Airports of a number of portfolio LP and iCON Infrastructure
of private companies. Zurich Insurance Company Holdings Limited and Bunzl companies. Partners III, LP.
Ltd and Stadler AG and plc, Chairman of Fenner plc
Schneider-Electric SA. and the Chair of the Board
of Governors of Manchester
Metropolitan University.
Introduction
The Directors present their Annual Report and the audited financial statements for Exova Group plc for the 12 months ended
31 December 2016. On 16 April 2014, Exova Group plc’s ordinary share capital was admitted to the premium listing segment of the
Official List of the UK Financial Conduct Authority and to trading on the London Stock Exchange’s main market for listed securities.
The Corporate Governance Report includes the Directors’ Report on pages 82 to 86 which contains certain statutory disclosures. The
Strategic Report on pages 2 to 38 contains a description of the Group’s business model and information relating to the performance
of the Group’s business during the financial year, the position of the Group at the end of the year, and likely future developments.
Compliance statement
During the period from 1 January 2016 until 31 December 2016, the Company complied with the UK Corporate Governance
Code published by the Financial Reporting Council in September 2014, save in respect of the composition of the Nomination
Committee. On 1 January 2016, Allister Langlands replaced Fred Kindle as Chairman, on appointment becoming the Group’s
first Independent Chairman and thereby enhancing the Group’s corporate governance framework. In 2016, Allister Langlands
also continued to chair the Nomination Committee with Helmut Eschwey (an Independent Non-Executive Director) and Fred
Kindle (a Non-Executive Director appointed to the Board by TABASCO B.V.) both remaining as members. Under the UK Corporate
Governance Code, a majority of the members of the Nomination Committee should be independent non-executive directors.
As Allister Langlands is now Chairman, he is not treated as an Independent Non-Executive Director for this purpose and,
in 2016, the Company no longer complied with the UK Corporate Governance Code provisions in this regard. With effect from
20 December 2016, Bill Spencer (Senior Independent Non-Executive Director) and Vanda Murray (Independent Non-Executive
Director) also joined the Nomination Committee and a majority of the members of the Nomination Committee are now
Independent Non-Executive Directors.
Set out below is an overview of the Company’s compliance with the UK Corporate Governance Code.
A. Leadership
A.1 The role of the Board The Board provides leadership to the Group. It meets formally on a regular basis and
ensures that the Group has the necessary financial and human resources in place
to meets its objectives, review management performance and strategy against set
objectives and help to deliver long-term success. Details of the matters specifically
reserved for the Board are set out on page 45.
A.2 Division of responsibilities The roles of the Chairman and Chief Executive Officer are separate, clearly defined,
set out in writing and approved by the Board. The Chairman is responsible for
leadership of the Board and ensuring its effectiveness. The Chief Executive Officer
is responsible for the day-to-day leadership of the Group’s business and managing
it within the authorities delegated by the Board.
A.3 The Chairman The Chairman sets the agendas and timetables for Board meetings. He facilitates
debate and dialogue during the meetings. Allister Langlands, who became
Chairman on 1 January 2016, met the independence criteria set out in the UK
Corporate Governance Code on appointment.
A.4 Non-Executive Directors The Non-Executive Directors scrutinise the performance of the management and
are responsible for determining levels of remuneration of the Executive Directors of the
Company and such other senior employees as the Board may determine from time to
time. They also have a primary role in succession planning. Bill Spencer, an Independent
Non-Executive Director, has been appointed as Senior Independent Director.
B. Effectiveness
B.1 The composition of the Board The Board includes an appropriate combination of Executive and Non-Executive
Directors. At least half of the Board, excluding the Chairman, comprise Non-Executive
Directors determined by the Board to be independent.
B.2 Appointments to the Board The Nomination Committee leads the process for Board appointments. A majority
of its members are independent Non-Executive Directors.
B.3 Commitment The time commitments of Non-Executive Directors are defined on appointment and
set out in a letter of appointment. Other significant commitments must be disclosed
to the Board before appointment as must subsequent changes.
B.4 Development Directors receive a full, formal induction on joining the Board. The Chairman,
in conjunction with the General Counsel & Company Secretary, reviews each
Director’s training and development needs.
B.5 Information and support The Chairman, in conjunction with the General Counsel & Company Secretary,
ensures that all Board members receive accurate, timely and clear information.
B.6 Evaluation In February 2016, the Group carried out an internally facilitated evaluation of
the performance of the Board, Audit Committee, Nomination Committee and
Remuneration Committee. A similar evaluation was also carried out in February 2017.
B.7 Re-election All Directors will be subject to annual election by the shareholders.
C. Accountability
C.1 Financial and Please refer to page 87 for the Board’s statement on the Annual Report & Accounts
business reporting being fair, balanced and understandable. The Annual Report & Accounts set out
details of the Group’s financial position and prospects and how it generates value
over the longer term. The Strategic Report on pages 2 to 38 includes an explanation
of the Company’s business model and the strategy for delivering the objectives of
the Company and a statement on the status of the Company and the Group as a
going concern.
C.2 Risk management The Board has carried out a robust assessment of the principal risks and uncertainties
and internal control facing the Company and how those risks affect the prospects of the Company. Please
refer to pages 10 to 13 for further information on the Company’s principal risks and
uncertainties and their impact on the prospects of the Company.
The overall responsibility for the Company’s systems of internal control and for reviewing
their effectiveness rests with the Board. The Board has conducted an annual review of
the effectiveness of the systems of internal control during the year. Further information
on the Company’s risk management and internal control systems is given on page 49.
C.3 Audit Committee and auditors The Board established the Audit Committee which assists the Board with the discharge
of its responsibilities. Its activities are described on pages 48 and 53. Allister Langlands,
the Chairman of the Board, met the independence criteria on appointment. All of the
other members of the Audit Committee are Independent Non-Executive Directors.
D. Remuneration
D.1 The levels and components The levels of remuneration of Directors and their link to performance are explained
of remuneration in the Remuneration Report on pages 57 to 81.
D.2 Procedure The Board established the Remuneration Committee of three Independent
Non-Executive Directors. Its activities during 2016 are described on page 58.
E. Relations with shareholders
E.1 Dialogue with shareholders The Board seeks to engage with shareholders. Details of how the Board engages
with shareholders are set out on page 50.
E.2 Constructive use of the AGM At any general meeting, the Company will propose a resolution on each separate
issue. Attendees at the AGM will have the opportunity to put questions to the Board
and to speak to individual Directors following the formal business of the meeting.
The Board
Composition
The Board is responsible for the proper management of Group strategy and direction. It also oversees the activities and direction
of Exova Group plc.
The Board currently has nine members. It comprises the Chairman, two Executive Directors, two Non-Executive Directors and four
Independent Non-Executive Directors, who are considered by the Board to be independent for the purposes of the UK Corporate
Governance Code. The Board benefits from the wide range of sector experience of its Non-Executive Directors. Details of the
Directors and their biographies can be found on pages 40 and 41.
The Board acknowledges that Fred Kindle (a Non-Executive Director), and Christian Rochat (a Non-Executive Director) are not
considered to be independent for the purposes of the UK Corporate Governance Code as a result of their roles at Clayton,
Dubilier & Rice LLP, as described below.
Directors on the Board during the period from 1 January 2016 and up to the date of this report are as follows:
Director Date of appointment
Provision B.7.1 of the UK Corporate Governance Code states that all directors of FTSE 350 companies should stand for annual
election by shareholders. Although at the date of this report the Company is not a constituent of the FTSE 350, in accordance
with the Company’s Articles of Association, each of the Directors shall submit themselves for re-election at every annual general
meeting held. All the present Directors of the Company will be subject to election by shareholders at the Annual General Meeting
of the Company which will be held on 24 May 2017.
The Board believes that documented roles and responsibilities for Directors, with a clear division of key responsibilities between the
Chairman and the Chief Executive Officer, are essential elements in the Group’s governance framework and facilitate the effective
operation of the Board. Accordingly, the Board has agreed the division of responsibilities between the Chairman and the Chief
Executive Officer and the role of the Senior Independent Director. The General Counsel & Company Secretary’s responsibilities
include ensuring that the Board and its Committees receive information and papers in a timely manner to enable full and proper
consideration to be given to relevant issues. The General Counsel & Company Secretary minutes proceedings and resolutions
of Board and Committee meetings. The appointment and removal of the General Counsel & Company Secretary is a matter
reserved for the Board.
Chairman
Allister Langlands is the Chairman of the Board. He is responsible for the leadership and overall effectiveness of the Board and
setting its agenda, but takes no part in the day-to-day running of the business.
• running the Board effectively by ensuring meetings are held with appropriate frequency and the Board’s agenda reflects
the important issues facing the Group, with an emphasis on strategic rather than routine issues;
• ensuring the Board determines the significant risks the Group is willing to take in the implementation of its strategy;
• encouraging all Directors to contribute fully to Board discussions and ensuring that sufficient challenge applies to
major proposals;
• fostering relationships within the Board and providing a sounding board for the Chief Executive Officer on important
business issues;
• identifying development needs for the Board and Directors;
• leading the process for evaluating the performance of the Board, its Committees and individual Directors; and
• ensuring effective communication with major shareholders.
• managing the Group on a day-to-day basis within the authority delegated by the Board;
• developing and proposing the Group strategy, annual plans and commercial objectives to the Board;
• leading the executive team in the day-to-day management of the Group;
• identifying and executing strategic opportunities for the Group;
• maintaining a dialogue with the Chairman and the Board on important strategic issues facing the Group;
• ensuring that the development needs of the Executive Directors and senior management are met;
• making plans for the succession and replacement of key personnel;
• recommending budgets and forecasts for Board approval;
• providing recommendations to the Remuneration Committee on remuneration strategy for Executive Directors and other
senior management; and
• leading the communication programme with shareholders and ensuring the appropriate and timely disclosure of information
to the stock market.
Non-Executive Directors
The Company has experienced Non-Executive Directors on its Board. Allister Langlands (the Chairman) met the independence
criteria set out in the UK Corporate Governance Code on appointment. The Board also considers Bill Spencer (Senior Independent
Director), Helmut Eschwey, Vanda Murray and Andrew Simon to be independent as they are free from any business or other
relationship which could materially influence their judgement and they represent a strong source of advice and independent
challenge. Fred Kindle and Christian Rochat were both appointed as Non-Executive Directors on 12 March 2014. They are
representatives of Clayton, Dubilier & Rice LLP, which manages CD&R Fund VII L.P., the owner of TABASCO B.V. As at the date
of this report, TABASCO B.V. holds 54% of the issued share capital of the Company and Fred Kindle and Christian Rochat are
not, therefore, regarded as independent for the purposes of the UK Corporate Governance Code.
Other than the fees which are disclosed on page 75, the Chairman and Non-Executive Directors received no remuneration from
the Company during the year. When Non-Executive Directors are considered for appointment, the Nomination Committee will
take into account their other responsibilities in assessing whether they can commit sufficient time to their prospective directorship.
• the Group’s business strategy and objectives, budget and forecast and any material changes to them;
• changes in capital structure;
• approving the half-year financial statements, trading updates and preliminary announcement of final results;
• approving the Annual Report & Accounts including the Corporate Governance Report and Directors’ Remuneration Report;
• ensuring the Group has effective systems of internal control and risk management in place, including approving the Group’s
risk appetite and procedures for the detection of fraud and the prevention of bribery;
• approving major capital projects, corporate actions and transactions;
• convening general meetings and approval of circulars;
• changes to the structure, size and composition of the Board, following the recommendations from the Nomination Committee;
• reviewing the performance of the Board and its committees and the Group’s overall Corporate Governance framework;
• approving the Group’s dividend policy; and
• approving other matters reserved for decision by the Board by law or where likely to have a material impact on the Group’s
finances, operation, strategy or reputation.
Ongoing training and development is also provided to all Directors to ensure that they keep abreast with relevant regulatory
and legislative requirements. During 2016, the Board was briefed on a range of subjects including: monitoring risk management
and internal controls; the Group’s financial processes; taxation matters; sanctions and export controls; data protection; the EU
Market Abuse Regulation; and the UK Modern Slavery Act 2015. The training needs of Directors and of members of the Board’s
Committees will also be formally considered on an annual basis and monitored throughout the year.
Detailed papers and presentation materials are circulated in advance of Board and Committee meetings to each of the Directors
to allow Directors to be properly briefed in advance of meetings. Board and Committee packs include detailed financial and
operational information. Presentations are given at the meetings and minutes of previous meetings and the status of agreed
actions are considered. Separate strategy meetings and meetings with senior executives are also held throughout the year.
Directors may seek independent professional advice at the Company’s expense where they consider it appropriate in relation
to their duties. All Directors have access to the advice and services of the General Counsel & Company Secretary.
Conflicts of interest
A Group policy and process is in place to address possible conflicts of interest of Directors. The Company’s Articles of Association
enable the Board to authorise conflicts of interest matters pursuant to Section 175 of the Companies Act 2006. Each of the Directors
has completed a questionnaire to ensure that any potential conflicts of interest are disclosed. The Directors have been advised
of the Group’s procedures and policies in relation to conflicts of interest. Any relevant conflicts and potential conflicts with the
interests of the Company that arise must be disclosed at the next Board meeting for consideration and, if appropriate, authorised
by relevant Board members in accordance with the Company’s Articles of Association. Any new Directors will also be made aware
of these procedures and policies in advance of their appointment. A conflicts register with details of other directorships/interests
of the Directors is maintained by the General Counsel & Company Secretary. Directors abstain from voting when there is a vote to
approve their own reported conflicts. In the period from 1 January 2016 until 31 December 2016, this process operated effectively.
Fred Kindle and Christian Rochat, both being Non-Executive Directors, hold positions at Clayton, Dubilier & Rice LLP, the manager
of CD&R Fund VII L.P., which owns TABASCO B.V. As at the date of this report, TABASCO B.V. holds 54% of the issued share capital of
the Company. In addition, Andrew Simon previously acted as a Non-Executive Director at BCA Osprey IV Limited which was owned
or controlled by funds advised by Clayton, Dubilier & Rice LLP. Helmut Eschwey previously acted as a consultant to Clayton, Dubilier
& Rice LLP on an independent contractor basis.
Save as set out in the paragraph above, there are no potential conflicts of interest between any duties owed by the Directors to
the Company and their private interests or other duties. No other Director had any material interest in any significant contract with
the Company or with any Group undertaking during the year.
The Executive Directors may not (without the prior written consent of the Board) accept any other executive or non-executive
appointment, or be directly or indirectly engaged, concerned or interested in any other business (other than as a minority holder
of listed shares or loans in a publicly traded company). As part of their ongoing development, the Executive Directors may seek
up to one external non-executive appointment on a non-competitor board, for which they may retain the remuneration in respect
of the appointment. In order to avoid any conflict of interest, all appointments are subject to the Board’s approval and the Board
monitors the extent of Directors’ other interests to ensure that its effectiveness is not compromised. As at the date of this report,
Ian El-Mokadem, the Chief Executive Officer and an Executive Director, and Philip Marshall, the Chief Financial Officer and an
Executive Director, do not hold any external non-executive roles.
Directors’ interests
The Directors’ interests in the ordinary shares of the Company are shown on page 77 of the Remuneration Report.
The Chief Executive Officer operates a Group Executive Committee to support him in the performance of his duties, including the
development and implementation of strategy, the monitoring of operating and financial performance, the assessment of control
and risk and the supervision and prioritisation of resources.
The Group Executive Committee comprises the Executive Directors being Ian El-Mokadem and Philip Marshall, and the following
from the Group’s senior management: Paul Barry (Group Managing Director, Industries), Matthew Davies (Group Managing
Director, Infrastructure & Environment), John Willox (Group Managing Director, Products), Dr. Roger Digby (Group Technical
Director and HSE Director), Neil MacLennan (General Counsel & Company Secretary), Manus McGonigle (Chief Information
Officer), Jim McHugh (Group HR Director) and Andrew Pickup (Corporate Affairs Director). The Group Executive Committee
meets regularly to discuss and approve operational matters.
In addition to its principal operating committees, the Board has established a Market Disclosure Committee, which will meet
whenever necessary. The Market Disclosure Committee’s responsibilities are to ensure that the Company’s obligations to make
timely and accurate disclosure of information under the Market Abuse Regulation, the Financial Conduct Authority’s Listing Rules
and Disclosure and Transparency Rules (DTR) are met. As at the date of this report, the Market Disclosure Committee comprises
Ian El-Mokadem (Chief Executive Officer), Phil Marshall (Chief Financial Officer), Neil MacLennan (General Counsel & Company
Secretary) and Andrew Pickup (Corporate Affairs Director).
Each Board Committee has written terms of reference setting out its duties, reporting responsibilities and authorities which
are reviewed annually. Committee terms of reference are reviewed annually and subject to periodic updating to reflect any
changes in legislation, regulation or best practice. Further details on the Board Committees are set out on pages 51 to 81 of this
report. The terms of reference for the Audit, Remuneration and Nomination Committees are available on the Group’s website at
www.exova.com.
The three main Board Committees are comprised of Non-Executive Directors of the Company. The Chairman of each Committee
reports on the proceedings of the previous Committee meeting at the next scheduled Board meeting. The General Counsel &
Company Secretary acts as Secretary to all Board Committees.
The table below shows attendance levels at the scheduled Board and Committee meetings held during this period and confirms
how many meetings each Director was eligible to attend and attended.
Audit Remuneration Nomination
Main Board Committee Committee Committee
* In addition to the scheduled meetings, the Board also met at short notice on a quorate basis on eleven occasions and the Remuneration Committee also
had one further meeting called at short notice during 2016.
** On 20 December 2016, Bill Spencer and Vanda Murray became members of the Nomination Committee.
If a Director is unable to attend a meeting, he or she will be provided with all the papers and information relating to that meeting
and will be able to discuss issues arising directly with the Chairman and Chief Executive Officer.
There are seven Board meetings currently planned for 2017. In 2016, the Non-Executive Directors held sessions at the end of
several Board meetings without the Executive Directors being present.
Audit Committee
The Audit Committee’s role is to assist the Board with the discharge of its responsibilities in relation to financial reporting, including
reviewing the Group’s Annual Report & Accounts and half-year financial statements, reviewing and monitoring the scope of the
annual audit and the extent of the non-audit work undertaken by external auditors, advising on the appointment of external
auditors and reviewing the effectiveness of the internal audit function, internal controls, whistleblowing, cyber security and fraud
systems in place within the Group. The Audit Committee will normally meet not less than four times a year.
The Audit Committee is chaired by Bill Spencer and its other members are Andrew Simon and Allister Langlands. The UK Corporate
Governance Code recommends that the Board should establish an Audit Committee of at least three, or in the case of smaller
companies, two independent non-executive directors. In smaller companies the company’s chairman may be a member of,
but not chair, the committee in addition to the independent non-executive directors, provided that he or she was considered as
independent on appointment as chairman. The UK Corporate Governance Code also states that the Board should satisfy itself
that at least one member of the Audit Committee has recent relevant financial experience. The Company is not a constituent
of the FTSE 350 and is a smaller company for the purpose of the UK Corporate Governance Code. Bill Spencer (the Chairman of
the Audit Committee) and Andrew Simon are Non-Executive Directors, independent in character and judgement and free from
any relationship or circumstance which may, could or would be likely to, or appear to, affect their judgement. Allister Langlands
(the Chairman) was considered as an independent director on his appointment as Chairman. At least one member of the Audit
Committee has relevant financial experience. The Board considers that the Company complies with the requirements of the UK
Corporate Governance Code in respect of the composition of the Audit Committee.
Remuneration Committee
The Remuneration Committee recommends the Group’s policy on executive remuneration, determines the levels of remuneration
for Executive Directors and the Non-Executive Chairman and other senior executives as the Board may determine and prepares
an annual Remuneration Report for approval by the shareholders at the Annual General Meeting. The Remuneration Committee
will normally meet not less than three times a year.
The Remuneration Committee is chaired by Andrew Simon and its other members are Bill Spencer and Vanda Murray. The UK
Corporate Governance Code recommends that all members of the Remuneration Committee be non-executive directors,
independent in character and judgement and free from any relationship or circumstance which may, could or would be likely to,
or appear to, affect their judgement. The Board considers that the Company complies with the requirements of the UK Corporate
Governance Code in this respect.
Nomination Committee
The Nomination Committee assists the Board in reviewing the structure, size and composition of the Board. It is also responsible for
identifying potential candidates to be appointed as Directors, as the need may arise. The Nomination Committee also determines
succession plans for the Directors and other senior executives. The Nomination Committee will meet at least once a year.
The Nomination Committee is chaired by Allister Langlands and its other members are Helmut Eschwey Fred Kindle, Vanda Murray
and Bill Spencer. Vanda Murray and Bill Spencer became members of the Nomination Committee on 20 December 2016. The
UK Corporate Governance Code recommends that a majority of the members of the Nomination Committee be non-executive
directors, independent in character and judgement and free from any relationship or circumstance which may, could or would be
likely to, or appear to, affect their judgement. Following the appointment of Vanda Murray and Bill Spencer as members, the Board
considers that the Company complies with the requirements of the UK Corporate Governance Code in this respect.
The Group also uses a number of KPIs to measure both operational and financial activity within the business. On a regular basis,
the Group and divisional results, including details of the variance to the budget, most recent forecasts and figures for the previous
year, are provided to the Group Executive Committee and other relevant senior employees. A monthly report is also provided to
the Board and the Group Executive Committee. Amongst other things, this includes a financial performance overview and CFO’s
report, including profit and loss and cash flow statements.
Key elements of the Group’s internal control and risk management systems and procedures in relation to the financial reporting
process are currently as follows:
On the basis of the above, the Board, advised by the Audit Committee, has concluded that the systems of internal control
are effective.
External audit
Ernst & Young LLP, the Company’s auditor, has indicated their willingness to continue in office. It is proposed that Ernst & Young
LLP be the auditor for the year ending 31 December 2017. The Board has agreed, based on the recommendation of the Audit
Committee, that a resolution be put to shareholders at the forthcoming Annual General Meeting for the appointment of Ernst
& Young LLP as auditor of the Company and to authorise the Directors to determine the remuneration of the auditor.
The Audit Committee reviews the appointment of the auditor and the auditor’s effectiveness and relationship with the Group,
including the level of audit and non-audit fees paid. Further details on the work of the Audit Committee are set out on pages
53 to 56 of this report.
Internal audit
The Group employs a Group Internal Audit Manager. In advance of each meeting, the Audit Committee is provided with an
update report setting out the findings and recommendations of the Group Internal Audit Manager from the work carried out
since the previous meeting. The purpose of this report is to highlight any major control issues arising from the annual audit plan
approved by the Audit Committee, together with information on current activities and reports on the progress, findings and
recommendations in respect of actions required of management. The Audit Committee discusses lessons learned and challenges
whether further actions or changes to process are required as a result of internal audit findings and recommendations.
Dear Shareholder
Introduction from the Chairman
Welcome to the Nomination Committee Report of Exova Group plc. The report is for the period from 1 January 2016 until
31 December 2016. The Nomination Committee met twice during the period with attendance disclosed on page 48.
• evaluating and reviewing the balance of skills, knowledge and experience on the Board;
• the size, structure and composition of the Board;
• retirements and appointments of additional and replacement Directors; and
• making appropriate recommendations to the Board on such matters.
The Nomination Committee believes that the members of the Board have an appropriate mix of skills, experience, knowledge
and diversity which enables them to discharge their respective duties and responsibilities effectively. In line with the UK Corporate
Governance Code, the Company will continue to make Board appointments on merit, against objective criteria and with due
regard for the benefits of diversity on the Board, including gender.
Effectiveness
We have carried out an evaluation of the terms of reference and considered the succession planning of the Directors and senior
management. In February 2016, an internally facilitated evaluation of the effectiveness of the Nomination Committee was carried
out. Details of the evaluation are set out on page 46.
The principal other work undertaken by the Nomination Committee during the year included evaluating the skills, experience
and diversity of the Board, considering succession planning for Non-Executive Directors, setting the agenda for 2017 and reviewing
its terms of reference. At its meeting in December 2016, the Nomination Committee recommended the appointment of Vanda
Murray and Bill Spencer (both Independent Non-Executive Directors) as members and they joined this committee with effect from
20 December 2016.
The Nomination Committee also reviewed the composition of the Board. As mentioned in my Letter from the Chairman, on
12 March 2014 in advance of the IPO, Helmut Eschwey and Andrew Simon, both independent non-executive directors, became
directors of the Company. From 27 November 2008 until 12 March 2014, both Helmut Eschwey and Andrew Simon were Directors of
the former Parent Company of the Group. After taking into account their time as Directors of the previous Parent Company of the
Group, Helmut Eschwey and Andrew Simon will have served nine years as at the end of November 2017. In 2016, a rigorous review
of the composition of the Board was carried out. It was agreed to keep the composition of the Board under review and further
consider succession arrangements for Helmut Eschwey and Andrew Simon at the next meeting of the Nomination Committee to
be held in 2017. It is expected that Helmut Eschwey will stand down as a Director of the Company at or in advance of the annual
general meeting in May 2018. In the interests of preserving the continuity of the Board and its Committees, it is intended that
Andrew Simon will stand down as a Director of the Company thereafter and by no later than the time of the Annual General
Meeting in May 2019.
AGM
The Nomination Committee recommends that the Directors be re-elected at the forthcoming Annual General Meeting. As
Chairman of the Nomination Committee, I will be available at the AGM to answer questions about the work of the Nomination
Committee during the year.
Allister Langlands
Nomination Committee Chairman
27 February 2017
Dear Shareholder
Introduction from the Chairman
I am pleased to report on the activities of the Audit Committee (the Committee) in respect of the 12 months ended 31 December
2016. During this period, the Committee met five times, with attendance disclosed on page 48.
• to monitor and review the integrity of the Group’s financial statements and the appropriateness of the underlying accounting
policies judgements and estimates;
• to monitor and review the scope, resources and effectiveness of the Group’s internal audit function and its material findings;
• to keep under review the effectiveness of the Group’s system of internal financial controls and risk management systems;
• to oversee the Group’s procedures for detecting fraud and to review the arrangements for employees to raise concerns
through whistleblowing; and
• to oversee the relationship with the external auditor, including:
–– considering the scope of work to be undertaken by the external auditor and reviewing that work;
–– approving the terms of engagement and fees;
–– reviewing and monitoring the independence of the external auditor and approving their provision of non-audit
services; and
–– approving the appointment and nominating the re-appointment or removal of the external auditor, before being put to
shareholders in a general meeting.
During the 12 months ended 31 December 2016, the Committee met on five occasions, with the principal work being:
• reviewing and approving the Committee’s terms of reference and approving the Committee’s rolling agenda;
• reviewing internal audit reports, key control questionnaires and approving the future internal audit work plans;
• reviewing key IT controls and cyber security;
• considering the draft interim report and financial statements, including any significant judgement items, such as impairment
of goodwill, and receiving the review undertaken by the external auditors;
• receiving reports on tax reporting, compliance, and ethics;
• reviewing the Group tax policy prior to its approval by the Board;
• considering and approving the external audit scope, fees and plan;
• discussing the adherence to the policies on preventing fraud and on anti-bribery and corruption;
• reviewing the adequacy and effectiveness of the Group’s ongoing risk management systems and control processes;
• reviewing the strategy for the development of information technology systems used for financial reporting; and
• reviewing and approving the policy for the provision of non-audit services by the external auditors.
• reviewing the Annual Report & Accounts for 2016 and recommending to the Board its adoption as fair, balanced
and understandable;
• reviewing the Viability Statement prior to Board review;
• receiving the external Auditor’s Report to the Audit Committee;
• considering the appropriateness of preparing the full year accounts on a going concern basis; and
• considering EY’s confirmation of independence.
Revenue recognition
There is a risk of fraud and management override of internal controls in relation to the adherence of the Group’s revenue recognition
policies on the accrual or deferral of revenue and the cut-off for amounts to be recognised in the year. The Committee confirmed
that the Group had in place an appropriate revenue recognition policy and received reports confirming adherence to the policy
and to consistency of its application across the Group.
Impairment of goodwill
The challenging global market performance could lead to an impairment of goodwill specifically in relation to the risks of
incorrectly allocating goodwill to the revised organisational structure. The Committee considered whether goodwill should be
impaired. There was a particular focus on the Infrastructure, Health and Environment Division, where expected cash generation
had in recent years given low headroom when testing for impairment. The judgements in relation to asset impairment largely
relate to the assumptions underlying future performance. As such, the Committee received relevant financial reports from
management, from which it challenged and debated the assumptions underlying the forecast information. As part of this
process the Committee specifically assessed the headroom in the goodwill valuation and concluded that the valuations
performed and the accounting treatment adopted, which resulted in no impairment charges, were appropriate.
Ensuring that the FBU standard is met requires continuous assessment of the financial issues affecting the Group. In addition,
in preparing and finalising the 2016 Annual Report & Accounts, the Committee considered a FBU review framework prepared
by management. Detailed reporting from and discussion with, the external auditor were also considered by the Committee.
These processes assisted the Committee in being able to carry out its own assessment and being able to advise the Board
that it considered that the Annual Report & Accounts, taken as a whole, were fair balanced and understandable.
The Director’s statement on a FBU in the Annual Report and Accounts is set out on page 87.
Internal controls
In assisting the Board with the discharge of its responsibilities in relation to internal controls, the Audit Committee has reviewed
the effectiveness of the Group’s control systems based on reports from Group Internal Audit and the Chief Financial Officer.
Overall, the Audit Committee concluded that the Group’s internal controls are appropriate to the Group’s needs at this time.
Key judgements
The Audit Committee is satisfied that the judgements made by management are reasonable and that appropriate disclosures
in relation to key judgements have been included in the financial statements. In reaching this conclusion, the Audit Committee
considered reports and analysis prepared by management and constructively challenged the assumptions. Detailed reporting
from, and discussion with, the external auditor were also considered by the Audit Committee.
The Audit Committee assesses the effectiveness of the external audit process by:
• reviewing EY’s audit plan at the start of the audit cycle, their materiality level and identification of key audit risks;
• challenging the findings of EY in testing management’s assumptions and estimates in relation to the key audit risks;
• considering the execution of EY’s audit against the plan and their reporting to the Audit Committee in respect of the half-year
and full-year financial statements; and
• holding discussions with management and (without management present) the audit engagement partner.
Management reported to the Audit Committee that they were satisfied that the quality of the external audit process had been
satisfactory, with appropriate focus and challenge on the key audit risks. Based on this and its own assessment work, the Audit
Committee agreed with the view of management.
Auditor tenure
EY has audited the accounts of the Group since the year ended 31 December 2009. No tender for external audit services has
been undertaken since their appointment. The current audit partner, Mark Harvey, will come to the end his term after the 2017
audit. While there is no current plan to tender the audit, the Committee will keep this under review. Under the Committee’s terms
of reference, the external audit is expected to be put out to tender at least every ten years.
Non-audit services
To help ensure the objectivity and independence of the Company’s auditor, there is a Group policy governing the undertaking
of non-audit services by external auditors. This policy was reviewed by the Audit Committee during the period.
With effect from 1 January 2016 and following a tender process, the Company appointed KPMG to provide global tax advisory
services to the Group which reduced the level of non-audit services provided by EY. Any engagement where the fee is contingent
must always be approved in advance by the Audit Committee.
A summary of the fees paid to EY for non-audit services is set out below:
2016 2015
£m £m
The Audit Committee has concluded that the provision of these services did not compromise the objectivity and independence
of EY as external auditor. The Committee is satisfied that the provision of these services was concluded by EY staff that were
independent of the audit process.
During the year the external auditor undertook the following non-audit work:
A more detailed analysis of audit and non-audit fees is given in Note 3 to the financial statements.
With effect from 1 January 2016, a revised policy governing the undertaking of non-audit services by external auditors was adopted.
Certain services, such as tax advisory services, are not permitted to be provided by the external auditor, while other specific services
are permitted. Under the revised policy, non-audit fees for permitted services must not exceed 70% of the audit fee for statutory work
in any financial year. Regular reports are provided to the Audit Committee in relation to any non-audit services provided by the
external auditor. Any proposal to appoint the external auditor to provide non-audit services which breach the 70% limit requires the
prior approval of the Audit Committee. The Audit Committee must be notified at any point in the financial year if the cumulative fees
for non-audit services exceed 50% of the audit fee. Contingent fees must always be approved in advance by the Audit Committee.
Non-audit fees will remain the subject to scrutiny and approval by the Audit Committee and the policy will be reviewed by the Audit
Committee at least annually and be updated to reflect changes in laws and regulations.
In assessing EY’s independence, the Audit Committee received written confirmation that, in EY’s professional judgement, EY is
independent within the meaning of all UK regulatory and professional requirements and the objectivity of the audit engagement
partner and audit staff is not impaired.
• Strategy and performance reporting: The business strategy and long-term financial planning is reviewed and approved
by the Board, updated annually and feeds into the annual budget process. Executive management review performance
against budgets and latest forecasts on a monthly basis and key trends, KPIs and variances are analysed and explained.
• Risk management and internal control: Management are responsible for identifying and managing risk in the
business. Risk registers are maintained and regularly reviewed by management and high level risks are presented to the
Audit Committee and Board with mitigating actions and controls identified to help reduce risks. The Board monitors the
Company’s risk management and internal controls and reviews their effectiveness. The Board, as a whole, including the
Audit Committee members, consider the nature and extent of the Company’s risk management framework and the risk
profile that is acceptable in order to achieve the Company’s strategic objectives. The Audit Committee has reviewed the
work done by management, the Committee itself and the Board on the assessment of the Company’s principal risks, including
their impact on the prospects of the Company. As a result, it is considered that the Board has fulfilled its obligations under the
Code in relation to risk management and internal controls. Further details on the Company’s principal risks and uncertainties
and their impact on the prospects of the Company are set out on pages 10 to 13.
The Company’s system of internal controls, along with its design and operating effectiveness, is subject to review by the
Audit Committee, through reports received from management, along with those from both internal and external auditors.
Any controls deficiencies identified are followed up with action plans tracked by the Committee.
• Financial and operational control: The Group has an established delegation of authority matrix to ensure that decisions
and transactions are approved at the appropriate level. End-to-end controls and the individuals responsible for management
and review of these controls are documented for each financial process stream. There is also a policies and procedures
document which sets out the Group standard on key financial and operational matters. Management level and other relevant
employees are required to undergo induction and refresher training on these procedures.
• Key Control Questionnaires (KCQs): Self-assessment questionnaires covering key controls are completed and signed off
annually by the appropriate operational and finance managers. Issues identified are followed up at the half year.
Internal audits are undertaken across a range of the Group’s operations and all reports of these audits are presented to the
Committee. As well as receiving individual internal audit reports, the Committee reviews progress made by management in
implementing the control improvements recommended by internal audit. The internal audit reports are reviewed by local
management with significant findings also reviewed and followed up by executive management.
The Group employs a Group Internal Audit Manager who reports to the Chief Financial Officer. The Internal Audit Manager also
has direct access to the Committee Chairman and during the year met with the Audit Committee without the Executive Directors
present.
Bill Spencer
Audit Committee Chairman
27 February 2017
Remuneration report
Chairman of the Remuneration Committee’s annual statement
Dear Shareholder
Introduction from the Chairman
As the Chairman of the Remuneration Committee, I am pleased to present the report of the Board covering the remuneration
policy and practice for the year ended 31 December 2016. The report has been set out in the following parts:
• As previously disclosed, the salary of the Chief Executive Officer (CEO) increased by 2% in line with UK-based employees.
Given the appointment of Philip Marshall as an Executive Director and Chief Financial Officer (CFO) on 30 November 2015
his salary did not increase in 2016.
• For 2016, annual bonus measures were based on adjusted EBITA (60%), cash conversion (20%) and personal objectives (20%).
The remuneration policy aims to support a high performance culture with appropriate reward for superior performance. Annual
bonuses of 29% of the maximum for the Chief Executive Officer and 32% of the maximum for the Chief Financial Officer reflect
the improvement in the performance of the Group. As the EBITA threshold target was not achieved no bonus was payable in
relation to this element of the bonus. The Cash conversion element was achieved at maximum level and the Chief Executive
Officer achieved 75% and the Chief Financial Officer 100% of target performance for the Personal objectives and therefore a
bonus of 16% and 15% of salary was payable respectively for this element. In total, bonuses amounting to £231,801 for the Chief
Executive Officer and £130,000 for the Chief Financial Officer were awarded.
• With respect to 2014 LTIP awards, an award was granted to the Chief Executive Officer on 17 April 2014 following the successful
IPO of the Company with 50% of the award based on Earnings Per Share (EPS) growth and 50% of the award based on Total
Shareholder return (TSR). The adjusted EPS element was calculated against the 2013 calendar year baseline and over the
subsequent three year period. As the EPS performance condition threshold of 7% was not met, this element of the award will
lapse. The TSR element is calculated on the 36 month period following on from the listing of the company and any award for
this element of the 2014 LTIP award will be reported in 2017.
All arrangements operated by the Company during the year were in line with the Policy.
• reviewed 2015 Directors’ Remuneration Report (DRR) and emerging themes from 2016 AGM and engaged in shareholder
consultation based on the votes cast against approval of the DRR;
• review and formulation of a revised remuneration policy and shareholder engagement in respect of this;
• provided oversight of any remuneration changes and awards in relation to Group Executive Committee members;
• approved targets and participants under the Company’s Long-Term Incentive Plan (LTIP);
• approved 2016 bonus arrangements and reviewed possible future changes to bonus and LTIP;
• reviewed performance against targets for 2014 and 2015 LTIP awards;
• confirmed Executive Director 2016 bonus awards;
• reviewed Executive Directors’ remuneration arrangements for 2017;
• reviewed performance and appointment of remuneration consultants;
• reviewed draft 2016 DRR; and
• reviewed the performance and effectiveness of the Committee and terms of reference.
The Remuneration Committee and I will continue to provide strong scrutiny over the performance targets set for the incentive
plans to ensure they are suitably stretching given the potential value and that overall remuneration outcomes remain sensitive to
the shareholder experience. Whilst the level of potential bonus payable at threshold will increase (with a corresponding increase
in the challenge of the performance targets), the reduction in maximum bonus payable, increased shareholding requirements
for Executive Directors and increased deferral represent a strengthened alignment to shareholder value and continue to support
the business strategy. We will continue to retrospectively disclose detailed targets and actual performance outcomes for the
bonus and prospective disclosure of targets for the LTIP. These proposals have the full support of the Remuneration Committee
and we trust that they will receive your support.
With respect to the application of the policy in 2017 the Committee has considered a base pay increase for the Chief Executive
Officer and Chief Financial Officer in line with our policy. Based on the performance of the business a salary increase of 2% will
be awarded to the Executive Directors in April 2017, which is in line with other UK-based employees.
The award levels in relation to the 2017 LTIP remain unchanged. In setting targets for the 2017 LTIP and as part of shareholder
consultation and engagement, the Committee will introduce an additional LTIP metric based on adjusted Free Cash Flow (FCF).
Having evaluated a range of suitable cash conversion and cash return metrics we are satisfied that this will represent a suitable
measure of long-term profitability of the business and quality of earnings growth. Subject to shareholder approval of the revised
remuneration policy, FCF threshold vesting will be set at £141m with maximum vesting set at £155m. The Committee is satisfied that
equal weighting of Total Shareholder Return (TSR), Earnings Per Share (EPS) and adjusted Free Cash Flow (FCF) are appropriate and
threshold vesting remains unchanged at 25% of maximum vesting. For TSR, the performance required for threshold and maximum
vesting remains unchanged at median performance and upper quartile performance respectively. As part of the Group strategy
review, and having carefully considered market conditions, outlook and the continued weakness evident in global energy markets,
balanced by shareholder feedback in respect of the 2016 EPS performance condition, we believe a modest increase at threshold is
justified. The Committee has therefore determined to increase the threshold level of EPS performance from 4% to 5% per annum over
the three year period with maximum vesting to 10% per annum.
I hope that you find the information in this report helpful and I look forward to your support at the Company’s Annual General
Meeting both in relation to the revised Directors’ Remuneration Policy and the application of the current policy in 2016.
I am always happy to hear from the Company’s shareholders and you can contact me at andrew.simon@exova.com or via the
Company Secretary if you have any questions on this report or more generally in relation to the Company’s remuneration.
Andrew Simon
Chair of the Remuneration Committee
27 February 2017
Notes
This report has been prepared in accordance with Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 as amended in 2013 (the ’Regulations’), the provisions of the UK Corporate Governance Code as amended in 2014 and the Listing Rules.
The Chairman’s annual statement and the annual report on remuneration will be subject to an advisory vote at the AGM.
Introduction
In this section we highlight the performance and remuneration outcomes for the 2016 financial year. More detail can be found
in the annual report on remuneration.
• the single total figure of remuneration for Executive Directors for 2016; and
• the current shareholdings of the Executive Directors.
Taxable 2016 2015
Salary Benefits Bonus Pension Other Total Total
Executive Directors £’000 £’000 £’000 £’000 £’000 £’000 £’000
1. Philip Marshall appointment as an Executive Director was effective from 30 November 2015 and this is reflected in his 2015 remuneration which includes a
one-off nil cost LTIP award on appointment.
The following table shows the shareholdings for the Executive Directors at 31 December 2016.
Unvested LTIP
Unvested LTIP interests not
Shareholding Current Shares interests subject subject to Shareholding
requirement shareholding Beneficially to performance performance requirement
Director % salary % salary Owned conditions conditions met?
1. 88,569 of these shares are jointly held by Ian El-Mokadem with his spouse.
2. Executive Directors are required to build up their shareholding over a reasonable period of time which would normally be five years.
Introduction
In accordance with the regulations, the Directors’ Remuneration Policy (the ‘Policy’) as set out below will become formally effective
at the Annual General Meeting to be held in May 2017 and will apply for a period of three years from that date.
Policy summary
The Remuneration Committee determines the remuneration policy for the Executive Directors, Chairman and other senior executives
for current and future years and this is reviewed on an annual basis. The remuneration policy is designed to support the strategic
objectives of the Company and to allow the business to attract, retain and motivate the quality of senior management needed to
shape and execute strategy and deliver shareholder value.
The remuneration policy aims to align the interests of the Executive Directors, senior management and employees to the long-
term interests of shareholders and aims to support a high performance culture with appropriate reward for superior performance
without creating incentives that will encourage excessive risk taking or unsustainable Company performance. The Remuneration
Committee is satisfied that the design of the proposed remuneration policy continues to promote the long-term success of
the Company.
The Remuneration Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account
of future changes in the Company’s business environment and in remuneration practice.
• shareholder alignment – ensure a strong link between reward and individual and Company performance to align the interests
of senior executives with those of shareholders;
• competitive remuneration – maintain a competitive package against businesses of a comparable size in the FTSE and
comparable peer group businesses in the sector with reference to the breadth of the role and experience the role holder
brings to the Company;
• strategy alignment – encourage a material, personal stake in the business and a long-term focus on sustained growth through
long-term shareholding;
• performance focused compensation – provide a balanced package with a focus on variable pay; and
• setting appropriate performance conditions in line with the agreed risk profile of the business.
The Remuneration Committee will review annually the remuneration arrangements for the Executive Directors and key senior
management drawing on trends and adjustments made to all employees across the Group and taking into consideration:
The Committee believes that the rules of the Plans provide sufficient powers to enforce
malus and clawback where required.
For share-based remuneration, the The policy contains the following relevant features:
Remuneration Committee should Minimum shareholding requirements for the CEO is 300% of salary; which is materially
consider requiring directors to hold a exceeded by his current shareholdings. The minimum shareholding requirement for
minimum number of shares and to hold the CFO is 200% of salary.
shares for a further period after vesting
or exercise, including for a period after The Remuneration Committee currently believes that, following an increase to
leaving the Company, subject to the the shareholding requirement and the increase in the part of the annual bonus
need to finance any costs of acquisition provided in deferred shares, additional holding periods are not required. However,
and associated tax liabilities. the Remuneration Committee will consider this position on an annual basis.
Discretion
The Remuneration Committee has discretion in several areas of Policy as set out in this report. The Remuneration Committee
may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set
out in those rules. In addition, the Remuneration Committee has the discretion to amend the Policy with regard to minor
or administrative matters where it would be, in the opinion of the Remuneration Committee, disproportionate to seek or
await shareholder approval.
It is the Remuneration Committee’s intention that commitments made in line with its policies prior to the date of the 2017 AGM will
be honoured, even if satisfaction of such commitments is made post the AGM and may be inconsistent with the remuneration
policies set out below.
Policy
How it supports the Company’s
Element of short and long term strategic
Remuneration objectives Operation Maximum
Executive Directors
Salary Policy Provides a base level of An Executive Director’s basic salary Typically, the base salaries of
remuneration to support is set on appointment and reviewed Executive Directors in post at the
recruitment and retention of annually or when there is a change start of the policy period and who
Executive Directors with the in position or responsibility. remain in the same role throughout
necessary experience and the policy period will be increased
expertise to deliver the When determining an appropriate by a similar percentage to the
Group’s strategy. level of salary, the Committee average annual percentage
considers: increase in salaries of all other
employees in the Company.
• general salary rises to employees; The exceptions to this rule may
• remuneration practices within be where:
the Company;
• any change in scope, role and • an individual is below market
responsibilities; level and a decision is taken
• the general performance of the to increase base pay to reflect
Company; proven competence in role; or
• the experience and performance • there is a material increase in
of the relevant director; scope or responsibility to the
• the economic environment; and Executive Director’s role.
• when the Committee determines
a benchmarking exercise is The Committee ensures that
appropriate – salaries within the maximum salary levels are
ranges paid by the companies in positioned in line with companies
the comparator groups used for of a similar size to Exova and
remuneration benchmarking. validated against other companies
in the industry, so that they are
Individuals who are recruited or competitive against the market.
promoted to the Board may, on
occasion, have their salaries set The Committee intends to review
below the targeted policy level until the comparators periodically and
they become established in their may add or remove companies
role. In such cases subsequent from the group as it considers
increases in salary may be higher appropriate. Any changes to the
than the general rises for employees comparator groups will be set out in
until the target positioning is the section headed Implementation
achieved. of Remuneration Policy, in the
following financial year.
Benefits Policy Provides a benefits package in Benefits include car allowance, The maximum is the cost of
line with standard market practice health insurance, life assurance providing the relevant benefits
relative to its comparator group and travel expenses (including set out adjacent.
to enable the Company to recruit tax if any).
and retain Executive Directors with
the experience and expertise to The Committee recognises the
deliver the Company’s strategy. need to maintain suitable flexibility
in the benefits provided to ensure it
is able to support the objective of
attracting and retaining personnel
in order to deliver the Company
strategy. Additional benefits may
therefore be offered such as
relocation allowances on
recruitment, tax equalisation and
support in meeting specific costs
incurred by directors to ensure
the Company and the individuals
comply with their obligations in
the reporting of remuneration.
Policy continued
How it supports the
Company’s short and
Element of long-term strategic
Remuneration objectives Operation Maximum Performance conditions
Executive Directors continued
Annual Bonus The Annual Bonus Plan The Remuneration Maximum = 100% The Annual Bonus Plan is
Plan Policy provides a significant Committee will of opportunity. based on a mix of financial
incentive to the determine the maximum Target = 60% and strategic/operational
Executive Directors annual participation in of opportunity. conditions and is measured
linked to achievement the Annual Bonus Plan Threshold = 20% over a period of one
in delivering goals that for each year, which will of opportunity. financial year. The financial
are closely aligned with not exceed 150% for the measures will account for
the Company’s strategy CEO and 100% for the Annual bonus will no less than 50% of the
and the creation of CFO. The Company will be paid in cash and bonus opportunity.
value for shareholders. set out in the section deferred shares. For
headed statement Executive Directors, The Remuneration
In particular, the Plan of Implementation of the maximum value of Committee retains
supports the Company’s Remuneration Policy in deferred shares is 50% discretion in exceptional
objectives allowing the following financial of the bonus earned. circumstances to change
the setting of annual year, the nature of performance measures and
targets based on the the targets and their It is the intention of targets and the weightings
businesses’ strategic weighting for each year. the Remuneration attached to performance
objectives at that time, Committee that in 2017 measures part-way through
meaning that a wider Details of the a maximum of 100% a performance year if there
range of performance performance conditions, and 67% of salary of is a significant and material
metrics can be used targets and their level of the Chief Executive event which causes the
that are relevant and satisfaction for the year Officer and Chief Remuneration Committee
achievable. being reported on will Financial Officer to believe the original
be set out in the annual respective bonus measures, weightings
report on remuneration. opportunity will be and targets are no longer
provided in cash with appropriate.
any bonus in excess of
this amount provided The Committee may make
in shares. downward or upward
adjustments to the amount
of bonus resulting from
the application of the
performance measures if
the Committee believe that
the outcomes are not a fair
and accurate reflection
of business performance.
The Remuneration
Committee is of the opinion
that given the commercial
sensitivity arising in relation
to the detailed financial
targets used for the annual
bonus, disclosing precise
targets for the bonus plan
in advance would not be
in shareholder interests.
Actual targets, performance
achieved and awards
made will be published at
the end of the performance
periods so shareholders
can fully assess the basis
for any pay-outs under
the Annual Bonus Plan.
The Remuneration
Committee may award
dividend equivalents
on those shares to plan
participants to the extent
that they vest.
The Remuneration
Committee retain the
discretion to subject the
DBP awards to a holding
period of up to two years
post vesting.
In addition, Executive Directors will be required to retain 50% of the post-tax amount of vested shares from the Company incentive
plans until the minimum shareholding requirement is met and maintained.
The Committee retains the discretion to increase the shareholding requirements. The minimum shareholding requirement for
Executive Directors is as follows:
Shareholding requirement
Role (% of Salary)
CEO 300%
Other executives 200%
Recruitment policy
The Company’s approach when setting the remuneration of any newly recruited Executive Director will be assessed in line with
the same principles for the Executive Directors, as set out in the remuneration policy table above. The Remuneration Committee’s
approach to recruitment remuneration is to pay no more than is necessary to attract candidates of the appropriate calibre and
experience needed for the role from the market in which the Company competes.
The Remuneration Committee is mindful that it wishes to avoid paying more than it considers necessary to secure the preferred
candidate and will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term
incentive payments made on recruitment and the appropriateness of any performance measures associated with an award.
• the proportion of the performance period completed on the date of the director’s cessation of
employment;
• the performance conditions attached to the vesting of these incentives and the likelihood of them
being satisfied; and
• any other terms and condition having a material effect on their value (lapsed value).
The Remuneration Committee may then grant up to the same value as the lapsed value, where
possible, under the Company’s incentive plans. To the extent that it was not possible or practical to
provide the buyout within the terms of the Company’s existing incentive plans, a bespoke arrangement
would be used.
Where an existing employee is promoted to the Board, the policy set out above would apply from the date of promotion but there
would be no retrospective application of the policy in relation to subsisting incentive awards or remuneration arrangements.
Accordingly, prevailing elements of the remuneration package for an existing employee would be honoured and form part of the
ongoing remuneration of the person concerned. These would be disclosed to shareholders in the Remuneration Report for the
relevant financial year.
The Company’s policy when setting fees for the appointment of new Non-Executive Directors is to apply the policy which applies
to current Non-Executive Directors.
The Remuneration Committee’s policy for setting notice periods is that a 12 month period will apply for Executive Directors. The
Remuneration Committee may in exceptional circumstances arising on recruitment, allow a longer period, which would in any
event reduce to 12 months following the first year of employment.
The Non-Executive Directors of the Company (including the Chairman) do not have service contracts. The Non-Executive
Directors are appointed by letters of appointment. Each independent Non-Executive Director’s term of office runs for an initial
period of 3 years unless terminated earlier upon written notice or upon their resignations.
The initial terms of the non-executive directors’ positions are subject to their re-election by the Company’s shareholders at the
AGM scheduled to be held on 24 May 2017 and to re-election at any subsequent AGM at which the non-executive directors
stand for re-election.
The Company follows the UK Corporate Governance Code’s recommendation that all directors of FTSE 350 companies be
subject to annual re-appointment by shareholders.
The details of each Non-Executive Director’s term which they are currently serving are set out below:
Current term
(Note: from IPO
date of 16 April
2014)
Name Date of letter of appointment (full years)
In accordance with the regulations share price growth has not been included. In addition, dividend equivalents have not been
added to deferred share bonus and LTIP share awards.
CEO (£’000)
At minimum variable remuneration is 0% of salary; at target, variable remuneration represents 184% of salary and at maximum,
variable remuneration represents 300% of salary.
CFO (£’000)
At minimum, variable remuneration is 0% of salary; at target, variable remuneration represents 123% of salary and at maximum,
variable remuneration represents 200% of salary.
£’000
2,500
2,250
1,959
2,000
1,750
36%
1,500 1,414
Ian El-Mokadem, Chief Executive Officer Philip Marshall, Chief Financial Officer
The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated damages
clauses. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in
each case. There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance
or early retirement. There is no agreement between the Company and its Directors or employees, providing for compensation
for loss of office or employment that occurs because of a takeover bid. The Committee reserves the right to make additional
payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for
breach of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination
of an Executive Director’s office or employment.
Remuneration element Treatment on exit Discretion
Salary Salary will be paid over the notice period. The Committee has discretion to make a lump sum
In all cases the Company will seek to payment on termination of the salary payable during
mitigate any payments due. the notice period.
Benefits Benefits will normally be provided over the The Committee has discretion to make a lump sum
notice period. In all cases the Company payment on termination equal to the value of the
will seek to mitigate any payments due. benefits payable during the notice period.
Pension Company pension contributions will The Company has discretion to make a lump sum payment
normally be provided over the notice on termination equal to the value of the Company pension
period. In all cases the Company will contributions during the notice period.
seek to mitigate any payments due.
• death;
• ill-health;
• injury or disability;
• redundancy;
• retirement with agreement of employer;
• employing company ceasing to be a Group company;
• transfer of employment to a company which is not a Group company; and
• at the discretion of the Remuneration Committee (as described above).
Cessation of employment in circumstances other than those set out above is cessation for other reasons.
Change of control
The Remuneration Committee’s policy on the vesting of incentives on a change of control is summarised below:
Name of Incentive Plan Change of control Discretion
Annual Bonus Plan Performance conditions will The Remuneration Committee has the following element of discretion:
be measured at the date
of the change of control. • to determine whether to pro-rate the bonus to time. The
The bonus will normally be Remuneration Committee’s normal policy is that it will pro-rate for
pro-rated at the date of the time. It is the Remuneration Committee’s intention to use discretion
change of control. to not pro-rate in circumstances where there is an appropriate
business case which will be explained in full to shareholders.
Deferred Bonus Plan Subsisting deferred share The Remuneration Committee has the following elements of
awards will vest on a change discretion:
of control.
• to determine whether the payment of the award should be
in cash or shares or a combination of both; and
• to determine whether to pro-rate the balance of the awards
vesting on change of control. The Committee’s normal policy
is that it will not pro-rate. The Remuneration Committee will
determine whether to pro-rate based on the circumstances
of change of control.
LTIP The number of shares The Committee has discretion regarding whether to pro-rate the
subject to subsisting LTIP LTIP awards to time. The Committee’s normal policy is that it will
awards vesting on a change pro-rate the LTIP awards for time. It is the Committee’s intention to
of control will be pro-rated use its discretion to not pro-rate in circumstances only where there
to time and performance. is an appropriate business case which will be explained in full to
shareholders.
Notes:
1. Relates to actual salaries paid in each calendar year. Ian El-Mokadem’s salary was increased by 2% in April 2016. Philip Marshall’s appointment as an
Executive Director was effective from 30 November 2015 and he was not eligible for a salary increase in 2016.
2. The benefits provided include a car allowance, private health cover and annual executive medical health-check.
3. A bonus award in respect of the Cash conversion (20% weighting) element of the bonus for both the Chief Financial Officer and Chief Executive Officer
was achieved based on the achievement of maximum performance target. In terms of Personal objectives (20% weighting) the Chief Executive Officer
achieved 75% of target performance and the Chief Financial Officer achieved 100% of target performance resulting in an award of 15.75% of salary for
the Chief Executive Officer and 15% of salary for the Chief Financial Officer.
4. An LTIP award was granted to Ian El-Mokadem on 17 April 2014 following the successful IPO of the Company with 50% of the award based on Earnings Per
Share (EPS) growth and 50% of the award based on Total Shareholder return (TSR). The adjusted EPS element was calculated against the 2013 calendar
year baseline and over the subsequent three year period. As the performance condition threshold of 7% was not met this element of the award will lapse.
The TSR element is calculated on the 36 month period following on from the listing of the company and any award in relation to this element will be
reported in 2017.
5. Pension contribution is 15% of the respective salaries. This is provided to the Executive Directors in the form of a non-pensionable salary supplement.
6. The Other 2015 payment relates to the one-off nil cost LTIP award granted to Philip Marshall on appointment as disclosed in the 2015 Directors’
Remuneration Report.
7. Philip Marshall appointment as an Executive Director was effective from 30 November 2015 and his 2015 remuneration reflects the period from this date
to 31 December 2015 and includes the one-off nil cost LTIP award made on appointment.
Notes
1. Allister Langlands was appointed Chairman effective from 1 January 2016.
2. Fees for Fred Kindle and Christian Rochat are payable to CD&R and no benefit is received by the individuals.
% of salary earned
Maximum Total
bonus (% of Group Cash Personal Total payable
salary) EBITA conversion objectives outcome £’000
Notes:
1. The 20% Personal objectives element for the Chief Executive Officer included a range of measures relating to Group strategy, investors, organic growth,
M&A, margin management and organisation and team development. In setting Personal objectives the Board considered the Principal risks and
uncertainties set out in pages 10 to 13 of the Annual Report and the alignment of objectives to these to ensure appropriate focus. Overall the Committee
has judged these objectives as achieved at 75% of target level.
2. The 20% Personal objectives element for the Chief Financial Officer included a range of measures relating to Finance function capability and development,
investor relations, Group strategy, M&A, leveraging Purchasing capability and IT strategy. In setting Personal objectives the Board considered the Principal
risks and uncertainties set out in pages 10 to 13 of the Annual Report and the alignment of objectives to these to ensure appropriate focus. Overall the
Committee has judged these objectives as achieved at 100% of target level.
The awards were granted on 18 April 2016, the face value is calculated using the closing share price on date of grant, which was
162 pence. The performance conditions are as set out below:
• 50% of award based on EPS growth. 25% of this element of the award will vest for EPS growth of 4% per annum with full vesting
occurring for EPS growth of 10% per annum; and
• 50% of award based on Total Shareholder Return (TSR) performance of the Company compared to the FTSE 250 (excluding
financial services and real estate and equity investment trusts). 25% of this element of the award will vest for median TSR
comparative performance with full vesting at upper quartile.
External Directorships
Executive Directors are permitted to take on one external non-executive directorship under the terms of their service agreements
subject to Board approval. Philip Marshall maintained his involvement in PhotonStar LED Group plc, an AIM Listed company, as a
non-executive director until 30 June 2016 at which point he resigned his position and for which he received a fee of £9,000. The
Company allowed Philip Marshall to retain his fee in relation to this appointment.
1. The share price of 190 pence as at 30 December 2016 has been taken for the purpose of calculating the current shareholding as a percentage of salary.
Unvested LTIP shares and options do not count towards satisfaction of the shareholding guidelines. Shares awarded under the DBP and matching shares
under the Share Incentive Plan will not count towards the shareholding requirement. The one-off award on appointment to Philip Marshall has not been
included in the calculation of the shareholding requirement as the award is only exercisable on the second anniversary of appointment.
2. 88,569 of the shares are jointly held by Ian El-Mokadem with his spouse.
No changes in the above Directors’ interests have taken place between 31 December 2016 and the date of this report.
Non-Executive Directors are not subject to a shareholding requirement. Details of their interests in shares are set out below:
Shares held
31 December
Director 2016
Non-Executive Directors do not have a shareholding requirement but are encouraged to maintain a shareholding in the
company to align their interests with shareholders. Fred Kindle and Christian Rochat each have an interest in the shares held
through TABASCO B.V. (formerly Exova Group B.V.) as a result of their interests in CD&R Fund VII L.P.
125
115
105
95
85
75
65
55
O
14
14
15
15
15
16
16
16
14
15
16
IP
20
20
20
20
20
20
20
20
20
20
20
n
n
p
ec
ar
ec
ar
ec
Ju
Ju
Ju
Se
Se
Se
M
M
D
It should be noted that the Company only introduced the LTIP on its admission to listing in April 2014.
The Chief Executive Officer’s remuneration disclosed in the table below has been calculated to take into account actual base
salary paid in 2015 and 2016, taxable benefits, excluding his allowance in lieu of pension, and annual bonus (including any
amount deferred). The employee pay (on which the average percentage change in salary is based) is calculated using the
total actual base salary paid in 2015 and 2016 respectively divided by the average number of UK employees paid in each year,
excluding Executive Directors. Taxable benefits are calculated using P11d data from tax years 2014/15 and 2015/16 for all UK
employees including the Chief Executive Officer. Bonus is calculated based on incentive, bonus and commission payments
paid to all UK employees in calendar years 2015 and 2016 respectively.
Salary1 Taxable benefits2 Bonus
2016 2015 % 2016 2015 % 2016 2015 %
£’000 £’000 change £’000 £’000 change £’000 £’000 change
1. The increase in salary for the Chief Executive Officer between 2015 and 2016 reflects the salary increase of 2% awarded to the Chief Executive Officer
in 2016 in line with UK employees effective 1 April 2016.
2. The reduction in taxable benefits is solely due to the cessation of reimbursement of reasonable expenses the Chief Executive Officer incurred travelling
to and from his home in London to the Company’s office in Edinburgh and for tax (if any) thereon. Car allowance benefit and private health care cover
are unchanged.
To receive and approve the Directors’ Remuneration Report (other than the part
containing the Directors’ Remuneration Policy referred to in Resolution 3 below)
contained within the Annual Report & Accounts for the financial year ended 195,589,657 41,092,958
31 December 2015. (82.64%) (17.36%) 0
As a result of the vote I followed up with the largest shareholders who voted against the Annual Report on Remuneration last year
and I have again engaged with our largest shareholders on the proposed changes to the Directors’ Remuneration Policy which
will be voted on at the 2017 AGM.
The key shareholder concerns reflected in the 2016 vote on the Directors’ Remuneration Report were the provision of a sign-on
award to the CFO and the challenge in the EPS performance conditions for the 2016 LTIP award. We value the views and feedback
received and this is reflected in the revised policy through the removal of the ability to provide sign-on awards. In addition, the
Committee has determined to increase the threshold level of EPS performance for the proposed 2017 LTIP award from 4% to 5%.
211,008,264 1,000,350
To receive and approve the Directors’ Remuneration Policy (2015 AGM) (99.53%) (0.47%) 0
Salary
The salaries for 2017 are set out below:
Salary
2017 2016
Director £’000 £’000 % change
Bonus Plan
For the 2017 financial year: Maximum bonus opportunity:
• It is the intention of the Remuneration Committee in 2017 that a maximum of 100% and 67% of salary for the Chief Executive
Officer and Chief Financial Officer respectively of the bonus opportunity will be provided in cash with any bonus in excess of
this amount (being the balance of the top third of any bonus payable) provided in shares for each of the Executive Directors
which vest after a further three years subject to the Executive Director’s continued employment.
Performance conditions for the 2017 financial year and their weighting:
The Remuneration Committee is of the opinion that given the commercial sensitivity arising in relation to the detailed financial
targets used for the annual bonus, disclosing precise targets for the bonus plan in advance would not be in shareholders’ interests.
Actual targets, performance achieved and awards made will be published at the end of the performance periods so shareholders
can fully assess the basis for any pay-outs under the annual bonus.
LTIP Award
The maximum LTIP awards for the Executive Directors remain at:
• One third of award based on EPS growth. 25% of this element of the award will vest for EPS growth of 5% per annum with full
vesting occurring for EPS growth of 10% per annum;
• One third of award based on Adjusted FCF. 25% of this element of the award will vest for FCF achievement of £141m with full
vesting occurring for FCF achievement of £155m; and
• One third of award based on Total Shareholder Return (TSR) performance of the Company compared to the FTSE 250
(excluding financial services and real estate and equity investment trusts). 25% of this element of the award will vest for median
TSR comparative performance with full vesting at upper quartile.
All members of the Remuneration Committee are Independent Non-Executive Directors and were appointed on 16 April 2014.
The Remuneration Committee receives assistance from the Group HR director and Company Secretary, who attend meetings by
invitation, except when issues relating to their own remuneration are being discussed. The Chairman and Chief Executive Officer
also attend by invitation on occasions. The Remuneration Committee met four times during 2016. Meeting attendance is shown
on page 48 of this report.
Andrew Simon
Chair of the Remuneration Committee
27 February 2017
Corporate structure
Exova Group plc is a public company limited by shares incorporated in England and Wales and its shares are traded on the
main market of the London Stock Exchange.
The Board
The names, roles and biographical details of the Directors of the Company as at the date of this report are set out on pages 40
and 41.
Dividends
The Directors have adopted a progressive dividend policy while maintaining an appropriate level of dividend cover. This dividend
policy will reflect the long-term earnings and cash-flow potential of the Group, consistent with maintaining sufficient financial
flexibility in the Group. The Board has adopted this baseline policy in order to align shareholder returns with the growth and
profitability achieved in the business. It is therefore the Board’s current intention to target a payout ratio of approximately 20% to
30% of adjusted net income, before separately disclosed items. Assuming that there are sufficient distributable reserves available
at the time, the Directors intend that the Company will pay an interim dividend and a final dividend in respect of each financial
year in the approximate proportions of one-thirds and two-thirds respectively of the total annual dividend. The Company may
revise its dividend policy from time to time. At the Board Meetings in August and February each year the Board considers a
detailed paper prepared by management in relation to the proposed amount of dividend to be paid before approving the
declaration of dividends. This paper takes into account the level of available distributable reserves in the Parent Company, the
future cash flows and the level of dividend cover. The Parent Company is a non-trading, investment holding company and has
sufficient distributable reserves to pay dividends for a number of years, and when required, the Company can receive dividends
from its subsidiaries to further increase distributable reserves. Final dividends are subject to the approval of shareholders at
the annual general meeting each year. Extreme economic, regulatory, political or operational events which could lead to
a significant deterioration in the Group’s financial metrics during the policy period may present risks to policy sustainability.
An interim dividend of 1.05 pence per ordinary share was paid on 11 November 2016. The Directors are recommending a final
dividend of 2.35p pence per ordinary share, making a total for the year of 3.4p pence per ordinary share. Shareholders will be
asked to approve the final dividend at the AGM on 24 May 2017, for payment on 9 June 2017 to ordinary shareholders on the
register at the close of business on 26 May 2017.
Share capital
General
As at the date of this report, the Company has 250,490,374 ordinary shares of £0.01 each in issue. The ordinary shares are
admitted to listing on the premium segment of the Official List of the Financial Conduct Authority and to trading on the main
market of the London Stock Exchange.
The rights attached to shares in the Company are set out in the Articles of Association, which may be amended or replaced by
means of a special resolution of the Company in a general meeting. The Directors’ powers are conferred on them by UK
legislation and by the Articles of Association.
The ordinary shares carry the right to the profits of the Company available for distribution and to the return of capital on winding
up of the Company. The ordinary shares carry the right to attend and speak at general meetings of the Company; each share
holds the right to one vote. No ordinary shares carry any special rights with regard to control of the Company and there are no
restrictions on voting rights except that a shareholder has no right to vote in respect of a share unless all sums due in respect of
that share are fully paid.
There are no arrangements known to the Company by which financial rights carried by any shares in the Company are held by
a person other than the holders of the shares. All issued shares are fully paid. Shares are admitted to trading on the main market
of the London Stock Exchange and may be traded through the CREST system.
As at 31 December 2016, there were no shares held in treasury and the Company’s employee benefit trust held 37 shares. Details
of the Company’s issued share capital, together with details of shares issued during the year, are given in Note 23 on page 138.
A waiver of dividend exists in respect of all the shares held by the Exova Group Employee Benefit Trust as at 31 December 2016.
Substantial shareholdings
As at 31 December 2016, the Company had been notified, in accordance with Rule 5 of the Disclosure Rules and Transparency
Rules of the UK Listing Authority, of the following major shareholdings in the ordinary share capital of the Company:
Ordinary share
holdings at
Name 31.12.2016 % of capital
Authorities
At the Annual General Meeting held on 19 May 2016, shareholders gave the Company authority to make market purchases
of up to an aggregate of 25,037,272 ordinary shares, representing 10% of the Company’s issued ordinary share capital as of
22 March 2016. The Company did not repurchase any ordinary shares during the 12 month period ended 31 December 2016.
At the Annual General Meeting held on 19 May 2016, shareholders also gave the Directors authority to:
(i) allot ordinary shares up to an aggregate nominal value of £834,575 representing approximately one-third of the issued
ordinary share capital as of 22 March 2016;
(ii) allot ordinary shares up to an aggregate nominal value of £1,669,151 representing approximately two-thirds of the issued
ordinary share capital as of 22 March 2016 (including within such limit any shares issued under paragraph (i) above) in
connection with an offer by way of rights issue to shareholders;
(iii) allot ordinary shares for cash up to an aggregate nominal value of £125,186 representing approximately 5% of the issued
ordinary share capital as of 22 March 2016; and
(iv) allot ordinary shares (otherwise than pursuant to (iii) above), up to an aggregate nominal value of £250,372 (including
within such said amount any equity securities allotted under paragraph (iii) above)) representing 10% of the Company’s
issued ordinary share capital as of 22 March 2016 in connection with an acquisition or a specified capital investment.
Pursuant to these authorities, during the year ended 31 December 2016, the Company issued 117,647 ordinary shares to the
Exova Group Employee Benefit Trust, details of which are set out below. These authorities will expire at the end of the AGM to
be held on 24 May 2017 and resolutions to renew them will be put to shareholders at that meeting.
The Company intends to follow the provisions of the 2015 Pre-emption Group Statement of Principles regarding cumulative usage
of authorities within a rolling three year period. Those Principles provide that a company should not issue shares for cash (other
than to satisfy share scheme requirements) representing more than 7.5 per cent. of the Company’s issued share capital in any
rolling three year period, other than to existing shareholders, without prior consultation with shareholders. This limit excludes any
ordinary shares issued pursuant to a general disapplication of pre-emption rights in connection with an acquisition or specified
capital investment. Save in respect of the allotment of 372,727 ordinary shares on 4 September 2014 to the Exova Group Employee
Benefit Trust to satisfy a vested award made to Anne Thorburn (the previous Chief Financial Officer) and the allotment of 117,647
ordinary shares to the Exova Group Employee Benefit Trust during the year ended 31 December 2016 (described above) to satisfy
vested awards under the Exova Group plc Deferred Bonus Plan made to Paul Barry (Group Managing Director, Industries) the
Company has not issued any shares in its capital since the IPO in April 2014.
Corporate governance
A report on Corporate Governance and compliance with the UK Corporate Governance Code is set out on pages 42 to 50 and
forms part of this report by reference.
There are no agreements between the Company and its Directors or employees providing for compensation for loss of office
or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.
Relationship Agreement
On 10 April 2014, the Company and TABASCO B.V., the holding company which is wholly owned by CD&R Fund VII L.P. and
the Company’s principal shareholder (holding 54% of the issued share capital as at the date of this report), entered into a
Relationship Agreement, regulating the ongoing relationship between the Company and CD&R. The principal purpose of
the Relationship Agreement is to ensure that the Company and its subsidiaries are capable of carrying on their business
independently of TABASCO B.V. and its Associates (as defined in the Listing Rules), that transactions and relationships with
TABASCO B.V. or any of its Associates (including any transactions and relationships with any member of the Group) are at arm’s
length and on normal commercial terms, and that the reputation and commercial interests of the Company are maintained. The
Relationship Agreement with TABASCO B.V. will continue for so long as: (i) the Company’s shares are listed on the premium listing
segment of the Official List and traded on the London Stock Exchange’s main market for listed securities; and (ii) TABASCO B.V.
together with its Associates hold, in aggregate, 10% or more of the issued share capital of the Company. Under the Relationship
Agreement, TABASCO B.V. is able to appoint two Non-Executive Directors to the Board for so long as it and its Associates hold, in
aggregate 25% or more of the issued share capital of the Company and one Non-Executive Director to the Board if they hold, in
aggregate 10% or more, but less than 25% of the issued share capital of the Company. Fred Kindle and Christian Rochat, are both
Directors appointed by TABASCO B.V. During the period from 1 January 2016 to 31 December 2016 the Company complied and,
so far as the Company is aware, TABASCO B.V. and its Associates complied with the independence provisions and procurement
obligations included in the Relationship Agreement.
Financial instruments
Details of the Group’s financial risk management objectives and policies of the Group and exposure to foreign exchange risk,
interest rate risk, credit risk and liquidity risk are given in Note 19 to the consolidated financial statements.
Employees
The Group now has around 4,200 employees and operates in 33 countries. Throughout the year we have continued to develop our
communications platform and arrangements to provide employees with information on matters of concern, consult with and take
into account their views when making decisions which are likely to affect their interests and increase their awareness of the financial
and economic factors affecting the performance of the Group. This included the use of employee roadshows, newsletters, calls
and online meetings with the wider Exova Leadership Team who cascade information to their teams. This helps ensure that
colleagues are well engaged and informed in relation to material developments.
Considering diversity
As a Company we have an uncompromising commitment to equal opportunities. We will not discriminate against anyone
applying for a job or whilst in our employment for reasons of gender, marital status, family status, sexual orientation, religion
or belief, age, disability, race, ethnic or national origin, or for any other reason. All decisions are based on the merits of the
individual concerned.
When recruiting Directors, the Board give due regard to a number of factors including the diversity of its members. The Company now
has eight male Directors and one female Director. The Directors have a wide range of international business experience are from or
nationals of the United Kingdom, Switzerland, Germany and Liechtenstein. The Board believes that its members have an appropriate
mix of skills, experience, knowledge and diversity which enables them to discharge their respective duties and responsibilities
effectively. In line with the UK Corporate Governance Code, the Company will continue to make Board appointments on merit,
against objective criteria and with due regard for the benefits of diversity on the Board, including gender.
Carbon emissions
The Company is required to state the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which
the Group is responsible, including the combustion of fuel and operation of any facility. Information about the Group’s greenhouse
gas emissions is given on page 34.
Political donations
No political contributions were made, or political expenditure incurred, by the Company and its subsidiaries during the year
ended 31 December 2016.
It is the Company’s policy not, directly or through any subsidiary, to make what are commonly regarded as donations to any
political party. However, at the AGM in 2017, shareholders’ approval will be sought on a precautionary basis, to authorise the
Company to make donations to EU political organisations and to incur EU political expenditure (as such terms are defined in
the Companies Act 2006) not exceeding £100,000. Further details will be contained in the notice of AGM.
Contractual arrangements
The Group has contractual arrangements with numerous third parties in support of its business activities. The disclosure in this
report of information about any of those third parties is not considered necessary for an understanding of the development,
performance or position of the Group’s businesses.
Future developments
Details of the likely future developments of the Group are set out in the Strategic Report on pages 2 to 38.
Special business
At the AGM, a special resolution will be proposed that, in accordance with the Company’s Articles of Association, a general
meeting (other than an AGM) may be called on not less than 14 clear days’ notice.
The Directors’ Report and Corporate Governance Report has been approved by the Board and signed on its behalf by:
Neil MacLennan
General Counsel & Company Secretary
27 February 2017
Exova Group plc
Registered in England and Wales No. 08907086
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are
required to prepare the Group and Company financial statements for each financial year in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union.
Under Company law the Directors must not approve the Group and Company 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 the Group and Company financial statements the Directors are required to:
• present fairly the financial position, financial performance and cash flows of the Group and Company;
• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• make judgements that are reasonable;
• provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is
insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s
financial position and financial performance; and
• state whether the Group and Company financial statements have been prepared in accordance with IFRS as adopted by the
European Union.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
Company transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company
and enable them to ensure that the Group and Company financial statements comply with the Companies Act 2006 and Article
4 of the IAS Regulation. 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 also responsible for preparing the Directors’ Report, the Directors’ Remuneration Report, Strategic Report and
the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the
requirements of the Listing Rules and the Disclosure and Transparency Rules.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.
The Directors confirm that they have complied with the above requirements in preparing the financial statements.
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the Company and the Group; and
• the Strategic Report and the Report of Directors include a fair review of the development and performance of the business
and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
We consider the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
The Strategic Report contains certain forward-looking statements providing additional information to shareholders to assess the
potential for the Group strategies to succeed. Such statements are made by the Directors in good faith, based on the information
available to them up to the date of their approval of this report, and should be treated with caution due to the inherent
uncertainties underlying forward-looking information.
Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report & Accounts except to
the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance
on any untrue or misleading statement or omission shall be determined in accordance with Section 90A and Schedule 10A of the
Financial Services and Markets Act 2000.
• Exova Group plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a
true and fair view of the state of the Group’s and of 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 International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union as applied in accordance with the provisions of the Companies Act 2006; 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.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
Risks of material misstatement • Accounting for acquisition and disposals, specifically in relation to the valuation of
acquired intangible assets, the estimation of the value of intangible assets disposed
of and appropriate accounting treatment and disclosure.
• Challenging global market performance could lead to impairment of goodwill,
specifically in relation to the risks of incorrectly allocating goodwill to the revised
organisational structure.
• Risk of fraud and management override of internal controls, specifically in relation
to the accrual or deferral of revenue and revenue cut-off.
Audit scope • We performed an audit of the complete financial information of 4 components and
audit procedures on specific balances for a further 18 components.
• The components where we performed full or specific audit procedures accounted for
78% (2015: 93%) of profit before tax, 83% (2015: 86%) of revenue and 98% (2015: 91%) of
total assets before group adjustments.
Materiality • Overall Group materiality of £1.5m which represents 4% of profit before tax.
During the period, Exova completed In-scope component audit teams performed full scope
the disposal of a number of laboratories audit procedures over this risk area.
in UK and Ireland and Canada. There
is a risk that the disposals are not
appropriately recorded in the financial
statements, including removal of
related assets and associated costs
such as redundancy accounted for.
Key observations
communicated to
Risk Our response to the risk the Audit Committee
Risk of fraud and management In respect of the risk of inappropriate accrual or We have not identified any
override of internal controls, deferral of revenue, we: audit adjustments as a result
specifically in relation to the of this work and we can
accrual or deferral of revenue and • Tested revenue recognised in full and specific conclude that the revenue
revenue cut-off (total revenue for scope locations by agreeing a sample of revenue recognition policy is being
year ended 31 December 2016 items to completion test reports, sales invoices, applied consistently
£328.6m; accrued revenue debtor underlying customer contracts and cash received. throughout the Group.
£5.3m; deferred revenue liability • Tested that the revenue recognised is in line with
£5.2m at 31 December 2016). the terms of the contract and with IFRS 15.
• Used analytical procedures to review material
Refer to the Accounting policies balances against prior period, obtaining an
(page 103); and Note 2, Note 16 and understanding of significant movements and
Note 17 of the Consolidated Financial corroborating these to underlying documentation.
Statements (pages 110, 128 and 129).
In respect of manual journal entries we identified
We have evaluated that the key entries impacting revenue at in scope locations and
areas of fraud risk related to revenue tested material journals by understanding the reasons
recognition is where there is accrual for the adjustments and corroborating to appropriate
or deferral of revenue (as this involves audit evidence.
judgement over whether partly
completed work meets the Group’s In respect of the specific risk around cut-off of revenue
revenue recognition policy) and at the period end we performed cut-off testing of
where manual journal adjustments revenue items, targeted around the period end, to
to revenues are made as a result of ensure revenue has been recognised in line with the
overriding existing processes and terms of the contract and has been appropriately
controls, particularly around the recognised in the correct period.
period end.
In-scope component audit teams performed full and
specific scope audit procedures over this risk area at
the group level, which covered 83% of total revenue,
85% of the accrued revenue balance and 77% of the
deferred revenue balance.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of the 107 reporting components of the Group, we selected
22 components covering entities within the UK, the Americas, the Middle East, Scandinavia and Singapore, which represent
the principal business units within the Group.
Of the 22 components selected, we performed an audit of the complete financial information of 4 components (“full scope
components”) which were selected based on their size or risk characteristics. For the remaining 18 components (“specific
scope components”), we performed audit procedures on specific accounts within that component that we considered had
the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these
accounts or their risk profile.
The 22 reporting components where we performed audit procedures accounted for 115% of the Group’s profit before tax (2015:
126%). Taking into account consolidation adjustments which reduce the profit before tax, the reporting components comprised
78% of profit before tax (2015: 93%). The reporting components accounted for 83% of the Group’s revenue (2015: 86%) and 98% of
the Group’s total assets (2015: 91%).
For the current year, the full scope components contributed 76% (2015: 88%) of the Group’s profit before tax, 58% (2015: 70%) of
the Group’s revenue and 97% (2015: 79% before group adjustments) of the Group’s total assets. The specific scope components
contributed 2% (2015: 5%) of the Group’s profit before tax, 25% (2015: 16%) of the Group’s revenue and 1% (2015: 12% before group
adjustments) of the Group’s total assets. The audit scope of these components may not have included testing of all significant
accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.
The primary audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior
Statutory Auditor visits the key full scope locations. During the current year’s audit cycle, visits were undertaken by the primary
audit team to the component teams in Canada and the Middle East. These visits involved discussing the audit approach with
the component team and any issues arising from their work, meeting with local management, attending completion meetings
and reviewing key audit working papers on risk areas. The primary team interacted regularly with the component teams where
appropriate during various stages of the audit, reviewed key working papers and were responsible for the scope and direction
of the audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence for
our opinion on the Group financial statements.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group based on a percentage of profit before tax as we believe that profit before tax will
be one of the principal considerations of shareholders when assessing the value of the business. In calculating materiality
we revised management’s forecast downwards for the risk that forecasts may not be achieved. We calculated materiality to
be £1.5 million (2015: £1.2 million), which represents 5% of forecast profit before tax.
We re-calculate materiality once we obtain the final profit before tax. Although this would result in a higher materiality we
considered it prudent to leave materiality unadjusted, materiality of £1.5 million therefore represents 4% of the final profit before
tax of £36.6m.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement
was that performance materiality was 75% (2015: 75%) of our planning materiality, namely £1.1m (2015: £0.9m).
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is
based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement
at that component. In the current year, the range of performance materiality allocated to components was £0.2m to £0.8m
(2015: £0.2m to £0.7m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £75,000
(2015: £60,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
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.
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006;
• based on the work undertaken in the course of the audit:
–– the information given in the Strategic Report and the 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.
ISAs (UK and Ireland) reporting We are required to report to you if, in our We have no exceptions to report.
opinion, financial and non-financial
information in the annual report is:
Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity
ISAs (UK and Ireland) reporting We are required to give a statement as We have nothing material to add or to
to whether we have anything material to draw attention to.
add or to draw attention to in relation to:
Notes:
1. The maintenance and integrity of the Exova Group plc web site is the responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Assets
Non-current assets
Goodwill 11 409.8 354.9 – –
Intangible assets 13 22.0 17.7 – –
Property, plant and equipment 10 79.6 68.7 – –
Government grants 14 8.2 7.1 – –
Deferred tax assets 22 9.4 8.0 0.5 –
Investments 15 0.2 0.2 108.1 108.1
529.2 456.6 108.6 108.1
Current assets
Trade and other receivables 16 81.4 74.5 122.5 122.0
Income tax receivable 2.5 0.3 – –
Cash and short-term deposits 18 52.4 29.2 – –
136.3 104.0 122.5 122.0
Total assets 665.5 560.6 231.1 230.1
Equity
Issued share capital 23 2.5 2.5 2.5 2.5
Share premium 109.5 109.5 109.5 109.5
Merger reserve 324.5 324.5 – –
Capital contribution reserve 114.9 114.9 – –
Foreign currency translation reserve 34.0 (5.4) – –
Retained earnings (247.3) (262.9) 94.6 102.3
Equity attributable to equity holders of the Parent 338.1 283.1 206.6 214.3
Non-controlling interests 8.7 4.7 – –
Total equity 346.8 287.8 206.6 214.3
Liabilities
Non-current liabilities
Bank and other borrowings 18 192.1 167.6 – –
Finance leases 18 0.1 0.3 – –
Retirement benefit obligations 27 20.7 15.8 – –
Provisions 21 7.0 6.7 – –
Deferred tax liabilities 22 13.9 10.4 – –
Other liabilities 17 13.8 6.2 24.2 14.3
247.6 207.0 24.2 14.3
Current liabilities
Bank and other borrowings 18 8.0 12.1 – –
Finance leases 18 0.1 0.1 – –
Trade and other payables 17 55.6 50.5 0.3 1.5
Income tax payable 3.8 – – –
Provisions 21 3.6 3.1 – –
71.1 65.8 0.3 1.5
Total liabilities 318.7 272.8 24.5 15.8
Total equity and liabilities 665.5 560.6 231.1 230.1
The Parent Company’s loss for the year is £1.2m (2015: profit of £119.9m).
The financial statements were approved by the Board of Directors on 27 February 2017 and signed on its behalf by:
At 1 January 2015 2.5 109.5 324.5 114.9 (0.1) (273.4) 277.9 3.7 281.6
Profit for the year – – – – – 17.1 17.1 1.4 18.5
Other comprehensive income – – – – (5.3) 0.5 (4.8) 0.1 (4.7)
Total comprehensive income for
the year – – – – (5.3) 17.6 12.3 1.5 13.8
Share-based payments 24 – – – – – 0.4 0.4 – 0.4
Dividends 6 – – – – – (7.5) (7.5) (0.5) (8.0)
At 31 December 2015 2.5 109.5 324.5 114.9 (5.4) (262.9) 283.1 4.7 287.8
At 1 January 2016 2.5 109.5 324.5 114.9 (5.4) (262.9) 283.1 4.7 287.8
Profit for the year – – – – – 26.2 26.2 2.5 28.7
Other comprehensive income – – – – 39.4 (4.1) 35.3 1.9 37.2
Total comprehensive income for
the year – – – – 39.4 22.1 61.5 4.4 65.9
Share-based payments 24 – – – – – 1.4 1.4 – 1.4
Income tax effect of share-based
payments – – – – – 0.2 0.2 – 0.2
Dividends 6 – – – – – (8.1) (8.1) (0.4) (8.5)
At 31 December 2016 2.5 109.5 324.5 114.9 34.0 (247.3) 338.1 8.7 346.8
Parent Company
At 1 January 2015 2.5 109.5 – – – (10.5) 101.5
Profit for the year – – – – – 119.9 119.9
Other comprehensive income – – – – – – –
Total comprehensive income for
the year – – – – – 119.9 119.9
Share-based payments 24 – – – – – 0.4 0.4
Dividends 6 – – – – – (7.5) (7.5)
At 31 December 2015 2.5 109.5 – – – 102.3 214.3
At 1 January 2016 2.5 109.5 – – – 102.3 214.3
Loss for the year – – – – – (1.2) (1.2)
Other comprehensive income – – – – – – –
Total comprehensive income for
the year – – – – – (1.2) (1.2)
Share-based payments 24 – – – – – 1.4 1.4
Income tax effect of share-based
payments – – – – – 0.2 0.2
Dividends 6 – – – – – (8.1) (8.1)
At 31 December 2016 2.5 109.5 – – – 94.6 206.6
The consolidated and Parent Company financial statements have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (adopted IFRSs).
The financial statements are presented in Pounds Sterling (£), which is the Company’s functional and presentational currency,
and all values are rounded to the nearest hundred thousand (£0.1m) except where otherwise indicated.
• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group
has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
• the contractual arrangement with the other vote holders of the investee;
• rights arising from other contractual arrangements; and
• the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary
and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the
date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parent of the
Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line
with the Group’s accounting policies.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling
interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained
is recognised at fair value.
The results of subsidiaries acquired or disposed of during the year are included in the Group income statement from the effective
date of acquisition or up to the effective date of disposal as appropriate.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation.
The Group has a number of joint arrangements where more than half of the voting power is not owned. As the Group is exposed, or
has rights, to variable returns from its involvement with these companies and has the ability to use its power over these companies
to affect the amount of the company returns, these investments are accounted for as subsidiaries.
(c) Restatement
During the year the provisional fair values attributable to the 2015 acquisitions of Western Technical Services Limited and Accusense
Systems Limited were finalised. In the balance sheet the effect has been to decrease goodwill by £0.2m, reverse the contingent
consideration payable of £0.3m and increase deferred consideration payable by £0.1m. Note 12 Business Combinations provides
further details.
Amendments to IAS 27: Equity Method in Separate Financial Statements 1 January 2016
Amendments to IAS 1: Disclosure Initiative 1 January 2016
Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 1 January 2016
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities – Applying the Consolidation Exception 1 January 2016
The International Accounting Standards Board and International Financial Reporting Interpretations Committee have issued
the following standards and interpretations, which are considered relevant to the Group, with an effective date after the date
of these financial statements.
Standard name Effective date for periods
Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017*
Amendments to IAS 7: Disclosure Initiative 1 January 2017*
IFRS 15: Revenue from Contracts with Customers 1 January 2018
Clarifications to IFRS 15: Revenue from Contracts with Customers 1 January 2018*
IFRS 9: Financial Instruments 1 January 2018
IFRS 16: Leases 1 January 2019*
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions 1 January 2018*
Annual Improvements to IFRS Standards 2014-2016 Cycle 1 January 2017/2018*
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018*
The above standards and interpretations will be adopted in accordance with their effective dates and have not been adopted in
these financial statements. The Directors are still assessing whether or not the adoption of these standards and interpretations will
have a material impact on the Group’s financial statements in the period of initial application, along with the exact impact of
these standards.
As permitted by Section 408 of the Companies Act 2006 no income statement is presented for the Company.
The European Markets and Securities Authority has issued “Guidelines on Alternative Performance Measures” which are effective
from 3 July 2016 and which have been followed in explaining the use of non-GAAP measures in these financial statements.
Non-GAAP Measures
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our operating
performance, the financial measures used include those which have been derived from our reported results and cash flows
in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures.
We believe this information, along with comparable GAAP measurements, is useful for users of the financial statements in
providing a basis for measuring our operational performance. Below we set out our definitions of non-GAAP measures and
provide reconciliations to relevant GAAP measures.
We define the Group’s profit from these operations as Adjusted EBITA, which is operating profit from continuing operations before
separately disclosed items, interest, and taxation.
We believe Adjusted EBITA is the most significant indicator of operating performance for the Group as it measures cost efficiency
in relation to overall activity levels and allows a better understanding of the underlying or long term profitability of the Group.
Adjusted EBITDA is Adjusted EBITA before depreciation.
Free cash flow is defined as Adjusted EBITDA less movement in net working capital (excluding the effect of the IPO related cost
accrual), less capital expenditure net of disposals.
A reconciliation of profit before tax to Adjusted EBITA, Adjusted EBITDA and free cash flow is presented below:
2016 2015
Notes £m £m
Short term projects are recognised in revenue once the service is completed, this is usually when the report of findings is issued.
In some instances, where the project is classed as long-term, the Group accounts for the transaction on the basis of the value
of the work done if this can be measured reliably. This is referred to as the stage of completion and is measured with reference
to the costs incurred to date as a proportion of the total anticipated cost of the service. In the case that it cannot be measured
reliably the revenue is limited to the recoverable value of the cost so far incurred.
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. Differences arising on translation are charged or credited to the income statement except when deferred in equity
as qualifying cash flow hedges or qualifying net investment hedges.
Foreign operations
Items included in the financial statements of the Group’s subsidiary companies are measured using the currency of the primary
economic environment in which the subsidiary operates (the functional currency).
The income statements of foreign subsidiary companies are translated into Sterling at monthly average exchange rates and the
balance sheets are translated at the exchange rates ruling at the balance sheet date.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and are translated at the closing rate.
Where applicable, these items include amortisation of intangible assets, impairment of property, plant and equipment, acquisition
and integration costs, profit or loss on disposal of a business, IPO related costs and restructuring costs.
Amortisation is separately disclosed as our key internal measure of operating performance is EBITA, which by definition excludes
amortisation. We also consider EBITA to be the key performance measure used by our investors and other stakeholders when
assessing the financial performance of the business. To allow EBITA to be more easily identified we present the amortisation
expense as a separately disclosed item on the face of the income statement. The annual amortisation charge may also fluctuate
significantly over time depending on the timing and size of the business combinations undertaken, and the nature, composition
and useful lives of the assets acquired as part of these business combinations. We consider that presenting the amortisation
charge as a separately disclosed item will aid comparability from year to year; allowing users of the financial statements to more
accurately assess the financial performance of the business. The presentation of the amortisation charge as a separately
disclosed item also assists users of the accounts in making a more meaningful direct comparison of the Group’s financial
performance compared to that of its competitors.
Restructuring costs are separately disclosed as the business is continuing to evolve to position itself for future profitability and
therefore the nature of these costs is not reflective of the group’s long term profitability.
Impairment of property, plant and equipment is exceptional in nature and is not reflective of the on-going performance of
the business.
Acquisition and integration costs are separately disclosed as they are directly related to the Group’s acquisition activity of which
the volume and value fluctuate significantly. We therefore consider it more appropriate to identify these costs as separately
disclosed to allow for comparison with our peer group when comparing long term profitability.
Profit or loss on disposal of businesses is separately disclosed as by their nature these costs are not reflective of the long term
profitability of the business.
Share-based payments
Equity settled share-based incentives are provided to employees under the Group’s Long Term Incentive Plan (LTIP), the Share
Option Plan (SOP), the Deferred Bonus Plan (DBP) and occasional one-off conditional awards made to senior executives. The LTIP
and SOP are discretionary executive share plans.
The fair value of the LTIP and SOP awards at the date of the grant is calculated using appropriate option pricing models and the
cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures
during the vesting period due to failure to satisfy service or performance conditions.
The Group operates defined benefit plans in UK, Sweden, Germany and Norway which require contributions to be made to a
separately administered fund. The cost of providing benefits under the defined benefit plans are determined using the projected
unit credit method in accordance with the advice of qualified actuaries.
The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of the plan assets.
Re-measurements arising from adjustments and changes in actuarial assumptions when estimating the present value of the
obligation are recognised in equity in the group statement of comprehensive income in the period in which they arise.
Finance costs are recognised in the income statement using the effective interest method. Interest on finance leases is recognised
on a straight-line basis over the life of the lease.
Finance costs include costs relating to the bank loans including debt issue costs, commitment fees, pension interest and other
related expenses. Debt issue costs are released to the income statement on a straight-line basis over the term of the loan. In the
event of the loan being repaid earlier, or replaced, the remaining costs are immediately charged to the income statement.
Pension interest represents the net of interest income on scheme assets and interest charges on scheme liabilities.
Income tax
The tax expense represents the sum of the current taxes payable and deferred tax.
The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities. The tax charge is included in the income statement except if it relates to an item recognised directly in equity or other
comprehensive income.
Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates and
laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised. Deferred tax assets are recognised to the extent that it is probable that taxable profits will
be available against which the temporary differences can be utilised.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures where the timing of the reversal of the temporary differences can be controlled and it is probable, that the temporary
differences will not reverse in the foreseeable future.
Dividends
The Company recognises a liability to make cash distributions to the equity holders of the Parent Company when the distribution is
authorised and is no longer at the discretion of the Company. A distribution is authorised when it is approved by the shareholders.
A corresponding amount is recognised directly in equity.
Cost represents invoiced cost plus any other costs that are directly attributable to the acquisition of the item.
Depreciation is provided on all other property, plant and equipment to write down their cost or, where their useful economic lives
have been revised, their carrying amount at the date of revision to their estimated residual values on a straight-line basis over the
periods of their estimated, or revised, remaining useful economic lives respectively. These lives are considered to be:
The residual value and useful economic life are reviewed, and adjusted if appropriate at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of
the acquired subsidiary at the date of acquisition. Goodwill is not subject to annual amortisation but is instead tested annually
for impairment and carried at cost less accumulated impairment losses.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-
generating units that are expected to benefit from the business combination in which the goodwill arose.
Intangible assets acquired separately are measured on initial recognition at cost. An intangible asset acquired in a business
combination is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal
rights, is expected to generate future economic benefits and its fair value can be measured reliably.
Customer relationships
Customer relationships represents the fair value attributed to contracts at the point of acquisition and is determined by
discounting the expected future cash flows to be generated from that asset at the relevant risk-adjusted weighted average
cost of capital. These customer relationships are amortised over the life of the contracts which vary between 5 and 20 years,
depending on each acquisition.
Trade names
Trade names represents the fair value attributed to the trading name of the business acquired and is determined with reference
to the revenues generated by the trade name and the royalty rate that a third party would be willing to pay for use of the trade
name discounted at the relevant risk-adjusted weighted average cost of capital. The expected useful life is dependent on how
long the Group will use this name with a useful life between 7 and 10 years depending on each acquisition.
Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected
in the income statement in the year in which the expenditure is incurred.
The residual value and useful economic life are reviewed, and adjusted if appropriate at each balance sheet date.
Intangible assets are amortised over the useful lives as outlined above on a straightline basis.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Intangible assets with indefinite useful lives, including goodwill, are tested for impairment annually and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated
as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount. The increase applied brings the revised carrying value to an amount that does not
exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-
generating unit) in prior years. Goodwill impairments are never reversed.
Joint ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement and have rights to
the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group’s investments in
joint ventures are accounted for using the equity method.
Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is
adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating
to the joint venture is included in the carrying amount of the investment and is not tested for impairment individually. The income
statement reflects the Group’s share of the results of operations of the joint venture. Any change in other comprehensive income
of those investees is presented as part of the Group’s other comprehensive income. In addition, when there has been a change
recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the
statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture
are eliminated to the extent of the interest in the joint venture. The aggregate of the Group’s share of profit or loss of a joint
venture is shown on the face of the income statement.
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period
necessary to match the grant on a systematic basis to the costs that it is intended to compensate.
Trade receivables
Trade receivables do not carry interest and are stated at the lower of their original invoiced value and recoverable amount.
Balances are written off when the probability of recovery is assessed as being remote.
Borrowings
Borrowings are recognised initially at fair value, being the issue proceeds net of any transaction costs incurred.
Borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is adjusted for the
amortisation of any transaction costs. The amortisation is recognised in finance costs.
All borrowings denominated in currencies other than Sterling are translated at the rate ruling at the balance sheet date.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.
Leases
Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group,
are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as
to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs
in the income statement.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset
and the lease term.
Rentals paid under operating leases (those leases where a significant portion of the risks and rewards of ownership are retained
by the lessor) are charged to the income statement over the term of the lease on a straight-line basis.
Provisions
A provision is recognised in the balance sheet 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. If the effect is material,
provisions are determined by discounting the future expected cash flows at a pre-tax rate that reflects the current market
assessment of the time value of money and, where appropriate, the risks specific to the liability.
Offsetting
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated financial statements if there
is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to
realise the assets and settle the liabilities simultaneously.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently re-measured
at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:
• hedges of a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction (cash
flow hedge); or
• hedges of a net investment in a foreign operation (net investment hedge).
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of hedged items.
The effective portion of changes in the fair value of cash flow and net investment derivatives that are designated and qualify as
hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in net finance costs
in the income statement.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item is more than one year, and as a current asset or liability when the remaining maturity of the hedged item is less
than one year.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedge instrument expires or is sold,
terminated, exercised or no longer qualifies for hedge accounting. Any cumulative gain or loss previously recognised in other
comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit
or loss.
(iv) Taxation
The Group is subject to income taxes in the various jurisdictions in which it operates. Judgements are required in determining
the consolidated 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 for anticipated tax audit issues
based on estimates of whether additional taxes will be due. The amount of such liabilities is based on an assessment of various
factors, such as experience of previous tax audits and differing interpretations of tax law. This assessment relies on estimates
and assumptions and involves a series of judgements about future events. To the extent that the final tax outcome of these
matters is different from the amount recognised, such differences will impact the income tax and deferred tax provisions in
the period in which such determination is made. Income tax (2016: £1.3m net payable; 2015: £0.3m net receivable), Note 14
Government grants (2016: £8.2m; 2015 £7.1m) and Note 22 Deferred tax (2016: £4.5m; 2015: £2.4) provide further details of the
judgements made.
The retirement benefit obligation was £20.7m at 31 December 2016 (2015: £15.8m).
2. Segmental reporting
The Group has historically reported operating segments on a regional basis. Following a refresh of the Group’s strategy and while
charting a course for the next stage of the Group’s journey, it was recognised that a global sector-based approach would better
facilitate growth and improve business performance. For this reason, the Group is now organised into three operating Divisions
which are; Industries, Products and Infrastructure, Health & Environment. These three Divisions are organised and managed
separately based on the sectors they operate in and each is treated as an operating segment and a reportable segment. The
principle activities in each Division are as follows:
• The Industries Division operates in the development, qualification, validation and production control testing undertaken for the
Aerospace sector as well as materials and infrastructure testing undertaken for the oil & gas industry.
• The Products Division services and calibrates measurement instruments; provides fire safety testing, analysis, consultancy, and
certification; as well as structural, systems and component testing for the transportation market.
• The Infrastructure, Health & Environment Division provides civil engineering testing, health sciences and environmental testing;
as well as material analysis and testing for major infrastructure projects.
The operating and reportable segments were determined based on reports reviewed and used to make operational decisions,
by the Board of Directors. The Board of Directors are deemed to be the Group’s Chief Operating Decision Maker (CODM).
The Board monitors the operating results of its Divisions separately for the purpose of making decisions about resource allocation
and performance assessment. Divisional performance is evaluated based on adjusted EBITA and is measured consistently in the
consolidated financial statements.
Group financing (including finance costs and finance income) and income taxes are managed centrally and are not allocated
to operating segments.
Transfer prices between operating Divisions are on an arm’s length basis in a manner similar to transactions with third parties and
inter-Divisional revenues are eliminated on consolidation.
Revenue from external customers for each product and service or each group of similar products and services are not presented
as this information is not readily available and the cost to develop it would be excessive.
Non-current
Revenues assets
2016 Geographic analysis £m £m
UK 96.1 156.3
Canada 40.6 90.2
USA 62.7 81.5
Sweden 27.5 21.4
Other countries individually less than 10% of total revenue/non-current assets 101.7 170.4
328.6 519.8
Deferred tax asset 9.4
328.6 529.2
The revenue above is based on the location of the legal entity performing the work. Non-current assets analysed by geography
comprise goodwill, intangible assets, property, plant and equipment, government grants and investments.
Infrastructure,
Health and Eliminations/
Industries Products Environment unallocated Total
2015 £m £m £m £m £m
Non-current
assets
(restated
Revenues Note 1(c))
2015 Geographic analysis £m £m
UK 91.6 147.6
Canada 40.0 77.0
USA 56.9 67.8
Sweden 25.3 19.5
Other countries individually less than 10% of total revenue/non-current assets 82.7 136.7
296.5 448.6
Deferred tax asset 8.0
296.5 456.6
The revenue above is based on the location of the legal entity performing the work. Non-current assets analysed by geography
comprise goodwill, intangible assets, property, plant and equipment and government grants.
3. Operating costs
2016 2015
Net operating costs Notes £m £m
Audit services
The Group paid the following amounts to its auditors in respect of the audit of the financial statements and for other services
provided to the Group:
2016 2015
Audit £m £m
* £65,000 (2015: £65,000) relating to audit of the Group financial statements and £6,000 (2015: £6,000) relating to the audit of the Company financial statements.
The Group presents, as separately disclosed items on the face of the Group income statement, those items of income and
expense which, because of their nature, merit separate presentation to allow users to understand better the elements of financial
performance in the year to facilitate a comparison with prior years and a better assessment of trends in financial performance.
The sale of the UK and Ireland Food, Water and Pharmaceuticals business to international life sciences company, Eurofins
Scientific, completed 1 July 2016, for a cash consideration of £18.0m including a selling price adjustment of £0.1m. The cash
consideration was net of certain working capital balances retained and liabilities transferred (gross consideration £20.0m).
The net gain was £5.3m.
The sale of the Environmental East business in Canada, also to international life sciences company, Eurofins Scientific, completed
on 5 December 2016, for a cash consideration of £7.5m, subject to a further selling price adjustment. The cash consideration was
net of certain working capital balances retained and liabilities transferred (gross consideration £9.1m). The net gain was £0.6m.
The sale of a division of WFR Gent NV completed 24 March 2016 for a cash consideration of £0.2m. The net gain was £0.2m.
Summarised financial information relating to the sale of the businesses is shown in the table below:
UK and Ireland
Food, Water and Environmental WFR Gent
Pharmaceuticals East Fire division Total
2016 2016 2016 2016
£m £m £m £m
Restructuring costs
Oil & gas restructure
To mitigate the poor trading conditions in oil & gas, we have undertaken further cost actions globally to right size the business.
This restructuring programme totalled £3.3m and included onerous lease provisions of £1.8m, staff redundancies of £1.2m and
other property related costs of £0.3m.
Other
Having undertaken a strategic review of our laboratory footprint within our Aerospace sector and Products Division, we
restructured certain laboratories which resulted in costs of £0.6m, largely relating to staff redundancies.
Included in the income tax credit is £0.3m (2015: £2.0m) related to the amortisation of the deferred tax liability in respect of
customer relationships. An income tax debit of £1.6m (2015: credit £1.8m) relates to restructuring, amortisation and integration
costs; and an income tax credit of £1.5m relates to the tax charge credit on the gain on disposal of businesses.
2016 2015
Number of shares million million
2016 2015
pence pence
Basic earnings per share (EPS) amounts are calculated by dividing the profit for the year attributable to the ordinary equity
holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year.
6. Dividends
2016 2015
Cash dividends to the equity holders of the Parent £m £m
Interim paid in respect of 2016: 1.05p per share (2015: 1.0p per share) 2.6 2.5
Final paid in respect of 2015: 2.2p per share (2014: 2.0p per share) 5.5 5.0
8.1 7.5
Proposed dividends
The Board is recommending a final dividend of 2.35p per share (2015: 2.2p per share). This will absorb an estimated £6m of
shareholders funds. The total dividend for the year will therefore be 3.4p per share representing an increase of 6.3% (2015: 3.2p).
The dividend will be paid on 9 June 2017 to shareholders’ on the register at the close of business on 26 May 2017.
7. Staff costs
Average monthly number of people (including Executive Directors) employed by the Group during 2016 2015
the year: number number
Average monthly number of people (including Executive Directors) employed by the Company 2016 2015
during the year: number number
Administration 9 9
2016 2015
The costs incurred in respect of the Group’s employees were: Notes £m £m
Included within restructuring costs shown in Note 4 Separately Disclosed Items are staff related redundancy costs of £2.9m and
£0.1m of share-based payments expense.
2016 2015
The costs incurred in respect of the Company’s employees were: £m £m
2016 2015
£m £m
The emoluments of the highest paid Director were £1.0m (2015: £0.7m).
No company contributions were made to a pension scheme on behalf of Directors’ qualifying services.
Finance costs
Bank loans 5.5 5.0
Other loans and charges 0.3 0.2
Amortisation of debt issue costs 0.6 0.7
Pension interest 0.6 0.4
Total finance costs 7.0 6.3
Finance income
Interest income on short-term deposits (0.1) –
Total finance income (0.1) –
Net finance costs 6.9 6.3
Included in separately disclosed items – unwind of discount on deferred consideration (0.1) –
Net finance costs before separately disclosed items 6.8 6.3
9. Income tax
2016 2015
The taxation charge for the year comprises: £m £m
Current tax
UK 1.0 0.5
Overseas 5.2 4.5
Adjustments in respect of previous year
UK 0.2 –
Overseas (0.3) (0.3)
Total current tax 6.1 4.7
Deferred tax
Origination and reversal of temporary differences
UK (0.5) (2.4)
Overseas 2.3 1.5
Adjustments in respect of previous year
UK – –
Overseas – 0.9
Total deferred tax 1.8 –
Total income tax charge 7.9 4.7
A tax credit of £0.6m (2015: £0.7m debit) is recorded in other comprehensive income.
A reconciliation of the total tax charge for the year compared to the effective rate of corporation tax is summarised below:
2016 2015
£m £m
The Group has tax losses of £99.0m (2015: £102.0m) which arose in various jurisdictions and that are available for offset against future
taxable profits of the companies in which the losses arose. The majority of the losses are available for carry forward indefinitely. The
major jurisdictions affected are UK £67.2m (2015: £74.6m), USA £1.4m (2015: £3.4m), Sweden £23.0m (2015: £19.9m), Saudi Arabia
£2.3m (2015: £1.9m), India £2.7m (2015: £1.8m) Norway £1.2m (2015: £0.9m) and Singapore £0.6m (2015: £0.5m).
Deferred tax assets of £1.1m being £0.5m in USA, £0.3m in India and £0.3m elsewhere (2015: £1.6m being £1.2m in USA and £0.4m
other) have been recognised in respect of certain losses where it is sufficiently certain that these losses will be utilised against
taxable profits in the foreseeable future.
Cost
At 1 January 2016 27.0 122.3 149.3
Additions 2.0 15.4 17.4
Acquisitions 12(a) 1.6 4.3 5.9
Disposals (4.2) (32.4) (36.6)
Exchange adjustments 4.5 21.5 26.0
At 31 December 2016 30.9 131.1 162.0
Accumulated depreciation
At 1 January 2016 10.9 69.7 80.6
Charge for the year 1.8 12.4 14.2
Released on disposal (2.2) (28.5) (30.7)
Impairment loss 0.6 0.9 1.5
Exchange adjustments 2.3 14.5 16.8
At 31 December 2016 13.4 69.0 82.4
Net book value at 31 December 2016 17.5 62.1 79.6
Cost
At 1 January 2015 26.1 110.2 136.3
Additions 1.7 14.0 15.7
Acquisitions 12(c) – 1.8 1.8
Disposals – (1.0) (1.0)
Exchange adjustments (0.8) (2.7) (3.5)
At 31 December 2015 27.0 122.3 149.3
Accumulated depreciation
At 1 January 2015 9.6 62.0 71.6
Charge for the year 1.6 10.8 12.4
Released on disposal – (0.9) (0.9)
Exchange adjustments (0.3) (2.2) (2.5)
At 31 December 2015 10.9 69.7 80.6
Net book value at 31 December 2015 16.1 52.6 68.7
Cost
Freehold 10.4 9.2
Long leasehold 5.6 5.1
Short leasehold 14.9 12.7
30.9 27.0
Accumulated depreciation
Freehold 2.6 2.4
Long leasehold 3.3 2.6
Short leasehold 7.5 5.9
13.4 10.9
Finance leases
The carrying value of property, plant and equipment held under finance leases at 31 December 2016 was £0.3m (2015: £0.4m).
There were no additions (2015: £0.2m) of plant and equipment under finance leases during the year. Leased assets are pledged
as security for the related finance lease.
11. Goodwill
Notes £m
Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segment.
As outlined in Note 2, the Group reorganised its reporting structure during the year, resulting in a change in its operating
segments, as determined under IFRS 8. Consequently the CGU groups to which goodwill was previously allocated have changed
resulting in a reallocation to new CGU groups in the current year.
A summary of the carrying amounts of goodwill by operating segments (representing groups of CGUs) is presented below:
2015
2016 (restated)
£m £m
A summary of the carrying amounts of goodwill by the previous operating segments (representing groups of CGUs) as presented
in 2015 is shown below:
2015
(restated)
£m
Europe 168.0
Americas 110.1
Rest of World 76.8
At 31 December 354.9
Impairment reviews
Goodwill has been tested for impairment by comparing the carrying amount of each CGU, including goodwill, with the
recoverable amount. The recoverable amounts are determined from value-in-use calculations.
The key assumptions for the value-in-use calculations are those regarding operating margin, discount rates and growth rates. The
operating margin is based on past performance and expectations as set out in the latest forecasts for the next five years for the
CGUs as approved by management and the discount rate reflects the current market assessment of the time value of money and
the risks specific to the CGUs. The Group prepares cash flow forecasts derived from the most recent five year financial forecasts
approved by management plus a terminal value at the end of the five year period, based on an appropriate industry multiple of
EBITDA (Earnings before interest, tax, depreciation and amortisation). The Group’s terminal growth rates reflect industry experience
by geographic area creating an average estimated Group terminal growth rate of 2.5% (2015: 2.5%). The pre-tax rate used to
discount the cash flows is the Group’s weighted average cost of capital adjusted for risks specific to the CGU. The discount rates
used for the CGUs in 2016 were: Industries 8.1%, Products 11.2% and Infrastructure, Health and Environment 7.4%. In 2015 the
discount rates used for the CGUs were: Europe 8.7%, Americas 10.7% and Rest of World 10.5%.
Impairment reviews were carried out at the year-end by comparing the carrying value of each CGU, including goodwill with the
recoverable amount of the CGUs to which goodwill has been allocated. Management determined that there has been
no impairment.
Base case forecasts show significant headroom above carrying value for each CGU with the exception of Infrastructure, Health and
Environment (2015: Rest of World). Sensitivity analysis has been undertaken for each CGU to assess the impact of any reasonably
possible change in key assumptions. With the exception of the Infrastructure, Health and Environment Division (2015: Rest of World),
there is no reasonably possible change that would cause the carrying values to exceed recoverable amounts of goodwill.
In respect of Infrastructure, Health and Environment Division, management have concluded that a reasonably possible change
in a key assumption could cause the carrying values to exceed recoverable amounts. Under the above assumptions, the
recoverable amount exceeds the carrying amount by £57.0m.
A decrease in forecast cash flows from £163.8m to £106.8m will result in the carrying value of the net assets being equal to
recoverable amounts.
In 2015 in respect of Rest of World, management concluded that a reasonably possible change in a key assumption could cause
the carrying values to exceed recoverable amounts. Under the above assumptions, the recoverable amount exceeded the
carrying amount by £17.3m.
A decrease in forecast cash flows from £107.2m to £89.9m would have resulted in the carrying value of the net assets being equal
to recoverable amounts.
During the year the following payments were made for acquisitions completed during the current and prior year:
2016 2015
£m £m
At year-end the acquisition accounting for acquisitions made between July and December 2016 is not complete due to the
timing of the transactions and will be finalised during the following financial year. This includes all acquired assets and liabilities.
No allocation has been made in the determination of the provisional fair values from goodwill to identifiable intangible assets for
Insight NDT Limited. External advisers are assisting with this allocation and this allocation will be finalised along with all other fair
values in the next financial year.
No material adjustments have been made in respect of the trade and other receivables acquired.
Goodwill
The goodwill of £20.3m comprises the fair value of the expected synergies arising from the acquisitions and the value of the
human capital that does not meet the criteria for recognition as a separable intangible asset.
No profit figures are disclosed as these businesses have now been integrated into the rest of the Group and therefore it would be
impracticable to obtain a meaningful profit number.
The following table summarises the adjustments made to the provisional values during the year.
Re-assessment
of contingent
Provisional consideration Final
fair values Note 1(c) fair values
£m £m £m
Cost
At 1 January 2016 73.8 6.3 0.2 0.7 81.0
Acquisitions 12(a) 6.4 – – – 6.4
Additions – 0.9 – – 0.9
Disposals – (0.1) – – (0.1)
Exchange adjustments 8.7 0.6 – – 9.3
At 31 December 2016 88.9 7.7 0.2 0.7 97.5
Accumulated amortisation
At 1 January 2016 59.7 3.5 – 0.1 63.3
Charge for the year 2.6 1.2 – 0.1 3.9
Disposals – (0.1) – – (0.1)
Exchange adjustments 8.0 0.4 – – 8.4
At 31 December 2016 70.3 5.0 – 0.2 75.5
Net book value at 31 December 2016 18.6 2.7 0.2 0.5 22.0
Cost
At 1 January 2015 65.2 4.6 – – 69.8
Acquisitions (restated) 12(c) 9.6 – 0.2 0.7 10.5
Additions – 1.8 – – 1.8
Exchange adjustments (1.0) (0.1) – – (1.1)
At 31 December 2015 73.8 6.3 0.2 0.7 81.0
Accumulated amortisation
At 1 January 2015 52.8 2.6 – – 55.4
Charge for the year 7.9 0.9 – 0.1 8.9
Exchange adjustments (1.0) – – – (1.0)
At 31 December 2015 59.7 3.5 – 0.1 63.3
Net book value at 31 December 2015 14.1 2.8 0.2 0.6 17.7
Government grants are receivable in relation to research and development (R&D) expenditure. Accumulated tax credits
(Scientific Research and Experimental Development) from R&D expenditure in Canada can be used to settle future cash tax
liabilities and can be carried forward for up to 20 years. A reserve has been booked against the R&D credits carried forward to
provide against uncertainties in prior year claims that are still open to challenge from the Canadian tax authorities.
15. Investments
2016 2015
Group Notes £m £m
2016 2015
Company £m £m
The prior year additions of £105.9m represent a loan waiver granted during the year to a subsidiary undertaking.
A list of the investments in subsidiaries and joint ventures, including the name, country of incorporation and proportion of
ownership interest is given below.
Country of Principal Percentage
Subsidiary undertakings Registered office incorporation activity holding
Exova 2014 Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Exova Treasury Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Exova (Mexico) Ltd 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Exova Group (UK) Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Exova (UK) Limited Lochend Industrial Estate, Queen UK Testing 100%
Anne Drive, Newbridge, Midlothian,
EH28 8LP
Pipeline Developments Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
(dissolved 24 January 2017) Eccles, Manchester, M50 1RE
Law Laboratories Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
(dissolved 24 January 2017) Eccles, Manchester, M50 1RE
J. W. Worsley (Coventry) Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
(dissolved 24 January 2017) Eccles, Manchester, M50 1RE
Lawlabs Limited (dissolved 24 January 2017) 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
MTS Pendar Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Catalyst Environmental Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Environmental Evaluation Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Western Technical Services Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Accusense Systems Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Warrington Certification Limited Holmesfield Road, Warrington, UK Dormant 100%
Cheshire, WA1 1RE
Warrington Fire Research Centre (London) 6 Coronet Way, Centenary Park, UK Dormant 100%
Limited Eccles, Manchester, M50 1RE
Warrington Fire Research Consultants Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
* These companies are treated as subsidiaries in the results of the Group as effective control over their operations exists, as described in the shareholder
and management services agreements with the related parties.
~ These are companies where the Group exercises joint control.
Exova 2014 Limited’s shareholding is held directly whilst all others are held through wholly owned subsidiaries.
At 31 December 2016 £1.9m trade receivables (2015: £1.6m) were determined to be impaired based on age and recoverability of
the debt and fully provided for.
2016 2015
Company £m £m
The following analysis details outstanding borrowings, the facilities available to the Group and the undrawn amounts at the
balance sheet date.
Amounts falling due in:
between between
less than one and two and five 2016
one year two years years Total
Maturity £m £m £m £m
Net debt is shown gross of unamortised debt issue costs of £1.5m (2015: £2.1m).
Assets are partially hedged, where appropriate, by matching the currency of borrowings to the net assets of the subsidiaries.
It is Group policy not to hedge the translational exposure arising from profit and loss items.
Transaction related foreign exchange exposures arise when entities within the Group enter into contracts to pay or receive funds
in a currency different from the functional currency of the entity concerned.
It is Group policy that all operating units eliminate exposures on material committed transactions usually by undertaking forward
foreign currency contracts through the Group’s treasury function.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and before accepting
any significant new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality
and define a credit limit for the customer.
The geographic profile of credit risk in these financial statements is broadly in line with that of revenue as disclosed in Note 2
Segmental reporting.
Cash and cash equivalents representing cash, other short-term deposits and bank overdrafts, are held with banks that are not
expected to fail.
Management monitors rolling forecasts of the Group’s liquidity reserve (comprising undrawn borrowing facilities and cash and
cash equivalents (Note 18 Bank and other borrowings)) on the basis of expected cash flow. The Group’s liquidity management
policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these;
monitoring balance sheet liquidity ratios against internal and external requirements and maintaining debt financing plans.
The Group has no derivative financial instruments which will be settled on a gross basis.
Amortised cost
Non-derivative financial liabilities
Contingent consideration 17 3 7.5 7.5 0.6 0.6
In accordance with IFRS 7 Financial Instruments: Disclosures, financial instruments are classified in the form of a three level fair
value hierarchy, by class, for all financial instruments recognised at fair value:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or
indirectly; and
• Level 3: inputs for the asset or liability that are not based on observable market data.
At 31 December 2015 and 31 December 2016, the Group held all financial instruments at level 2 fair value measurement for the
purposes of disclosing their fair value, with the exception of trade receivables and payables, cash and cash equivalents and
contingent consideration. Between 31 December 2015 and 31 December 2016, there were no transfers between level 1 and level
2 fair value measurements and no transfers into or out of level 3 fair value measurements.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to
the fair value measurement as a whole) at the end of each reporting period.
The methods and assumptions used to estimate the fair values shown above are:
• finance leases – the fair value of borrowings and obligations under finance leases have been estimated by discounting future
cash flows using rates currently available for debt on similar terms, credit risks and remaining maturities;
• term loans and revolving credit facility loans – the fair value of the term and revolving credit facility loans approximates to the
carrying amount as these loans have floating rates of interest; and
• other financial instruments – the fair value of all other items have been calculated by discounting the expected future cash
flows at prevailing interest rates.
The carrying amount of financial instruments of the Company, i.e. other long term liabilities, is a reasonable approximation of fair value.
Contingent consideration
2015
(restated
2016 Note 1(c))
£m £m
The contingent consideration is sensitive to changes in the assumptions. A decrease in EBITDA projections would result in a
decrease in contingent consideration. A decrease in the EBITDA multiple would decrease the contingent consideration.
The consideration to acquire Admaterials Technologies Private Limited included a put and call option to purchase the remaining
shareholding three years after acquisition based on the same earnings multiple as the original offer. The contingent consideration’s
range was between a minimum of £nil and a maximum of £8.7m. The contingent consideration becomes due in 2019. The fair
value of the contingent consideration is the present value of expected future cash flows based on the latest forecasts of future
performance.
The consideration to acquire Jones Environmental Forensics Limited included contingent consideration based on future targets
being met. The contingent consideration relating to the future target’s range was between a minimum of £nil and a maximum of
£1.6m. The contingent consideration is due in 2017. The fair value of the contingent consideration is based on the latest forecasts
of future performance.
The consideration to acquire Insight NDT Limited included contingent consideration based on future targets being met. The
contingent consideration range is between a minimum of £nil and a maximum of £1.5m. The contingent consideration becomes
payable in 2018. The fair value of the contingent consideration is based on the latest forecasts of future performance.
The consideration to acquire Metallurgical Services Private Limited included contingent consideration based on future targets
being met. The contingent consideration range was between a minimum of £nil and a maximum of £2.8m. The first contingent
consideration of £2.2m became payable in August 2015 with the second one of £0.6m payable in October 2016. The target
for the second contingent consideration was not met therefore the amount was reversed. The fair value of the contingent
consideration was the present value of expected future cash flows based on the latest forecasts of future performance.
The following analysis details the contractual maturities of financial liabilities at the balance sheet date including interest and
principal cash flows, using undiscounted cash flows. For floating rate financial liabilities, the interest applied in the analysis below
has been calculated using the prevailing rate at the year end.
Amounts falling due:
between
in less than one and
one year two years Total
2016 £m £m £m
Amortised cost
Non-derivative financial liabilities
Trade payables 11.2 – 11.2
Term loans 4.7 203.1 207.8
Revolving credit facility 8.0 – 8.0
Finance leases 0.1 0.1 0.2
24.0 203.2 227.2
Amortised cost
Non-derivative financial liabilities
Trade payables 9.7 – – 9.7
Bank overdrafts 0.1 – – 0.1
Term loans 4.2 4.2 178.0 186.4
Revolving credit facility 12.0 – – 12.0
Finance leases 0.1 0.1 0.2 0.4
26.1 4.3 178.2 208.6
Currency:
Sterling 0.1 59.0 (4.6) 54.5
Euro – 17.6 (4.5) 13.1
US dollar – 69.3 (1.9) 67.4
Canadian dollar 0.1 47.4 (17.0) 30.5
Swedish krona – 8.3 (2.1) 6.2
UAE dirham – – (9.7) (9.7)
Qatari riyal – – (3.1) (3.1)
Other – – (9.5) (9.5)
0.2 201.6 (52.4) 149.4
Currency:
Sterling 0.1 63.0 (1.1) 62.0
Euro – 15.2 (5.2) 10.0
US dollar 0.1 57.8 (2.1) 55.8
Canadian dollar 0.1 38.2 (4.2) 34.1
Swedish krona – 7.5 (1.9) 5.6
UAE dirham – – (6.6) (6.6)
Qatari riyal – – (2.0) (2.0)
Other 0.1 – (6.0) (5.9)
0.4 181.7 (29.1) 153.0
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant.
Effect on
profit
Increase in before tax
basis (loss)
2016 points £m
Effect on
profit
Increase in before tax
basis (loss)
2015 points £m
Effect on
profit Effect on
Increase in before tax equity
currency (loss) (loss)
2015 rate £m £m
2016 2015
£m £m
21. Provisions
2016 2015
Restructuring Dilapidations Total Restructuring Dilapidations Total
Notes £m £m £m £m £m £m
Restructuring provisions relate to termination payments payable within one year and onerous lease contracts payable within six years.
Provisions have been recognised for dilapidation costs associated with exiting operating leases. It is expected that the majority
of these costs will be incurred in the next 15 years.
(Credit)/
debit to Debit to other At 31 December
At January 2015 income comprehensive Exchange 2015
(asset)/liability statement income adjustment Acquired (asset)/liability
£m £m £m £m £m £m
The current year movement in deferred tax shown in Note 9 includes the government grants utilised during the year (see Note 14).
The element of deferred tax included in government grants is not included in the table above.
Company
Recognised deferred tax assets
Share based payments (0.5) – (0.5) – – –
Deferred tax assets have been recognised in respect of certain losses, fixed asset timing differences, accrued interest, other
accruals and retirement benefit obligations where it is probable that they will be utilised against taxable profits in the foreseeable
future. The carrying value of these deferred tax assets was assessed based on estimates and judgements of the availability of
future taxable profits arising during the same time frame used for impairment reviews (see Note 11). A key judgement in 2016, was
the non-recognition of a UK deferred tax asset on UK losses of approximately £0.9m due to uncertainty in the currency markets.
If sterling strengthens in 2017 it is likely this asset will be recognised.
The deferred tax liability in respect of intangible asset timing differences relates to customer relationships which are being amortised
between 5 and 20 years and on which there is no associated tax deduction against taxable profits.
No deferred tax liability has been recognised in respect of unremitted earnings of subsidiaries. It is likely that the majority of
the overseas earnings will qualify for the UK dividend exemption and the Group can control the distribution of dividends by its
subsidiaries. In some jurisdictions, local tax is payable on the remittance of a dividend. If dividends were to be remitted from
subsidiaries in these countries the additional tax payable would be £9.1m with the gross timing differences being £65.0m.
Share premium
The shares issued on the date of listing of 16 April 2014 were valued at a consideration of £110.0m with £109.5m being transferred
to the Share Premium reserve.
Merger reserve
As a result of the capitalisation of the loan to parent undertaking, the conversion of the preference shares and accrued dividend,
and the redemption of deferred share capital, a merger reserve was created.
On 16 November 2011, following a resolution by Exova 2014 Limited (formerly Exova Group Limited), the existing holders of the
preference shares of Exova 2014 Limited waived their right to receive any of the accrued preference dividends at the rate of 15%
to 31 December 2010, totalling £12.4m. Furthermore, the preference rate dividend was reset from 15% to 8% per annum with effect
from 1 January 2011.
The capital contribution reserve is distributable in future periods, subject to the provisions of the Companies Act 2006.
No awards have been granted under either the Share Incentive or Employee Share Purchase Plans.
During the year the Group recognised an expense of £1.4m in respect of the share awards of which £1.4m is equity settled
(2015: £0.4m).
The terms and conditions of the grants made during the year are as follows:
Share price Shares
at grant Exercise under Vesting
date price Number of option period
Plan name Grant date pence pence employees Number Years
The following tables list the inputs to the models used for the years ended 31 December 2016 and 2015 respectively:
2016 2015
LTIP
– additional
Plan name LTIP SOP LTIP LTIP award SOP SOP DBP
Grant date 18/04/16 18/04/16 15/05/15 01/10/15 01/10/15 15/05/15 01/10/15 02/11/15
Fair value per option £1.30 £0.36 £1.51 £1.39 £1.70 £0.60 £0.42 £1.50
Risk free interest rate 0.51% 1.09% 0.84% 0.77% n/a 1.59% 1.40% n/a
Expected volatility 1
29.4% 25.6% 27.4% 25.5% n/a 33.6% 30.0% n/a
Share price £1.62 £1.42 £1.95 £1.70 £1.70 £1.95 £1.70 £1.50
Dividend yield2 1.98% 2.25% 1.79% 2.06% n/a 1.79% 2.06% n/a
Option life (years) 3 6.5 3 3 2 6.5 6.5 1
Expected life (years) 3 6.5 3 3 2 6.5 6.5 1
1. As a result of the Company being listed in April 2014, the expected volatility is based on the historical volatility of a comparator group of companies of
a similar size and industry over the same period as the expected life of the awards.
2. The dividend yield is based on management expectations and the share price at the date of grant.
The weighted average remaining contractual life for the share options outstanding as at 31 December 2016 is 2.83 years
(2015: 3.14 years).
25. Commitments
(a) Group capital commitments
2016 2015
£m £m
The Group leases various properties and plant and equipment under non-cancellable operating lease agreements. The leases
have various terms and renewal rights. The Group has also sub-let certain properties under non-cancellable sublease agreements
and the total of future minimum lease payments expected to be received amounts to £1.9m (2015: £1.6m).
(d) Company
The Company had no obligations under capital, operating or finance lease and hire purchase commitments.
A further guarantee of 2% of the Sweden defined benefit pension liability has been provided to PRI Pensions Garanti. This amounted
to £0.1m at 31 December 2016.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefits that employees have earned in return for their service in the current and prior years; that benefit is
discounted to determine its present value. Any unrecognised past service costs and the fair values of any plan assets are deducted.
The largest of the defined benefit pension schemes is the UK scheme, TTL Chiltern Group Pension Scheme. The assets of this
scheme are administered by trustees in a fund independent from those of the participating companies and invested directly
on the advice of the independent professional investment managers.
The Scheme provides pensions in retirement and death benefits to members. Pension benefits are linked to a member’s final salary
at retirement and their length of service. Since 1 October 2015 the Scheme has been closed to future accrual. The Scheme is a
registered scheme under UK legislation and was contracted out of the State Second Pension. The Scheme is subject to the scheme
funding requirements outlined in UK legislation. The Scheme was established from 2 March 1978 under trust and is governed by the
Scheme’s rules dated 22 July 2011 and subsequent amending deeds (the “Rules”). The Trustees are responsible for the operation
and the governance of the Scheme, including making decisions regarding the Scheme’s funding and investment strategy. Under
clause 66 of the Rules the Company is entitled to an unconditional right to a refund of surplus if the Scheme winds up with excess
assets.
The Scheme exposes the Company to actuarial risks such as; market (investment) risk, interest rate risk, inflation risk currency risk
and longevity risk. The Scheme does not expose the Company to any unusual Scheme-specific or Company-specific risks.
The Scheme’s investment strategy is to invest broadly 55% in return seeking assets (with 27.5% allocated to diversified growth funds
and 27.5% allocated to equities) and 45% in matching assets (with 20.5% allocated to index-linked gilts or other inflation linked
assets, and 24.5% allocated to corporate bonds). This strategy reflects the Scheme’s liability profile and the Trustees’ and Company’s
attitude to risk.
The last scheme funding valuation of the Scheme was as at 31 December 2013 and revealed a funding deficit of £9.3m. The
Company agreed to pay monthly contributions of £61k increasing at a rate of 3% per annum each 1 January with the view to
eliminating the shortfall by 31 December 2025 in line with the recovery plan dated 4 July 2014.
The Company is expected to pay contributions of £798k over the next accounting period. In addition, Scheme expenses, Pension
Protection Fund Levies and insurance premiums are paid directly by the Company. Contributions to the Scheme are subject
to review at future actuarial valuations and subsequent certification of a new schedule of contributions. The next actuarial
valuation of the Scheme is due with effective date 31 December 2016 and a new schedule of contributions must be in place
within 15 months of the effective date.
The liabilities of the Scheme are based on the current value of expected benefit payment cashflows to members of the Scheme
over the next 70 to 80 years. On the chosen IAS 19 assumptions the average duration of the liabilities at 31 December 2016 is
around 16-17 years.
The current service cost and scheme administration costs are included in operating costs in the Group income statement. Net
pension interest cost is included in net finance costs.
Remeasurements of the net defined liability shown in the group statement of comprehensive income are as follows:
2016 2015
£m £m
Employer contributions
In 2016, the Group made contributions of £0.8m (2015: £1.0m). The Group expects to make contributions of £0.8m in 2017.
The equities and bonds held within the UK and Swedish scheme are all quoted in active markets. The German scheme has no assets.
Fair value of scheme assets 36.0 33.2 3.5 3.1 – – 0.1 0.1
Present value of funded defined benefit
obligations (53.5) (46.5) (6.4) (5.3) – – (0.1) (0.1)
Present value of unfunded defined benefit
obligations – – – – (0.3) (0.3) – –
Deficit in schemes (17.5) (13.3) (2.9) (2.2) (0.3) (0.3) – –
Discount rate 2.6% 3.8% 2.7% 3.0% 2.5% 2.5% 2.6% 2.5%
Inflation rate 3.2% 2.9% 1.5% 1.5% 2.0% 2.0% 0.0% 0.0%
Rate of salary increases 2.2% 1.9% 2.6% 2.6% 2.0% 2.0% 2.3% 2.5%
Life expectancy for pensioners at the age
of 65 (years):
Male 21.9 22.1 22.0 23.0 19.0 19.0 21.3 21.3
Female 23.9 24.1 24.0 25.0 23.1 23.1 24.4 24.4
Changes in significant assumptions and the impact on the defined benefit obligations at 31 December is shown below:
2016 Sensitivity level
UK Scheme Sweden Scheme
0.25% 0.25% 0.5% 0.5%
increase decrease increase decrease
£m £m £m £m
Assumptions
Inflation rate 1.4 – 0.4 (0.4)
Discount rate – 2.3 (0.5) 0.6
Rate of salary increase – – 0.3 (0.2)
Assumptions
Inflation rate 1.0 – 0.3 (0.3)
Discount rate – 1.8 (0.5) 0.5
Rate of salary increase – – 0.3 (0.2)
Assumed life expectancy at age 65 – increase/decrease by one year 1.3 n/a 0.2 (0.2)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit
obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
The average duration of the defined benefit plan obligations at the end of the reporting period is 16.8 years (2015: 15.3 years).
Income statement
Company
2016 2015
£m £m
Balances at 31 December
Group Company
2016 2015 2016 2015
Assets Notes £m £m £m £m
Key management comprises members of the executive team. The executive team is responsible for the day to day running of the
Group, and comprises the CEO, CFO, managing directors and group functional directors.
The Group holds equity interests of less than 51% in the following companies where it exercises control:
% shareholding
Exova (Qatar) LLC approved and paid a dividend of £0.8m (QAR 4,000,000) (2015: £1.1m QAR: 6,000,000) to its shareholders.
The Group is exposed, or has rights, to variable returns from its involvement with the equity interests and has the ability to affect
those returns through its power over the equity interests. Based on this, the Directors have determined that the Group has control
over these equity interests and therefore consolidates them within the financial statements.
The Group has interests in joint venture arrangements in the following companies:
Principal Group
place of ownership
Name business interest Held by
BM TRADA (HK) Limited Hong Kong 70% BM TRADA Overseas Limited
BM TRADA RKCA Certifications Private Limited India 50% BM TRADA Overseas Limited
FIRA – CMA Testing Services Limited Hong Kong 50% BM TRADA Overseas Limited
BM TRADA Cyprus Limited Cyprus 50% BM TRADA Overseas Limited
Standardt BM TRADA Belgelendirme AS Turkey 50% BM TRADA Overseas Limited
BM TRADA Latvija Latvia 50% BM TRADA Overseas Limited
BM TRADA RKCA Lanka Certifications (Private) Limited Sri Lanka 50% BM TRADA RKCA Certifications Private Limited
BM TRADA Suomi OY Finland 50% BM TRADA Latvija
BM TRADA Eesti Ou Estonia 50% BM TRADA Latvija
BM TRADA Deutschland GmbH Germany 50% BM TRADA Latvija
BM TRADA Lietuva Lithuania 50% BM TRADA Latvija
Tianjin C-Kai BM TRADA Certification Company Limited China 40% BM TRADA Certification Limited
Final dates and any changes will be notified as appropriate. The Company’s results announcements are published through the
London Stock Exchange.
Registrar
The Company’s register of shareholders is maintained by our Registrar, Capita Registrars. All enquiries concerning existing
shareholdings, change of address or lost share certificates should be directed to Capita Registrars using either of the
methods below:
In writing: Capita Asset Services (a trading name of Capita Registrars Limited), The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU.
By telephone: By calling Capita Registrars on Tel: 0871 664 0300 (calls cost 12 pence per minute plus network extras)
(from outside the UK: +44 371 664 0300). Lines are open Monday to Friday, 9.00a.m. to 5.30p.m.
Electronic communications
Shareholders can view up-to-date information about their shareholding by visiting www.exovagroup-shares.com.
Directors
Allister Langlands Non-Executive Chairman
Ian El–Mokadem Chief Executive Officer
Philip Marshall Chief Financial Officer
Bill Spencer Senior Independent Director
Helmut Eschwey Independent Non-Executive Director
Fred Kindle Non-Executive Director
Vanda Murray Independent Non-Executive Director
Christian Rochat Non-Executive Director
Andrew Simon Independent Non-Executive Director
ISIN number
GB00BKY7HG11
LEI number
213800BFE317FGSYMZ19
Website
www.exova.com
Telephone number
Tel: +44 (0)131 333 4360
Solicitors
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Auditors
Ernst & Young LLP
10 George Street
Edinburgh EH2 2DZ
Registrars
Capita Asset Services
(A trading name of Capita Registrars Limited)
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Adjusted EBITA: Adjusted EBITA is operating profit from continuing operations before separately disclosed items and
management fee to private equity investor
bps: Basis points, ten basis points are equivalent to 0.1% movement
CD&R Fund VII L.P.: Clayton, Dubilier & Rice Fund VII, L.P., a fund managed by CD&R
Constant currency: Constant currency growth figures are provided in order to remove the impact of currency translation.
We calculate growth at constant rates by translating the current and prior period results at the same exchange rates
Free cash flow: Adjusted EBITDA less movements in net working capital, excluding the movement in IPO related cost accruals,
less net capital expenditure
NPS®: is a measure of customer satisfaction and predictor of customer loyalty. Net Promoter® and NPS® are registered trademarks
and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld
Organic revenue growth at constant currency: revenue growth at constant currency for each year excluding the growth
attributable to acquisitions until the acquisition has been owned for a 12 month period and excluding the revenue attributable
to disposals in the year of disposal and the preceding year, all at constant currency
Relationship Agreement: the relationship agreement entered between the Company and TABASCO B.V. on 10 April 2014
www.exova.com