Preliminary results for the year ended March 2014

Accsys Technologies PLC

 

Notes to the financial statements for the year ended 31 March 2014

 

1.         Accounting Policies

 

General information

 

The financial information set out in these preliminary results does not constitute the company's statutory accounts for the periods ended 31 March 2014 or 31 March 2013. Statutory accounts for the period ended 31 March 2013 have been filed with the Registrar of Companies and those for the period ended 31March 2014 will be delivered to the Registrar in due course; both have been reported on by the auditors. The auditors' report on the Annual Report and Financial Statements for the period ended 31 March 2013 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

The auditors' report on the Annual Report and Financial Statements for the period ended 31 March 2014 is unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Basis of accounting

 

The Group's financial statements have been prepared under the historical cost convention (except for certain financial instruments and equity investments which are measured at fair value), in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as endorsed by the European Union and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements under adopted IFRS. The Company has elected to prepare its parent company financial statements in accordance with UK Generally Accepted Accounting Practice (UK GAAP).

 

Going Concern

 

The financial statements are prepared on a going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future, which is deemed to be at least 12 months from the date these financial statements are approved.

 

As part of the Group's going concern review, the Directors have reviewed the Group's trading forecasts and working capital requirements for the foreseeable future. These forecasts indicate that, in order to continue as a going concern, the Group is dependent on the achievement of certain operating performance measures relating to the production and sales of Accoya^® wood from the plant in Arnhem and the collection of on-going working capital items in line with internally agreed budgets. 

 

The Directors have considered the internally agreed budgets and performance measures and believe that appropriate controls and procedures are in place or will be in place to make sure that these are met.  The Directors believe that while some uncertainty inherently remains in achieving the budget, in particular in relation to market conditions outside of the Group's control, that there are a sufficient number of alternative actions and measures that can be taken in order to achieve the Group's medium and long term objectives.

 

Therefore the Directors believe that the going concern basis is the most appropriate on which to prepare the financial statements.

 

Risks and uncertainties

 

The net assets as at 31 March 2014 of €48m contain balances in relation to the Group's goodwill, capitalised internal development costs and intellectual property rights of €8.3m.  The recoverability of these balances is dependent upon the Group's existing licensees progressing with the completion of their manufacturing facilities or the signing of other new licence agreements. While the scope and timing of the production facilities to be built by the Group's existing and future licensees remains uncertain, the Directors remain confident that revenue from either existing licensees or new licensees will be generated, demonstrating the recoverability of these balances.

 

In addition, the carrying value of the €20.7m of property, plant and equipment, which primarily relate to the Arnhem plant, are dependent upon the future profitable sales of Accoya^® wood made there.  The price of the Accoya^® wood and the raw materials and other inputs vary according to market conditions outside of the Group's control.  Should the price of the raw materials increase greater than the sales price or in a way which no longer makes as Accoya^® competitive, then the carrying value of the property, plant and equipment may be in doubt and become impaired. The Directors consider that the current market and best estimates of future prices means that this risk is limited.

 

Changes in accounting policies

 

In the current period, the following new and revised Standards and Interpretations have been adopted. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements:

·      IFRS 13 'Fair Value Measurement' - The Group has applied IFRS 13 for the first time in the current period. IFRS 13 establishes a single source of guidance for fair value measurements and associated disclosures. The scope of IFRS 13 is broad, applying to both financial instruments and non-financial instruments. The application of IFRS 13 has not had any impact on the amounts recognised in the consolidated financial statements.

·      IAS 1 (amendment) 'Financial Statement Presentation' - This amendment requires that items of other comprehensive are identified between those that could be subsequently reclassified into profit and loss and those which could not.

 

 

Business combinations

 

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Group as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full.

 

The consolidated financial statements incorporate the results of business combinations using the purchase method.  In the consolidated statement of financial position, the acquirer's identifiable assets, liabilities, and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.

 

As allowed under IFRS 1, some business combinations effected prior to transition to IFRS, were accounted for using the merger method of accounting. Under this method, assets and liabilities are included in the consolidation at their book values, not fair values, and any differences between the cost of investment and net assets acquired were taken to the merger reserve.  The majority of the merger reserve arose from a corporate restructuring in the year ended 31 March 2006 which introduced Accsys Technologies PLC as the new holding company.

Joint ventures

 

A jointly controlled entity is an entity in which the Group holds a long term interest and shares joint control over strategic, financial and operating decisions with one or more other venturers under a contractual arrangement. The Group's share of the assets, liabilities, income, expenditure and cash flows of such jointly controlled entities are accounted for using the equity method. The equity method records the Group's share of the results of the joint venture entity on a separate line in the Group's financial statements.

 

The total carrying values of investments in joint ventures represent the cost of each investment including the carrying value of any goodwill, the share of post-acquisition retained earnings, any other movements in reserves and any long term debt interests which in substance form part of the Group's net investment. The carrying values of joint ventures are reviewed on a regular basis and if an impairment in value has occurred, the carrying value is impaired in the period in which the relevant circumstances are identified. The Group's share of a joint venture's losses in excess of its interest in that associate is not recognised unless the Group has an obligation to fund such losses.

Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.

 

Revenue recognition

 

Revenue is measured at the fair value of the consideration receivable. Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and that the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

 

Manufacturing revenue

Revenue is recognised in respect of the sale of goods when the significant risks and rewards of ownership of the goods have been passed to the buyer, the timing of which is dependent on the particular shipment terms. When a customer provides untreated wood to be processed by the Group in order to produce Accoya^®, revenue is recognised when the Group's obligations under the relevant customer contract have been substantially completed, which is before the finished Accoya^® has been collected by the customer. Manufacturing revenue includes the sale of Accoya^® wood and other revenue, principally relating to the sale of acetic acid.

 

Licence fee income

Licence fee income is recognised over the period of the relevant agreements according to the specific terms of each agreement or the quantities and/or values of the licensed product sold. The accounting policy for the recognition of licence fees is based upon an assessment of the work required before the licence is signed and subsequently during the design, construction and commissioning of the licensees' plant, with an appropriate proportion of the fee recognised upon signing and the balance recognised as the project progresses to completion. The amount of any cash or billings received but not recognised as income is included in the financial statements as deferred income and shown as a liability.

 

Finance income

 

Interest accrues using the effective interest method, i.e. the rate that discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

 

Finance expense

 

Finance expenses include the fees associated with the Group's credit facilities which are expensed over the period which the Group has access to the facilities.

 

Finance expenses also include an allocation of finance charges in respect of the sale and leaseback of the Arnhem land and buildings accounted for as a finance lease. The total finance charge (calculated as the difference between the total minimum lease payments and the liability at the inception of the lease) is allocated over the life of the lease using the sum-of-digits method.

 

Share based payments

 

The Company awards share options and nil cost options to acquire shares of the Company to certain Directors and employees. The Company also awards bonuses to certain Directors and employees in the form of the award of deferred shares of the Company.

 

In addition the Company has established an Employee Share Participation Plan under which employees subscribe for new shares which are held by a trust for the benefit of the subscribing employees. The Shares are released to employees after one year, together with an additional, matching share on a 1 for 1 basis.

 

The fair value of options, deferred shares and matching shares granted are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and is charged to the statement of comprehensive income over the vesting period during which the employees become unconditionally entitled to the options or shares.

 

The fair value of share options granted is measured using a modified Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest only where vesting is dependent upon the satisfaction of service and non-market vesting conditions.

 

Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options which eventually vest.  Market vesting conditions are factored into the fair value of the options granted.  The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Dividends

 

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.

 

Pensions

 

The Group contributes to certain defined contribution pension and employee benefit schemes on behalf of its employees. These costs are charged to the statement of comprehensive income on an accruals basis.

 

Taxation

 

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date together with any adjustment to tax payable in respect of previous years. Current tax includes the expected impact of claims submitted by the Group to tax authorities in respect of enhanced tax relief for expenditure on research and development.

 

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:

 

·      the initial recognition of goodwill,

·      the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and

·      differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

 

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Recognition of deferred tax assets is restricted to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Foreign currencies

 

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (the functional currency).   For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in Euro, which is the functional currency of the parent Company, and the presentation currency of the consolidated financial statements.

 

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currencies are recognised at the rates of exchange prevailing on the dates of the transactions.  At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date.  Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

 

Exchange differences are recognised in profit or loss in the period in which they arise.

 

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date.  Income and expense items are translated at the average monthly exchange rates prevailing in the month in which the transaction took place.  Exchange differences arising, if any, are recognised in other comprehensive income and the foreign currency translation reserve.

 

Government grants

 

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with the attached conditions. 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. Where the grant relates to an asset they are credited to a deferred income account and released to the statement of comprehensive income over the expected useful life of the relevant asset on a straight line basis.

 

Goodwill

 

Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and the fair value of the identifiable assets and liabilities acquired. It is capitalised, and is subject to annual impairment reviews by the Directors. Any impairment arising is charged to the statement of comprehensive income.

 

Other intangible assets

 

Intellectual property rights, including patents, which cover a portfolio of novel processes and products, are shown in the financial statements at cost less accumulated amortisation and any amounts by which the carrying value is assessed during an annual review to have been impaired. At present, the useful economic life of the intellectual property is considered to be 20 years. 

 

Internal development costs are incurred as part of the Group's activities including new processes, process improvements, identifying new species and improving the Group's existing products. Research costs are expensed as incurred. Development costs are capitalised when all of the criteria set out in IAS 38 'Intangible Assets' (including criteria concerning technical feasibility, ability and intention to use or sell, ability to generate future economic benefits, ability to complete the development and ability to reliably measure the expenditure) have been met. These internal development costs are amortised on a straight line basis over their useful economic life, between 10 and 20 years.

 

Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment charged. Cost includes the original purchase price of the asset as well as costs of bringing the asset to the working condition and location of its intended use. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset, except freehold land, over its expected useful life on a straight line basis, as follows:

 

Plant and machinery                            These assets comprise pilot plants and production facilities.  These facilities are depreciated from the date they become available for use at rates applicable to the asset lives expected for each class of asset, with rates between 5% and 20%.

Office equipment                                 Between 20% and 50%.

Leased land                                          Land held under a finance lease is depreciated over the life of the lease.

Freehold land                                       Freehold land is not depreciated.

 

Impairment of non-financial assets

 

The carrying amount of the non-current non-financial assets of the Group is compared to the recoverable amount of the assets whenever events or changes in circumstances indicate that the net book value may not be recoverable, or in the case of goodwill, annually.  The recoverable amount is the higher of value in use and the fair value less cost to sell. In assessing the value in use, the expected future cash flows from the assets are determined by applying a discount rate to the anticipated pre-tax future cash flows.  An impairment charge is recognised in the statement of comprehensive income to the extent that the carrying amount exceeds the assets' recoverable amount.  The revised carrying amounts are amortised or depreciated in line with Group accounting policies. A previously recognised impairment loss, other than on goodwill, is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment.  This reversal is recognised in the statement of comprehensive income and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in prior years. Assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units) for purposes of assessing impairment. 

 

Leases

 

Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term.

 

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

 

Inventories

 

Raw materials, which consist of unprocessed timber and chemicals used in manufacturing operations are valued at the lower of cost and net realisable value. The basis on which cost is derived is a first-in, first-out basis.

 

Finished goods, comprising processed timber, are stated at the lower of weighted average cost of production or net realisable value.  Costs include direct materials, direct labour costs and production overheads (including the depreciation/depletion of relevant property and plant and equipment) absorbed at an appropriate level of capacity utilisation.  Net realisable value represents the estimated selling price less all expected costs to completion and costs to be incurred in selling and distribution.

 

 

 

 

 

Financial assets

 

Financial assets are classified as cash and cash equivalents, available for sale investments and loans and receivables, depending on the purpose for which the asset was acquired. When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

 

Except where a reliable fair value cannot be obtained, unlisted shares held by the Group are classified as available for sale investments and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in equity, with the exception of impairment losses which are recognised directly in profit or loss. Where an investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the profit or loss in the year. Where it is not possible to obtain a reliable fair value, these investments are held at cost less provision for impairment.

 

Loans and receivables, which comprise non-derivative financial assets with fixed and determinable payments that are not quoted on an active market are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

Trade and other receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market.  They arise principally from the provision of goods and services to customers. Trade receivables are initially recognised at fair value less an allowance for any uncollectible amounts.  A provision for impairment is made when there is objective evidence that the Group will not be able to collect debts. Bad debts are written off when identified.

 

Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits, including liquidity funds, with an original maturity of three months or less. For the purpose of the statement of consolidated cash flow, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

 

Financial liabilities

 

Other financial liabilities

Trade payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

 

Share capital

 

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's shares are classified as equity instruments.

 

Accounting estimates and judgements

 

In preparing the Consolidated Financial Statements, management has to make judgments on how to apply the Group's accounting policies and make estimates about the future. The critical judgments that have been made in arriving at the amounts recognised in the Consolidated Financial Statements and the key sources of estimation and uncertainty that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities in the next financial year are discussed below:

 

Revenue recognition

The Group has considered the criteria for the recognition of licence fee income over the period of the agreement and is satisfied that the recognition of such revenue is appropriate.  The recognition of licence fees is based upon an assessment of the work required before the licence is signed and subsequently during the construction and commissioning of the licensees' plant, with an appropriate proportion of the fee recognised upon signing and the balance recognised as the project progresses to completion. The Group also considers the recoverability of amounts before recognising them as income.

 

Goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated above. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of judgments in relation to discount rates and future forecasts. (See note 14)

 

Intellectual property rights and property, plant and equipment

The Group tests the carrying amount of the intellectual property rights and property, plant and equipment whenever events or changes in circumstances indicate that the net book value may not be recoverable. These calculations require the use of estimates in respect of future cash-flows from the assets by applying a discount rate to the anticipated pre-tax future cash-flows. The Group also reviews the estimated useful lives at the end of each annual reporting period. (See note 14)

 

Inventories

The Group reviews the net realisable value of, and demand for, its inventory on a monthly basis to provide assurance that recorded inventory is stated at the lower of cost and net realisable value after taking into account the age and condition of inventory. (See note 19)

 

Available for sale investments

The Group has an investment in unlisted equity shares carried at nil value.  The investment is valued at cost less any impairment as a reliable fair value cannot be obtained since there is no active market for the shares and there is currently uncertainty around the future funding of the business. The Group makes appropriate enquiries and considers all of the information available to it in order to assess whether any impairment has occurred. (See note 16)

 

New standards and interpretations in issue but not yet effective at the date of authorisation of these financial statements:

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU).

 

•              IFRS 9 'Financial Instruments'

•              IFRS 10 'Consolidated Financial Statements'

•              IFRS 12 'Disclosure of Interests in Other Entities'

•              IAS 27 (amendments) 'Separate financial statements'

•              IAS 28 (amendments) 'Associates and joint ventures'

•              IAS 32 (amendments) 'Financial instruments presentation'

•              IAS 36 (amendments) 'Recoverable Amount Disclosures for Non-Financial Assets'

 

The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future periods.

 

 

2.         Segmental reporting

 

The Group's business is the development, commercialisation and licensing of proprietary technology for the manufacture of Accoya^® wood, Tricoya^® wood elements and related acetylation technologies. Segmental reporting is divided between licensing activities, the manufacturing and sale of Accoya^® and research and development activities.

Result by Segment:	Licensing, Management & Business Development
	2014	2013
	€'000	€'000
Revenue	1,134	553
Cost of sales	-	-
Gross profit	1,134	553
Other operating costs	(7,680)	(6,780)
Impairment of licensee receivables	-	-
Loss from operations	(6,546)	(6,227)
Loss from Operations	(6,546)	(6,227)
Depreciation and amortisation	412	347
EBITDA	(6,134)	(5,880)
	Manufacturing
Revenue	32,378	18,269
Cost of sales	(25,753)	(15,474)
Gross profit	6,625	2,795
Other operating costs	(6,142)	(5,528)
Profit/(loss) from operations	483	(2,733)
Profit/(loss) from Operations	483	(2,733)
Depreciation and amortisation	1,910	1,833
EBITDA	2,394	(900)
	ResearchandDevelopment
Revenue	-	-
Cost of sales	-	-
Gross profit/(loss)	-	-
Other operating costs	(1,151)	(1,240)
Loss from operations	(1,151)	(1,240)
Loss from Operations	(1,151)	(1,240)
Depreciation and amortisation	54	76
EBITDA	(1,096)	(1,164)
	Total
Revenue	33,512	18,822
Cost of sales	(25,753)	(15,474)
Gross profit	7,759	3,348
Other operating costs	(14,973)	(13,548)
Impairment of licensee receivables	-	-
Loss from operations	(7,214)	(10,200)
Share of joint venture loss	(905)	(430)
Finance income	155	206
Finance expense	(226)	(244)
Loss before taxation	(8,190)	(10,667)
Loss from Operations	(7,214)	(10,200)
Share of joint venture loss	(905)	(430)
Depreciation and amortsation	2,376	2,256
EBITDA	(5,743)	(8,374)

Licensing, Management & Business Development

 

Revenue is attributable to fees in relation to the licensing of the Group's technology to third parties.

 

Other operating costs include all remaining costs unless they are directly attributable to Manufacturing or Research and Development. This includes marketing, business development, management and the majority of the Group's administration costs including the head office in Windsor as well as the US office.

 

Headcount = 21 (2013: 21)

 

Manufacturing

 

Revenue includes the sale of Accoya^® and other revenue, principally relating to the sale of acetic acid.

 

All costs of sales are allocated against manufacturing activities in Arnhem unless they can be directly attributable to a licensee.

 

Other operating costs include depreciation of the Arnhem property, plant and equipment together will all other costs associated with the operation of the Arnhem manufacturing site, including directly attributable administration costs.

 

Headcount = 67 (2013: 62)

 

Research and Development

 

Costs are associated with various R&D activities associated with Accoya^® and processes. The costs are reported excluding €455,000 of costs which have been capitalised in accordance with international financial reporting standards. (2013: €861,000).

 

Headcount = 13 (2013: 13)

 

Assets and liabilities cannot be readily allocated to the three segments and therefore no additional segmental information has been disclosed.

 

 

 

Analysis of Revenue by geographical area of customers:					2014	2013
					€'000	€'000
UK and Ireland					11,300	3,983
Benelux					8,822	6,842
Rest of Europe					7,501	4,611
Americas					3,376	1,585
Asia-Pacific					1,901	1,292
Rest of World					612	509
					33,512	18,822

 

 

Revenue generated from one customer exceeded 10% of Group revenue of 2014, represented by 43% of the revenue from the United Kingdom and relates to manufacturing revenue. Revenue generated from no single customer exceeded 10% of Group revenue in 2013.

 

 

Analysis of non-current assets (Other than financial assets and deferred tax):					2014	2013
					€'000	€'000
UK					4,491	4,133
Other countries					20,690	22,195
Un-allocated - Goodwill					4,231	4,231
					29,412	30,559

The segmental assets in the current year and the previous year were predominantly held in Europe. Additions to property, plant, equipment and intangible assets in the current year and the previous year were predominantly incurred in Europe.

 

 

 

 

 

 

 

 

 

3.         Other operating costs

 

Other operating costs consist of the operating costs, other than the cost of sales, associated with the operation of the plant in Arnhem and the offices in Dallas and Windsor:

 

				2014	2013
				€'000	€'000
Sales and marketing				2,882	2,908
Research and development				1,151	1,240
Depreciation and amortisation				2,377	2,256
Other operating costs				2,243	2,104
Administration costs				6,320	5,040
				14,973	13,548

 

 

During the period €726,000 of Administration costs related to legal costs incurred in the period associated with the Diamond Wood arbitration. (See Note 28)

 

During the period, €459,000 (2013: €953,000) of development costs were capitalised and included in intangible fixed assets. This includes €152,000 in respect of the Accoya^® licence Process Design Package (2013: €456,000). 

 

Administration costs also include the costs associated with the Group's head office in Windsor, the US office in Dallas together with business development and management costs.

 

 

4.         Employees

 

				2014	2013
				€'000	€'000
Staff costs (including Directors) consist of:
Wages and salaries				6,469	6,160
Social security costs				926	756
Other pension costs				434	422
Share based payments				1,177	927
				9,006	8,265
The average monthly number of employees, including Executive Directors, during
the year was as follows:				Number	Number
Administration, research and engineering				67	66
Operating				34	30
				101	96

 

 

 

5.         Directors' remuneration

 

				2014	2013
				€'000	€'000
Directors' remuneration consists of:
Directors' emoluments				894	829
Company contributions to money purchase pension schemes				47	44
				941	873

 

 

Compensation of key management personnel included the following amounts:

 

		Salary, bonus and short term benefits		Share based payments charge	2014	2013
			Pension
					Total	Total
		€'000	€'000	€'000	€'000	€'000
Paul Clegg		356	28	442	826	761
Hans Pauli		242	12	139	393	365
William Rudge1		151	7	74	232	93
		749	47	655	1,451	1,219

 

 

1 - William Rudge was appointed as Finance Director on the 1 October 2012.

 

The Group made contributions to 3 (2013: 3) Directors' personal pension plans.

 

 

 

6.         Operating loss

 

				2014	2013
				€'000	€'000
This has been arrived at after charging:
Staff costs				9,006	8,265
Legal costs - Diamond Wood arbitration (note 28)				726	-
Depreciation of property, plant and equipment				2,024	1,950
Amortisation of intangible assets				352	306
Operating lease rentals				1,011	165
Fees payable to the Company's auditors for the audit of the Company's annual accounts				63	62
Fees payable to the Company's auditors for other services:
- audit of the Company's subsidiaries pursuant to legislation				80	79
- audit related assurance services				24	25
- tax compliance services				53	57
- all other services				27	5
Foreign exchange losses				65	65
Research & Development (excluding staff costs)				535	636
Loss on disposal of property, plant and equipment				77	114

 

7.         Share of joint venture losses

 

On 5 October 2012, Accsys entered into a 50:50 joint venture with INEOS to exploit Accsys' intellectual property surrounding its proprietary Tricoya^® wood elements acetylation technology and processes, which is expected to lead to the accelerated global deployment of Tricoya. The company, Tricoya Technologies Limited ('TTL'), will develop and exploit Accsys' Tricoya technology for use within MDF, particle board and wood plastic composites in a worldwide panel products market estimated to be worth more than €60 billion annually.

 

As part of the transaction, TTL was granted rights to exploit Accsys' Tricoya^® technology and will also benefit from a licence of any intellectual property held by INEOS that may assist the joint venture in maximising the value of the Tricoya^® proposition. Profits generated by TTL will be shared between Accsys and INEOS in a way that reflects each party's interest. The contribution of Accsys' Tricoya^® intellectual property to the Joint Venture is reflected through a disproportionate future profit share which is expected to create significant value for Accsys.

 

TTL has been accounted for in the Accsys Group accounts using the equity method. The TTL results in the prior year are for the period from 5 October 2012 to 31 March 2013.

 

Income statement of TTL joint venture:

	2014	2013
	€'000	€'000
Revenue	153	-
Costs:
Staff costs	1,230	590
Research & development (excluding staff costs)	278	163
Intellectual Property	133	76
Sales & marketing	322	31
Joint venture loss	1,810	860
Group share of joint venture loss	905	430
Investment in joint venture at 1 April	62	-
Group share of loss reported	(905)	(430)
Less elimination of mark-up on recharged staff costs	(17)	(8)
Investments in joint venture	1,200	500
Carrying value of joint venture at 31 March	340	62

 

Tricoya Technologies Limited statement of financial position at 31 March 2014:

 

	2014	2013
	€'000	€'000
Non-current assets
Intangible assets	1,382	93
Current assets
Receivables due within one year	150	89
Cash and cash equivalents	499	324
	649	413
Current liabilities
Trade and other payables	(1,302)	(366)
Net current assets	(653)	47
Net assets	729	140
50% attributable to Accsys Technologies	364	70
Less elimination of mark-up on recharged costs	(17)	(8)
Equity and reserves
Share capital	3,400	1,000
Accumulated loss	(2,671)	(860)
Total equity	729	140

 

 

8.         Finance income

 

				2014	2013
				€'000	€'000
Interest receivable on bank and other deposits				155	206

 

 

9.         Finance expense

 

				2014	2013
				€'000	€'000
Arnhem land sale and leaseback finance charge				226	244

 

 

10.       Tax expense

				2014	2013
				€'000	€'000
(a) Tax recognised in the statement of comprehensive income comprises:
Current tax expense
UK Corporation tax on profits for the year				-	-
Research and development tax credit in respect of prior years				-	(26)
Research and development tax credit in respect of current year				(169)	(286)
				(169)	(312)
Overseas tax at rate of 15%				2	11
Overseas tax at rate of 25%				-	-
Deferred Tax
Under/(over) provision in respect of prior years				-	-
Utilisation of deferred tax asset				866	656
Total tax charge reported in the statement of comprehensive income				699	355
				2014	2013
				€'000	€'000
(b) The tax credit for the period is lower than the standard rate of
corporation tax in the UK (2012: 26%, 2011: 28%) due to:
Loss profit before tax				(8,190)	(10,668)
Expected tax credit at 23% (2013 - 24%)				(1,884)	(2,560)
Expenses not deductible in determining taxable profit				367	295
Over provision in respect of prior years				(383)	(7)
Losses transferred to deferred tax asset but not recognised				2,420	2,293
Effects of overseas taxation				67	21
Other temporary differences				(57)	1
Research and development tax credit in respect of prior years				-	26
Research and development tax credit in respect of current year				169	286
Total tax charge reported in the statement of comprehensive income				699	355

 

 

 

11.       Dividends Paid

				2014	2013
				€'000	€'000
Final Dividend €Nil (2013: €Nil) per Ordinary share proposed
and paid during year relating to the previous year's results				-	-

 

 

12.       Loss per share

 

The calculation of loss per ordinary share is based on loss after tax and the weighted average number of ordinary shares in issue during the year.

 

Basic and diluted earnings per share			2014	2013
Weighted average number of Ordinary shares in issue ('000)			437,412	419,650
Loss for the year (€'000)			(8,889)	(11,023)
Basic and diluted loss per share			€(0.02)	€(0.03)

 

Basic and diluted losses per share are based upon the same figures. There are no dilutive share options as these would increase the loss per share.

 

 

 

13.       Share based payments

 

The group operates a number of share schemes which give rise to a share based payment charge. During the period, the group introduced a new Long Term Incentive Plan ('LTIP') in order to reward members of the senior management team and the executive directors. As part of the award of nil costs options under the LTIP, the recipients relinquished all share options that they held which had been awarded under the 2005 and 2008 Share Option plans. Other employees continue to hold options awarded under these earlier schemes.

 

In addition, the group operates an Employee Share Participation Plan, which is available to all employees, and also makes annual awards under the Employee Benefit Trust. Details of all these schemes are given below:

 

Long Term Incentive Plan ('LTIP')

 

During the period, the group established a new Long Term Incentive Plan, the participants of which are key members of the management team. The establishment of the LTIP was approved by the shareholders at the AGM in September 2013. Further background details are set out in the Remuneration Report and were included in the Notice of 2013 Annual General Meeting.

 

A prerequisite of participation in the new LTIP was for the management team to agree to the cancellation of their entire outstanding share

options, providing the Company with a 5% reduction in the level of dilution to make the new awards. A cancellation was agreed as the most appropriate action as it would focus the management team on the new LTIP and not on historical awards or arrangements. Details of the cancellation of the share options (previously awarded under the 2005 and 2008 Share Option schemes) are set out further below.

 

LTIP overview

 

Under the newly established LTIP awards can be granted on a discretionary basis to key members of the management team. During the period, an initial 'one off' grant was made in order to focus the management team on the growth of the Company over the next three years. Awards were granted in the form of nil-cost options and consist of the following 'elements':

 

Element	Objective	Description
A	Retention based award to lock-in executives who have contributed to the turnaround	In consideration to agreeing to the cancellation of the participant's existing options, a proportion of the new share award vests on continuity of employment over the next three years. To ensure there is no value shift to the participants via the cancellation, this element requires an additional three years of services from the participant and will be forfeited if the share price at the end of the performance period is below €0.13.
B	Performance based share award	This element aligns the participant to the future success of the Company by linking the level of vesting to EBITDA and share price growth against the constituents of the MSCI Europe Index (or another other broad based European index as deemed appropriate by the Remuneration Committee).
C	Exceptional performance multiplier	This element ensures that if significant value is created for shareholders then participants will be entitled to receive an appropriate proportion of this value.

 

 

Performance conditions

 

Awards granted under the LTIP are subject to continued employment and satisfaction of the performance conditions. Performance will be measured at the end of a three year performance period for each Element.

 

Element A - Vesting is contingent upon continued employment for three years and share price not falling below €0.13 at the end of the performance period.

 

Element B - Measured against two equally weighted performance conditions:

 

	Threshold	Target	Maximum
EBITDA (50% of Element B)	€0m	€1.6m	€4m
Share price growth (50% of Element B)	Median of the constituents of the MSCI Europe Index	60th percentile of the constituents of the MSCI Europe Index	Upper quartile of the constituents of the MSCI Europe Index
Vesting level1	25%	60%	100%

Notes:

1. Vesting is on a straight line basis between the respective EBITDA and share price targets.

 

Element C - This element vests in full if the share price is at or above €0.26 at the end of the performance period.

 

Awards made in period

 

Immediately following the establishment of the new LTIP in September 2013, awards were made to members of the management team. A total of 21,393,185 nil cost options were awarded. 7,966,667 were allocated as Element A, 9,187,881 as Element B and 4,238,637 were allocated as Element C. At the same time, a total of 22,281,146 of old options were cancelled.

 

Element A was designed to recognise the contribution made by individuals to the turnaround of the Company and the cancellation of the existing options was a prerequisite for participation in the LTIP. The quantum of Element A for each participant was linked to the expected value of the existing options which were cancelled where there was a reasonable probability of payout. As a result, under IFRS 2, the award of Element A was accounted for as a modification of the existing share options and as the award was designed to avoid any transfer of value, the resulting share based payment charge is the same as if the existing options had not been cancelled.

 

Elements B and C have been accounted for as new awards with the fair value calculated based on a modified Black-Scholes model assuming inputs described below:

 

Element	Element B (i)	Element B (ii)	Element C
Grant date	19 Sep 13	19 Sep 13	19 Sep 13
Share price at grant date (€)	0.14	0.14	0.14
Exercise price (€)	0.00	0.00	0.00
Expected life (years)	3	3	3
Contractual life (years)	10	10	10
Vesting conditions (Details set out above)	EBITDA	Share Price	Exeptional Multiplier
Risk free rate	0.48%	0.48%	0.48%
Expected volatility	40%	40%	40%
Expected dividend yield	0%	0%	0%
Fair value of option	€ 0.129	€ 0.078	€ 0.044

 

No LTIP options vested in the period.

 

2005 and 2008 Share Option schemes

 

The following share options awarded under the group's 2005 and 2008 Share Option schemes impacted the current or preceding financial year;

 

Options granted on 1 March 2005 fully vested during 2011. These options may be exercised until 30 March 2015. At 31 March 2014, 269,265 (2013: 269,265) of these options were outstanding with an exercise price of €0.32.

 

Options granted on 28 March 2007 at an exercise price of €2.59 per Ordinary share vest to one third of the options granted upon achievement of each of the following:

·           Cumulative €5 million licence income recognised under Group accounting policies

·           Cumulative €20 million revenue from sales of Accoya^® wood

·           Announcement of annual Group distributable earnings exceeding €5 million

Once vested, these options may be exercised until 31 March 2017.  At 31 March 2014, 896,699 (2013: 2,343,034) of these options were outstanding at an exercise price of €1.83.

 

Options granted on 20 November 2007 vest to one third of the options granted upon achievement of each of the following:

·           Annual Accoya^® wood production exceeds 23,000m³ in a financial year

·           Annual Accoya^® wood sales revenue exceeds €26 million in financial year

·           The second pair of reactors in the wood modification plant are processing more than 25 batches per month

Once vested these options may be exercised until 20 November 2017. At 31 March 2014, 242,236 (2013: 298,900) of these options were outstanding at an exercise price of €2.58.

 

Options granted on 18 June 2008 vest to one third of the options granted upon achievement of each of the following:

·           Announcement of audited Annual Accoya^® wood sales revenue exceeds €20 million in financial year

·           Announcement of audited annual Group distributable earnings exceeding €15 million

·           Announcement of audited cumulative €75 million gross licence revenue recognised under Group accounting policies

Once vested these options may be exercised until 18 June 2018. At 31 March 2014, 42,498 (2013: 99,161) of these options were outstanding at an exercise price of €1.98.

 

Options granted on 8 December 2008 vest to one third of the options granted upon achievement of each of the following:

·           Announcement of audited Annual Accoya^® wood sales revenue exceeds €20 million in financial year

·           Announcement of audited annual Group distributable earnings exceeding €15 million

·           Announcement of audited Cumulative €75 million gross licence revenue recognised under Group accounting policies

Once vested these options may be exercised until 8 December 2018. At 31 March 2014, 206,822 (2013: 213,905) of these options were outstanding at an exercise price of €0.97.

 

Options granted on 19 November 2009 were fully exchanged in the period for new awards issued under the LITP. Previously, 30% of the options were to vest upon achievement of median Total Shareholder Return ('TSR'). Full vesting of the options granted was to occur upon achievement of upper quartile TSR measured over a three year period. At 31 March 2014, nil (2013: 2,557,424) of these options were outstanding at an exercise price of €0.35.

 

Options granted on 1 April 2010 were fully exchanged in the period for new awards issued under the LITP. Previously 30% of the options were to vest upon achievement of median TSR. Full vesting of the options granted was to occur upon achievement of upper quartile TSR measured over the three year period. At 31 March 2014, nil (2013: 1,017,354) of these options were outstanding at an exercise price of €0.32.

 

Options granted on 27 July 2010 were partially exchanged in the period for new awards issued under the LITP. 30% of the options vest on achievement of median TSR. Once vested, these options may be exercised until 27 July 2020. Full vesting of the options granted occurs upon achievement of upper quartile TSR measured over the three year period. At 31 March 2014, 821,620 (2013: 6,075,005) of these options were outstanding at an exercise price of €0.24.

 

Options granted on 1 April 2011 were fully exchanged in the period for new awards issued under the LITP. Previously, 30% of the options were to vest upon achievement of median TSR. Full vesting of the options granted was to occur upon achievement of upper quartile TSR measured over the three year period. At 31 March 2014, nil (2013: 718,173) of these options were outstanding at an exercise price of €0.17.

 

Options granted on 1 August 2011 were partially exchanged in the period for new awards issued under the LITP. 30% of the options vest on achievement of median TSR. Full vesting of the options granted occurs upon achievement of upper quartile TSR measured over the three year period. Once vested, these options may be exercised until 1 August 2021. At 31 March 2014, 800,000 (2013: 7,437,982) of these options were outstanding at an exercise price of €0.10.

 

Options granted on 2 August 2012 were fully exchanged in the period for new awards issued under the LITP. Previously, 30% of the options were to vest on achievement of median TSR. Full vesting of the options was to occur upon achievement of upper quartile TSR measured over the three year period. At 31 March 2014, nil (2013: 4,418,173) of these options were outstanding at an exercise price of €0.15.

 

TSR is measured on a relative basis compared to the FTSE Small Cap index over a three year period from grant date. Unless discretion is exercised by the Nomination & Remuneration Committee, all options are forfeit following an option holder's termination of contract.

 

The weighted average fair value of each option granted during the prior year was €0.06. No options were granted under the 2005 or 2008 Share Option schemes in the period.

 

 

 

 

 

 

 

 

 

The fair value of share options granted under the 2005 and 2008 Share Option Schemes during the previous years was calculated based on a modified Black-Scholes model assuming inputs shown below:

 

Grant date	August 2012	August 2011	April 2011	July 2010	April 2010
Share price at grant date (€)	0.15	0.10	0.17	0.34	0.46
Exercise price (€)	0.15	0.10	0.17	0.34	0.46
Expected life (years)	3	3	3	3	3
Contractual life (years)	10	10	10	10	10
Risk free rate	1.83%	1.54%	2.25%	2.30%	2.00%
Expected volatility	85%	85%	85%	60%	60%
Expected dividend yield	0%	0%	0%	0.0%	0.0%
Fair value of option	€ 0.060	€ 0.040	€ 0.070	€ 0.106	€ 0.143

 

Volatility was estimated by reference to the historic volatility since October 2005 when the Company's shares were listed on AIM. The resulting fair value is expensed over the vesting period of the options on the assumption that a proportion of options will lapse over the service period as employees leave the Group.

 

Options - total

 

The following figures take into account options awarded under the LTIP in the period together with share options awarded in previous years under the 2005 and 2008 Share Option schemes.

 

Outstanding options granted are as follows:

 

	Number of outstanding		Weighted average remaining
	options at 31 March		contractual life, in years
Date of grant	2014	2013	2014	2013
1 March 2005	269,265	269,265	0.9	1.9
28 March 2007	747,958	2,343,034	3	4
20 November 2007	242,236	298,900	3.6	4.6
18 June 2008	42,498	99,161	4.3	5.3
8 December 2008	206,821	213,905	4.7	5.7
19 November 2009	-	2,557,424	5.6	6.6
1 April 2010	-	1,017,354	6	7
27 July 2010	821,620	6,075,005	6.3	7.3
1 April 2011	-	718,173	7	8
1 August 2011	800,000	7,437,982	7.3	8.3
2 August 2012	-	4,418,173	8.3	9.3
19 September 2013 (LTIP)	21,393,185	-	9.5	-
Total	24,523,583	25,448,374	8.9	7.5

 

 

 

Movements in the weighted average values are as follows:

				Weighted
				average
				exercise
				price	Number
Outstanding at 31 March 2012				€0.43	21,257,694
Granted during the year				€0.15	4,418,173
Forfeited during the year				€0.22	(227,493)
Outstanding at 31 March 2013				€0.38	25,448,374
Granted during the year - LTIP				€ 0.00	21,393,185
Cancellation of options (in relation to LTIP)				€ 0.32	(22,281,147)
Forfeited during the year				€1.66	(36,831)
Outstanding at 31 March 2014				€0.11	24,523,582

 

The exercise price of options outstanding at the end of the year ranged between €nil (for LTIP options) and €2.58 (2013: €0.10 and €2.58) and their weighted average contractual life was 8.9 years (2013: 7.5 years).

 

Of the total number of options outstanding at the year-end, 1,012,500 (2013: 1,831,287) had vested and were exercisable at the end of the year. No options were exercised in the current or previous year.

 

 

Employee Benefit Trust - Share bonus award

 

On 5 July 2013, in connection with employee remuneration and incentivisation arrangements for the period from 1 July 2013 to 30 June 2014, 4,765,666 (2013: 3,926,666) new Ordinary shares were issued to an Employee Benefit Trust, the beneficiaries of which are primarily the Executive Directors and Senior Managers. Such new Ordinary Shares vest if the employees remain in employment with the Company at the vesting date, being 1 July 2014 (subject to certain other provisions including regulations, good-leaver, take-over and nomination and remuneration committee discretion provisions). 

 

As at 31 March 2014, the Employment Benefit Trust was consolidated by the Company and the 4,765,666 shares are recorded as Own Shares within equity. During the period, all 3,926,666 awarded in the prior year vested.

 

Employee Share Participation Plan

 

During the year, the Company continued to operate the Employee Share Participation Plan (the 'Plan') that was initiated in the prior year. The Plan is intended to promote the long term growth and profitability of Accsys by providing employees with an opportunity to acquire an ownership interest in new ordinary shares ('Shares') in the Company as an additional benefit of employment.

 

Under the terms of the Plan, the Company issues these Shares to a trust for the benefit of the subscribing employees. The Shares are released to employees after one year, together with an additional Share on a 1 for 1 matched basis provided the employee has remained in the employment of Accsys at that point in time (subject to good leaver provisions). The Plan is in line with industry approved employee share plans and is open for subscription by employees twice a year following release of annual and half yearly financial results. The maximum amount available for subscription by any employee is €5,000 per annum.

 

During the year ended 31 March 2014 the plan was open for subscription once. In July 2013 various employees subscribed for a total of 497,854 Shares at an acquisition price of €0.14 per Share. 

 

Also during the year, 1 for 1 Matching shares were awarded in respect of subscriptions that were made in the previous year as a result of all participants continuing to remain in employment at the point of vesting. 369,423 Matching shares were issued to employees in January 2014 and 415,423 Matching shares were issued to employees in July 2013.

 

 

14.       Intangible assets

               

		Internal	Intellectual
		Development	property
		costs	rights	Goodwill	Total
		€'000	€'000	€'000	€'000
Cost
At 31 March 2012		535	73,200	4,231	77,966
Additions		861	92	-	953
At 31 March 2013		1,396	73,292	4,231	78,919
Additions		459	-	-	459
At 31 March 2014		1,855	73,292	4,231	79,378
Accumulated amortisation
At 31 March 2012		16	70,371	-	70,387
Amortisation		39	267	-	306
At 31 March 2013		55	70,638	-	70,693
Amortisation		77	275		352
At 31 March 2014		132	70,913	-	71,045
Net book value
At 31 March 2014		1,723	2,379	4,231	8,333
At 31 March 2013		1,341	2,654	4,231	8,226
At 31 March 2012		519	2,829	4,231	7,579

 

 

The carrying value of internal development costs, intellectual property rights and goodwill on consolidation have been allocated for impairment testing purposes to one cash generating unit being the Group's licensing operations. The recoverable amount of internal development costs, intellectual property rights and goodwill relating to this operation is determined based on a value in use calculation which uses cash flow projections based on board approved financial budgets. Cash flows have been projected for a period of 10 years plus assumptions concerning a terminal value, corresponding with the expected minimum life of the intellectual property rights and based on a pre tax discount rate of 20% per annum (2013: 20%). The key assumption used in the value in use calculations is the level of future licence fees estimated by management over the budget period. These have been based on past experience and expected future revenues. A 5% increase in the discount rate or a 15% reduction in expected revenues would not give rise to an impairment.

 

 

 

 

15.       Property, plant and equipment

            

		Land and	Plant and	Office
		buildings	machinery	equipment	Total
		€'000	€'000	€'000	€'000
Cost or valuation
At 31 March 2012		6,880	26,958	612	34,450
Additions		-	252	41	293
Disposals		(1,672)	(20)	-	(1,692)
Foreign currency translation gain/(loss)		-	-	3	3
At 31 March 2013		5,208	27,190	656	33,054
Additions		43	444	85	572
Disposals		-	(116)	-	(116)
Foreign currency translation gain/(loss)		-	-	(9)	(9)
At 31 March 2014		5,251	27,518	732	33,501
Accumulated depreciation
At 31 March 2012		75	8,293	468	8,836
Charge for the year		117	1,771	62	1,950
Disposals		-	(7)	-	(7)
Foreign currency translation gain/(loss)		-	-	4	4
At 31 March 2013		192	10,057	534	10,783
Charge for the year		115	1,818	91	2,024
Disposals		-	(39)	-	(39)
Foreign currency translation gain/(loss)		-	-	(7)	(7)
At 31 March 2014		307	11,836	618	12,761
Net book value
At 31 March 2014		4,944	15,682	114	20,740
At 31 March 2013		5,016	17,133	122	22,271
At 1 April 2012		6,805	18,665	144	25,614

 

 

Included within property, plant and equipment are assets with an initial cost of €6,252,000 and a net book value at 31 March 2014 of €4,056,000 which has been accounted for as a finance lease under the terms of the sale and leaseback agreement entered into in the prior year. See note 24.

 

16.       Other financial assets

				2014	2013
				€'000	€'000
Available for sale investments				-	-

 

Accsys Technologies PLC has previously purchased a total of 21,666,734 unlisted ordinary shares in Diamond Wood China. The Group does not currently have an intention to dispose of its investment in Diamond Wood in the foreseeable future.

 

The carrying value of the investment is carried at cost less any provision for impairment, rather than at its fair value, as there is no active market for these shares, and there is significant uncertainty over the future of Diamond Wood, and as such a reliable fair value cannot be calculated. 

 

The historical cost of the unlisted shares held at 31 March 2014 is €10m (2013: €10m). However, a provision for the impairment of the entire balance of €10m continues to be recorded, as at 31 March 2014 there is considerable doubt as to whether Diamond Wood will continue as a going concern. See note 28.

 

17.       Deferred Taxation

 

The Group has a deferred tax asset of €nil (2013: €866,000) relating to trading losses brought forward. The deferred tax asset has been recognised on the basis that trading profits are expected to be recorded in the related legal entities in the foreseeable future. These expected trading profits are attributable to the production of Accoya^® wood and the recharge of research and development activities to other Group companies.

 

The Group also has an unrecognised deferred tax asset of €23,087,000 (2013: €21,543,000) which is largely in respect of trading losses of the UK subsidiary. The deferred tax asset has not been recognised due to the uncertainty of the timing of future expected profits of the related legal entity attributable to licensing activities.

 

Movements in recognised deferred tax asset:

 

				2014	2013
				€'000	€'000
Opening balance				866	1,522
Recognition of deferred tax asset				-	-
Derecognition of deferred tax asset				-	-
Utilisation of deferred tax asset				(866)	(656)
Closing balance				-	866

 

18.       Subsidiaries

 

A list of subsidiary investments, including the name, country of incorporation and proportion of ownership interest is given in note 4 to the Company's separate financial statements.

 

 

19.       Inventories

 

				2014	2013
				€'000	€'000
Materials and work in progress				3,492	1,816
Finished goods				2,561	3,044
				6,053	4,860

 

The amount of inventories recognised as an expense during the year was €23,969,284 (2013: €13,172,827). The cost of inventories recognised as an expense includes a net credit of €409,412 (2013: €512,813) in respect of the inventories sold in the period which had previously been written down to net realisable value.

 

20.       Trade and other receivables

				2014	2013
				€'000	€'000
Trade receivables				3,060	2,294
Other receivables				385	249
Prepayments				1,031	1,145
				4,476	3,688

 

 

The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value. The majority of trade and other receivables is denominated in Euros, with €355,000 of the trade receivables denominated in US$ (2013: €166,000).

The age of receivables past due but not impaired is as follows:

				2014	2013
				€'000	€'000
Up to 30 days overdue				183	755
Over 30 days and up to 60 days overdue				136	49
Over 60 days and up to 90 days overdue				(14)	11
Over 90 days overdue				3	9
				308	824

 

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivables from the date credit was initially granted up to the reporting date. Included in the provision for doubtful debts are individually impaired trade receivables and accrued income with a balance of €25,001,000 (2013: €25,001,000) due from Diamond Wood.

 

Movement in provision for doubtful debts:

				2014	2013
				€'000	€'000
Balance at the beginning of the period				25,051	25,110
Release of impairment				(32)	(59)
Balance at the end of the period				25,019	25,051

Summary of Receivable Impairments:

				2014	2013
				€'000	€'000
Trade receivables - Accoya® wood *				18	50
				18	50

*              The impairment of Accoya^® wood receivables relates to a number of Accoya^® customers.

 

21.       Trade and other payables

				2014	2013
				€'000	€'000
Trade payables				3,790	2,333
Other taxes and social security payable				110	86
Accruals and deferred income				1,657	938
				5,557	3,357

 

22.       Share capital

 

				2014	2013
				€'000	€'000
Allotted - Equity share capital
439,219,864 (2013: 433,171,589) Ordinary shares of €0.01 each				4,392	4,332
				4,392	4,332

 

 

On 5 July 2012, a total of 3,926,666 shares were issued to an Employment Benefit Trust, the beneficiaries of which were to be the Executive Directors and Senior Managers (see note 13).

 

On 8 August 2012, a total of 783,283 of Ordinary shares were issued and released to employees together with the 783,283 of Ordinary shares issued to trust on 2 August 2011. (See note 13).

 

On 7 September 2012, a total of 415,332 of Ordinary shares were issued to a trust under the terms of the Employee Share Participation Plan. (See note 13).

 

On 19 October 2012, a total of 23,529,412 of Ordinary shares were issued to INEOS following the receipt of subscription monies totalling €4,000,000.

 

On 18 January 2013, a total of 369,423 of Ordinary shares were issued to a trust under the terms of the Employee Share Participation Plan. (See note 13).

 

On 23 January 2013, a total of 130,831 of Ordinary shares were issued and released to employees together with the 130,831 of Ordinary shares issued to trust on 23 August 2012. (See note 13).

 

On 5 July 2013, a total of 4,765,666 shares were issued to an Employment Benefit Trust, the beneficiaries of which were to be the Executive Directors and Senior Managers (see note 13).

 

On 13 September 2013, a total of 415,332 of Ordinary shares were issued and released to employees together with the 497,854 of Ordinary shares issued to trust on 12 August 2013. (See note 13).

 

On 20 January 2014, a total of 369,423 of Ordinary shares were issued and released to employees.

 

                                                                                                                   

23.       Commitments under operating leases

 

The Group leases land, buildings and machinery under non-cancellable operating lease agreements.  The total future value of the minimum lease payments that are due is as follows:

				2014	2013
				€'000	€'000
Operating lease payments due
Within one year				1,003	978
In the second to fifth years inclusive				1,210	1,345
In greater than five years				1,477	1,475
				3,690	3,798

 

 

The majority of commitments under operating leases relate to the Group's offices in the UK, the Netherlands and U.S.A. and land in the Netherlands which is adjacent to our plant.

 

24.       Commitments under finance leases

 

Agreements were reached in August 2011 for the sale and leaseback of the land and buildings in Arnhem for a total of €4m. €2.2m was received in 2011 with the remaining amount received in the prior year, but accounted for as an operating lease. The transaction has resulted in a finance lease creditor of €2.1m as at 31 March 2014:

 

				Minimum lease payments
				2014	2013
				€'000	€'000
Amounts payable under finance leases:
Within one year				280	280
In the second to fifth years inclusive				1,120	1,120
After five years				2,053	2,332
Less: future finance charges				(1,318)	(1,544)
Present value of lease obligations				2,135	2,188

 

 

 

25.       Financial instruments

 

Financial instruments

 

Finance lease

 

Agreements were reached in August 2011 for the sale and leaseback of the land and buildings in Arnhem under which a total of €4m was to received. €2.2m was received in 2011 with the remaining amount received in the prior year. Subject to the terms of the agreement, the buyer has committed to build new storage facilities which will also allow for an improvement in wood handling logistics. The transaction has resulted in a finance lease creditor of €2,135,000 as at 31 March 2014 (2013: €2,188,000). The total lease term is 15 years. (See note 23 and 24).

 

Warrants

 

In addition to INEOS's joint investment programme with Accsys into the Tricoya business, where INEOS Industries Holdings Limited subscribed to 23,529,412 new ordinary shares in Accsys, at a price of €0.17 per share on 19 October 2012, the Company also executed a warrant instrument in favour of INEOS, allowing INEOS the opportunity to purchase up to a further 16,468,236 shares at a price of €0.21 per share at certain times up until 19 October 2016. All 16,468,236 warrants remained unexercised at 31 March 2014.

 

Capital risk management

 

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders.

 

The capital structure of the Group consists of cash and cash equivalents and equity attributable owners of the parent Company, comprising share capital, reserves and accumulated losses.

 

The Board reviews the capital structure on a regular basis.  As part of that review, the Board considers the cost of capital and the risks associated with each class of capital.  Based on the review, the Group will balance its overall capital structure through new share issues and the raising of debt if required.

 

No final dividend is proposed in 2014 (2013: €Nil). The Board deems it prudent for the Company to protect as strong a statement of financial position as possible during the current phase of the Company's growth strategy. 

 

Categories of financial instruments				2014	2013
				€'000	€'000
Available for Sale investments				-	-
Loans and receivables
Trade receivables				3,060	2,294
Other receivables				385	249
Money market deposits in Euro				11,791	15,768
Money at call in Euro				2,483	2,180
Money at call in US dollars				602	459
Money at call in Sterling				114	671
Money at call in New Zealand dollars				195	375
Liquidity fund in Euro				-	1,013
Financial liabilities at amortised cost
Trade payables				(3,790)	(2,333)
Accruals				(1,149)	(938)
Finance lease payable				(2,135)	(2,188)
				11,556	17,550

 

Money market deposits have interest rates fixed for less than three months at a weighted average rate of 1.58% (2013: 1.17%). Money market deposits are held at financial institutions with high credit ratings (Standard & Poor's rating of AA).

All assets and liabilities mature within one year except for the finance lease, for which details are given in note 24.

 

Trade payables are payable on various terms, typically not longer than 30 days.

 

Market risk

 

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. There is also a risk associated with the available for sale investment.

 

Financial risk management objectives

 

The Group's treasury policy is structured to ensure that adequate financial resources are available for the development of its business whilst managing its currency, interest rate, counterparty credit and liquidity risks.  The Group's treasury strategy and policy are developed centrally and approved by the Board.

 

Foreign currency risk management

 

Currency exposures are limited as the Group's functional currency is the Euro with the majority of operating costs and balances denominated in Euros.  A smaller proportion of expenditure is incurred in US dollars and pounds sterling. In addition some raw materials, while priced in Euros, are sourced from countries which are not within the Eurozone. The Group monitors any potential underlying exposure to other exchange rates.

 

Interest rate risk management

 

The Group's borrowings are limited to the sale and leaseback of the Arnhem land and buildings and therefore it is not exposed to interest rate risk in relation to financial liabilities.  Surplus funds are invested in short term interest rate deposits to reduce exposure to changes in interest rates.  The Group does not enter into any hedging arrangements.

 

Credit risk management

 

The Group is exposed to credit risk due to its trade receivables due from customers and cash deposits with financial institutions. The Group's maximum exposure to credit risk is limited to their carrying amount recognised at the balance sheet date.

 

The Group ensures that sales are made to customers with an appropriate credit history to reduce the risk where this is considered necessary. The Directors consider the trade receivables at year end to be of good credit quality including those that are past due (note 20). The Group is not exposed to any significant credit risk exposure in respect of any single counterparty or any group of counterparties with similar characteristics other than the balances which are provided for as described in note 20.

 

The Group has credit risk from financial institutions. Cash deposits are placed with a group of financial institutions with suitable credit ratings in order to manage credit risk with any one financial institution.

 

Liquidity risk management

 

Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long term funding and liquidity management requirements.  The Group manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profile of financial assets and liabilities.

 

In addition to the sale and leaseback of the Arnhem land and buildings described above, the Group entered new finance facilities secured on trade receivables and inventories:

 

Trade receivables facility

On 28 February 2011 the Group entered a trade receivable financing and credit management agreement with Fortis Commercial Banking for a period of at least two years from the closing date and with a facility limit of €1.5m. After two years the agreement renews for rolling one year periods. The facility is secured upon the Group's trade receivable. At 31 March 2014, €nil had been drawn down under the agreement.

 

Inventories facility

On 17 January 2013 the Group entered a credit facility agreement with ABN AMRO Bank N.V. with a facility limit of €3.0m for the financing of the Group's operating activities. The facility is secured against the inventories of the Group.

 

Both facilities are subject to interest at 1.5% above the ABN AMRO base rate of 4.0% as at 31 March 2014 (2013: 4.2%). At 31 March 2014, the Group had €nil (2013: €nil) borrowed under both of the facilities.

 

Fair value of financial instruments

 

In the opinion of the Directors, there is no material difference between the book value and the fair value of all financial assets and financial liabilities.

 

26.       Related party transactions

 

In the year ended 31 March 2014, there were a number of related party transaction with the Tricoya Technologies Limited joint venture, all of which arose in the normal course of business, totalling €1,070,000 (2013: €618,000). The 2013 amount covered the period from October 2012 to March 2013. At the end of the period €298,404 (2013: €237,000) of the total amount was payable from TTL to Accsys group companies (2013: €237,000).

 

 

27.       Capital Commitments

 

				2014	2013
				€'000	€'000
Contracted but not provided for in respect of property, plant and equipment				-	72

 

28.       Other matters

 

On 16 August 2013 Accsys announced it had terminated its licence agreement with Diamond Wood China Limited ('Diamond Wood').

 

Accsys entered a licence agreement with Diamond Wood in 2007 which was subsequently amended and superseded on various occasions, the last being in August 2010. Under the terms of the licence agreement, Diamond Wood was granted exclusive rights to construct and then run an Accoya acetylation plant in China and parts of South East Asia. However as the Company has previously reported, Diamond Wood failed to make progress in this respect despite the significant amount of support and work carried out by Accsys since 2007.

 

Following legal advice, notice of termination of the licence agreement was served by Accsys in August 2013, in accordance with Accsys' contractual and legal rights, as a result of Diamond Wood's failure to comply with its contractual obligations (the "Termination").

 

On 17 September 2013 a notice of arbitration was served by Diamond Wood in which it indicated it is seeking confirmation that the licence agreement is still in force and seeking damages for the losses it has suffered from the Termination. The arbitration is on-going and as has been previously stated, we welcome the opportunity to confirm the validity of our termination.

 

Following robust legal advice firmly supporting Accsys' Termination no provision has been booked in respect of the potential amounts which could become due should Accsys not be successful in the arbitration process.

 

Legal costs of €726,000 have been incurred and recorded in the period within Other Operating Costs in relation to the arbitration.

 

The arbitration process is currently in progress and, whilst further details of the arbitration are subject to confidentiality, Accsys will provide a further update once the matter has been concluded.