Mincon Group Plc Final Results (0994H)

TIDMMCON

RNS Number : 0994H

Mincon Group Plc

23 March 2020

Mincon Group plc

("Mincon" or the "Group")

2019 Full Year Financial Results

Mincon Group plc (Euronext: MIO AIM:MCON), the Irish engineering group specialising in the design, manufacture, sale and servicing of rock drilling tools and associated products, announces its results for the year ended 31 December 2019.

Joe Purcell, Chief Executive Officer, commenting on the results, said:

2019: A year of consolidation and diversification

I am pleased to report that Mincon's 2019 financial results represented a significant step forward in Group's long-term strategy to diversify our customer base. At a glance, these financials paint a picture of flattening growth, but when viewed in the context of our overall consolidation, we believe the results reflect a more stable, focused future for the Group.

The table below shows the results excluding exceptional items and excluding non-exceptional write-downs in 2019 in inventory of EUR1.7 million and trade receivables of EUR0.8 million. When these are included, the profit numbers for 2019 are as follows:

   --           Gross profit EUR40.5 million 
   --           Operating profit EUR11.8 million 
   --           Profit for the year EUR9.5 million 

Income Statement - Excluding Exceptional Items and Impairments:

 
 Continuing operations                         2019       2018   Variance 
                                            EUR'000    EUR'000          % 
----------------------------------------  ---------  ---------  --------- 
 Revenue from Mincon product                100,786    100,319       0.5% 
 Revenue from third party product            19,885     17,369      14.5% 
----------------------------------------  ---------  ---------  --------- 
 Total Revenue                              120,671    117,688       2.5% 
 
 Gross profit excluding impairments          42,205     44,626     (5.4%) 
 As a % of Revenue                            35.0%      37.9% 
 
 Operating profit excluding impairments      14,301     16,352    (12.5%) 
 As a % of Revenue                            11.9%      13.9% 
 
 Profit for the year excluding 
  impairments                                12,040     13,266     (9.2%) 
----------------------------------------  ---------  ---------  --------- 
 

During 2019 Mincon grew its turnover by 2.5%, from continuing operations, to EUR120.7 million from EUR117.7 million in 2018. However the mix of products sold resulted in lower gross profit and lower operating profit for the Group. Notwithstanding the headline figures, there were a number of very significant positive developments during the year including:

-- Cash generated from operations increased from EUR3.1 million in 2018 to EUR12.5 million in 2019, due to profitable trading and stronger working capital management systems;

-- Products supplied to the large scale construction and geotechnical industry more than doubled in 2019 and the recent acquisition of Lehti Group will enable the Group to capture a greater portion of the margin generated from such sales;

-- The business was streamlined under four regional managers, with refocused factory and sales operations leading to annualised reduction in operating costs;

-- Growth in revenues in the America's market was 57% reflecting the award of a number of significant construction and mining contracts across that region and;

-- Progress was made in flagship Greenhammer project with the 12" system poised to commence commercial drilling operations and a new 10" system to start drilling in Q2 2020 using a Mincon owned drill rig.

At the beginning of the year, the Group made the strategic decision to concentrate its efforts on growing the business through products that it considers relevant to its challenger model. As a result, the Group disposed of its heat-treatment business in Sweden, and a business in South Africa that manufactures coring products which it sold through Mincon distribution channels in Southern Africa. The revenue streams from these companies accounted for 5% of total revenue in 2018 and zero in the continuing operational results for 2019.

Although these annual results overall show only minor revenue growth at a headline level, this was not the case in all markets and industry segments in which we operate. Last year marked a concerted push into the construction industry for the Group, and a strong performance in the Americas grew our market share in that region. Our work on filling out our product range and expanding our geographic support also saw Mincon win several large, direct-supply mining contracts. These contracts are for comprehensive drilling consumables supply, and the ability to supply the full range, together with the required service support levels to maintain them, enables us to undertake a programme of continuous improvement to increase our value-add to Mincon and to the end user. The Group's manufactured conventional DTH product, that provides the Group its highest profit margin endured a decline of 16% in revenue during 2019 compared with 2018. This decline was experienced in Australia, Africa and the European regions (excluding Scandinavia) during 2019. This revenue decline was partly due to delays in commissioning heat treatment facilities in the USA and Australia as planned. Both facilities have now been commissioned, and as result we have seen improved DTH revenue during the first quarter of 2020.

We also greatly increased the sales revenue on our geotechnical and foundation drilling product range, thereby successfully diversifying our revenue stream away from on our traditional mining market, in line with our long-term strategy. In 2019 revenue generated in this market accounted for 12% of the Group's revenue within continuing operations, while in 2018 the corresponding figure was 6%. This increase in geotechnical revenue was achieved due to customers responding favourably to the unique and predominantly patented features of the Mincon product range, which ensures minimal ground disturbance. The revenue growth was further supported by the productivity and efficiency of our large hammer range, which we have now complemented with the acquisition of the Lehti Group in January 2020. The acquisition of the Lehti Group enables us to capture the substantial manufacturing margin which exists for many of our products in this sector. Our geotechnical offering also fits our desire and strategy to reduce our environmental impact of our products in this important and growing market for us.

Actions undertaken following operational reviews

At the start of 2019, in response to profits trending lower than our expectations, management undertook a review of the Group's operations. As a result, several actions were undertaken during the year.

We decided to move to a regional management structure and created four regions, namely, the Americas; Europe and Middle East; Africa; and Asia-Pacific. Each region, and all the activities in that region, is the responsibility of the Regional VP reporting to Group. Each Regional VP is a proven leader at Mincon. They each have a history of working effectively and collaboratively within the Group, sharing our vision, culture, and ambition.

One of the first tasks within the regions was to look at personnel numbers, which were reduced in line with each region's strategy. These reductions were at all levels and areas of operations. At Mincon, people remain one of the cornerstones and key stakeholders of the business, but these measures were necessary to ensure that our business was in the right shape for long-term development.

We also undertook a major review of our factory operations in 2019, resulting in a change in the mix of products manufactured at some plants. In part this was done to achieve greater economies of scale. In other cases, production was moved closer to the end market, to shorten lead times; to yield net savings in logistics costs; and to reduce the amount of working capital invested in finished goods. This restructuring of operations at our factories is ongoing and expected to be completed by the end of the first half of 2020. Once complete, our factories will be more efficient and should earn a healthier margin, and the Group will be in a better position to respond to spikes in demand and changing customer requirements.

We also divested two businesses with operations that were not core to the rest of the Group's focus, which contributed an exceptional profit, HardTekno in Sweden and Premier Drilling in South Africa. Additionally, two distribution centres in Russia and Tanzania were closed. We still have access to those markets through third party distributors and nearby Mincon service centres.

Finally, excellent progress was made on our IT and reporting systems during 2019. This brought increased transparency to our inventory, effectively furthering our goal of improving working capital efficiency. This vital work will continue into 2020 and beyond.

Innovative engineering is the key to our future

We have a strong history, with more than 40 years of expertise in design, manufacture, delivery, and service of high-quality surface drilling consumables. Over the last six years we have strategically grown our product offering to now include a comprehensive range of products for the whole drill string and for multiple applications. Innovative and superior engineering has always been at the core of what we do and just as this engineering is the reason for our past success, innovation will be the key to the next 40 years of success and growth for the company.

Our clients are embracing continuous improvement to remain competitive, improve safety, and reduce the effect of their operations on the environment, which includes using less energy. We share these objectives, with a strategy, an ambition and an ability to deliver on them. Indeed, the next generation of drilling tools that we are developing is aimed at energy-efficient drilling, with a reduced impact on the environment and, in some cases, a transformational effect on Mincon and our customers.

This primary engineering objective continues to be driven by our engineering leadership in the Technology Steering Group. It continues to be my pleasure to lead this group, comprising senior engineers who each have many decades of experience in the rock-drilling industry. The experience in the group is broad and includes expertise in mechanical design and simulation; metallurgy and heat treatment, market and application knowledge; and hands-on drilling. The function of the group is to develop the next generation of engineering leaders and to liaise with all levels of the Mincon Group, including the customer service centres, so that it can analyse customer feedback, and prioritise areas for technology development.

Product development

Our engineering effort can be broken down to the following headings:

1. Product maintenance - ongoing product development and continuous improvement to existing product line-ups to ensure that remain at industry highest standard, as well as identifying areas for optimisation within customer operations. Most of this development is a result of direct customer feedback.

2. New product design and development - new designs and generations of existing technologies. Over the coming years, this development will include work on:

   --      New DTH hammer and bit developments with a focus on speed and efficiency; 

-- Continuous improvement for our range of open, and sealed-bearing, rotary drill bits, to deliver market-leading performance in terms of life and penetration rates;

   --      Optimising drill-rod performance and durability; 
   --      Further development to the performance and range of cushion subs; and, 
   --      Carbide grade developments. 

3. New technology development - spearheaded by Mincon's Technology Steering Group, which is exploring several new technologies and concepts for development, including:

-- Greenhammer (working name) - Mincon's flagship technology for single-pass, hard-rock blasthole drilling, using a high-performance DTH hydraulic percussion system;

   --      Drilled foundation product developments particularly for sensitive ground conditions; and, 

-- Plans for advancing hammer technology to encompass larger hole size capabilities than ever, while maintaining the focus on efficiency and productivity.

Along with the Technology Steering Group, a dedicated Research and Development prototype manufacturing facility was commissioned during 2019. Based near the Group headquarters in Shannon, Ireland, but in a separate building from the main factory, we have allocated the necessary manufacturing capabilities and capacity to ensure our engineer's designs are machined into reality in a timely fashion. Results from field testing are then incorporated into improved design so that new revisions can be rapidly manufactured and sent back for field testing, without interrupting day-to-day production.

The Hydraulic systems

During 2019 we made excellent progress in moving towards commercial release of our 12" Greenhammer hydraulic system. Since the beginning of 2020 we have been working on a schedule of commercialising the system on the customer owned rig by the end of Q1 2020. This has been delayed due to a serious mechanical issue arising on the customer owned rig, prior to its handover to us, which has necessitated an extensive rig overhaul, making the rig unavailable to us until Q2 2020.

On a positive note, we are due to commence running our new Greenhammer 10" system on a commercial basis in Q2 2020 using a Mincon-owned rig at the same mine. A 10" system was requested by the mine in response to drilling results achieved using the larger system. This is a standard drilling size for us, and the system will be compatible with the same drill bits already supplied to the mine in large quantities. These bits are used in our market leading DTH hammers on six other mine-owned rigs. The benefit of this approach is twofold: Mincon's testing will not be restricted by rig availability and the mine will have an extra rig drilling production holes.

We remain excited about the transformational benefits of this system for Mincon and the hard-rock mining industry and we look forward to commercial release once we can get back drilling.

New Products to market

In addition to the Greenhammer technology development project, 2020 will see the Group release new products, as it does every year, as well as other new technologies. Our investment in new technologies has been significant over the last several years. Predicting the timing for commercialisation of new technologies is not an exact science, with the research and development path naturally having many twists. The Group has taken a prudent stance by not prematurely releasing new technologies to market until vigorous and thorough field testing has proven the concept to be not only a technical success but also ready for commercial rollout across our markets. This approach should also be viewed in the context of our ambition, expertise, and capability to deliver on these exciting opportunities that increasingly present themselves through our extensive and growing market reach.

Acquisitions

Over the last five years the Group's acquisitions have brought in good products, people and management. Acquisitions have also extended our reach into the markets that we strategically target.

We continue to look for acquisitions that are complementary to our operations and will help achieve the Group's strategic objectives. For example, in January 2020 we were delighted to add the Lehti Group to Mincon, bringing a strategically valuable production process and the associated margins in-house. This will support the ambition to grow our footprint in the geotechnical and foundation drilling market, which remains a large, exciting, and lucrative opportunity for Mincon.

Concluding comments

While 2019 revenue was flat, it was encouraging that we grew in some markets and built on new revenue streams - which was in line with our strategy. When we found ourselves with overheads and factory capacity beyond our needs a plan was formulated to reorganise and right-size the business, ensuring that we started 2020 in good shape for future growth.

The build-out in the three core factories in Shannon, Ireland; Benton, USA; and Perth, Australia was completed in 2019. We can now deliver efficiently to our Group distribution points and to our end customers, with spare capacity for growth. Equally as important, these factory investments have also been about improving quality throughout our production, with critical parts of the manufacturing process now taking place in-house.

I am delighted with the progress of the Technology Steering Group in 2019. Through the work of this team and our other colleagues at Mincon, we have great opportunities to deliver new products in the coming year. We have the manufacturing capacity, talent, and technical innovation that will drive growth. I hope to report continuing growth throughout this year, in both traditional and new markets. This, along with shrewd management of costs, should see a stronger result for 2020.

We have seen good growth in the first quarter of 2020 to the date of this report, with accompanying profit figures as a result of the Group reorganisation that took place during 2019. During the first quarter of 2020 we have won additional geotechnical contracts in the Americas region, and our DTH product line has seen an improved order intake, with other product lines following suit. The Mincon Group is monitoring the Covid-19 global pandemic and is taking the advice of local governments in locations where we have a physical presence. The Group has implemented an international travel ban within the Group to all employees for their own safety. Our sales departments have been in regular contact with our customers and are working with our factories to give more flexibility on shipping products. We are conscious of the potential impact the Covid-19 virus might have on future cashflow requirements. We will continue to monitor and evaluate its impact on the business, and where necessary, we will take appropriate steps to limit any personnel and business risks if that might arise.

Joseph Purcell

Chief Executive Officer

Consolidated Income Statement for the year ended 31 December 2019

 
 
 
                                                2019                                          2018 
                              Pre-exceptional     Exceptional               Pre-exceptional   Exceptional 
                                   items             items                       items           items 
                                  EUR'000            (Note        Total         EUR'000          (Note         Total 
                    Notes                             8)         EUR'000                           8)         EUR'000 
                                                    EUR'000                                     EUR'000 
----------------  -------  --------------------  ------------  ----------  ----------------  ------------  ---------- 
Revenue              4                  120,671         3,074     123,745           117,688             -     117,688 
Cost of sales 
 including 
 impairments         6                 (80,158)       (2,489)    (82,647)          (73,062)           747    (72,315) 
Gross profit                             40,513           585      41,098            44,626           747      45,373 
Operating costs 
 including 

 impairments         6                 (28,703)       (5,113)    (33,816)          (28,274)         (166)    (28,440) 
Operating profit                         11,810       (4,528)       7,282            16,352           581      16,933 
Finance cost                              (582)             -       (582)             (122)             -       (122) 
Finance income                              107             -         107                91             -          91 
Foreign exchange 
 loss                                     (130)             -       (130)             (634)             -       (634) 
FV movement on 
 consideration      23                       10             -          10                16             -          16 
Profit on 
 disposal of 
 operations                                   -         7,489       7,489                 -             -           - 
Profit before 
 tax                                     11,215         2,961      14,176            15,703           581      16,284 
---------------- 
Income tax 
 expense            11                  (1,666)         (127)     (1,793)           (2,437)             -     (2,437) 
----------------  -------  --------------------  ------------  ----------  ----------------  ------------  ---------- 
Profit for the 
 year                                     9,549         2,834      12,383            13,266           581      13,847 
================  =======  ====================  ============  ==========  ================  ============  ========== 
 
Profit 
attributable to: 
- owners of the 
 Parent                                                            12,329                                      13,573 
- 
 non-controlling 
 interests          19                                                 54                                         274 
                                                               ----------                                  ---------- 
Earnings per 
Ordinary 
Share 
Basic earnings 
 per share, 
 EUR                 21                                             5.84c                                       6.45c 
Diluted earnings 
 per 
 share, EUR            21                                           5.80c                                       6.37c 
----------------  -------      ------------------------------  ----------                                  ---------- 
 
 

The accompanying notes are an integral part of these financial statements.

Consolidated Statement of Consolidated Income for the year ended 31 December 2019

 
                                                         2019      2018 
                                                      EUR'000   EUR'000 
---------------------------------------------------  --------  -------- 
Profit for the year                                    12,383    13,847 
Other comprehensive loss: 
Items that are or may be reclassified subsequently 
 to profit or loss: 
Foreign currency translation - foreign operations       2,153   (3,081) 
Other comprehensive loss for the year                   2,153   (3,081) 
---------------------------------------------------  --------  -------- 
Total comprehensive income for the year                14,536    10,766 
---------------------------------------------------  --------  -------- 
Total comprehensive income attributable to: 
- owners of the Parent                                 14,482    10,492 
- non-controlling interests                                54       274 
---------------------------------------------------  --------  -------- 
 

The accompanying notes are an integral part of these financial statements.

Consolidated Balance Sheet as at 31 December 2019

 
 
                                                       2019      2018 
                                           Notes    EUR'000   EUR'000 
 ----------------------------------------  -----  ---------  -------- 
 
Non-Current Assets 
Intangible assets and goodwill              12       31,937    30,753 
Property, plant and equipment               13       41,172    34,930 
Deferred tax asset                          11          616       278 
Total Non-Current Assets                             73,725    65,961 
-----------------------------------------  -----  ---------  -------- 
Current Assets 
Inventory and capital equipment             14       48,590    49,357 
Trade and other receivables                 15a      20,346    20,711 
Prepayments and other current assets        15b       6,098     6,578 
Current tax asset                                       589       252 
Cash and cash equivalents                   23       16,368     8,042 
Total Current Assets                                 91,991    84,940 
-----------------------------------------  -----  ---------  -------- 
Total Assets                                        165,716   150,901 
-----------------------------------------  -----  ---------  -------- 
 
Equity 
Ordinary share capital                      20        2,110     2,105 
Share premium                               20       67,647    67,647 
Undenominated capital                                    39        39 
Merger reserve                              20     (17,393)  (17,393) 
Restricted equity reserve                   20          419     1,511 
Share based payment reserve                 22        1,629     1,274 
Foreign currency translation reserve                (3,868)   (6,021) 
Retained earnings                                    74,446    66,543 
-----------------------------------------  -----  ---------  -------- 
Equity attributable to owners of Mincon 
 Group plc                                          125,029   115,705 
-----------------------------------------  -----  ---------  -------- 
Non-controlling interests                             1,115     1,061 
Total Equity                                        126,144   116,766 
 
Non-Current Liabilities 
Loans and borrowings                        18       10,879     4,461 
Deferred tax liability                      11        1,794     1,222 
Deferred contingent consideration           23        4,962     5,470 
Other liabilities                                       153       151 
Total Non-Current Liabilities                        17,788    11,304 
-----------------------------------------  -----  ---------  -------- 
Current Liabilities 
Loans and borrowings                        18        4,043     2,735 
Trade and other payables                    16       10,853    12,027 
Accrued and other liabilities               16        5,827     6,996 
Current tax liability                                 1,061     1,073 
Total Current Liabilities                            21,784    22,831 
-----------------------------------------  -----  ---------  -------- 
Total Liabilities                                    39,572    34,135 
-----------------------------------------  -----  ---------  -------- 
Total Equity and Liabilities                        165,716   150,901 
-----------------------------------------  -----  ---------  -------- 
 

The accompanying notes are an integral part of these financial statements.

On behalf of the Board:

   Hugh McCullough                                                              Joseph Purcell 

Chairman Chief Executive Officer

Consolidated Statement of Cash Flows For the year ended 31 December 2019

 
 
                                                                  2019       2018 
                                                       Notes   EUR'000    EUR'000 
----------------------------------------------------  ------  --------  --------- 
Operating activities: 
Profit for the period                                           12,383     13,847 
Adjustments to reconcile profit to net cash 
 provided by operating activities: 
Depreciation                                            12       5,242      3,896 
Fair value movement on deferred contingent 
 consideration                                                    (10)       (16) 
Gain on sale of operations, net of tax                         (7,489)        122 
Finance cost                                                       582          - 
Finance income                                                   (107)       (91) 
Income tax expense                                               1,793      2,437 
Other non-cash movements                                           209      (849) 
----------------------------------------------------  ------  --------  --------- 
                                                                12,603     19,346 
Changes in trade and other receivables                           1,037      (292) 
Changes in prepayments and other assets                          1,873    (1,456) 
Changes in inventory                                             1,050   (14,551) 
Changes in trade and other payables                            (1,865)      1,429 
Cash provided by operations                                     14,698      4,476 
Interest received                                                  107         91 
Interest paid                                                    (582)      (122) 
Income taxes paid                                              (1,713)    (1,296) 
----------------------------------------------------  ------  --------  --------- 
Net cash provided by operating activities                       12,510      3,149 
----------------------------------------------------  ------  --------  --------- 
 
Investing activities 
Purchase of property, plant and equipment                      (7,930)   (12,552) 
Investment in intangible assets                                (1,405)    (1,715) 
Proceeds from the issuance of share capital                          5          - 
Acquisitions of subsidiary, net of cash acquired                 (770)    (7,923) 
Payment of deferred contingent consideration                   (1,600)    (1,445) 
Proceeds from the sale of subsidiaries                           8,517          - 

Proceeds from former joint venture investments                       -        104 
Net cash used in by investing activities                       (3,183)   (23,531) 
----------------------------------------------------  ------  --------  --------- 
 
Financing activities 
Dividends paid                                                 (4,426)    (4,421) 
Repayment of loans and finance leases                   18     (2,778)    (1,141) 
Drawdown of loans                                       18       6,182      6,264 
Net cash provided by/(used in) financing activities            (1,022)        702 
----------------------------------------------------  ------  --------  --------- 
 
Effect of foreign exchange rate changes on 
 cash                                                               21      (493) 
----------------------------------------------------  ------  --------  --------- 
Net increase(decrease) in cash and cash equivalents              8,326   (20,173) 
----------------------------------------------------  ------  --------  --------- 
 
Cash and cash equivalents at the beginning 
 of the year                                                     8,042     28,215 
----------------------------------------------------  ------  --------  --------- 
Cash and cash equivalents at the end of the 
 year                                                           16,368      8,042 
----------------------------------------------------  ------  --------  --------- 
 

The accompanying notes are an integral part of these financial statements

Consolidated Statement of Changes in Equity For the year ended 31 December 2019

 
 
                                                                            Share      Foreign 
                                              Restricted                    based     currency 
                    Share    Share    Merger      equity  Un-denominated  payment  translation  Retained           Non-controlling    Total 
                  capital  premium   reserve     reserve         capital  reserve      reserve  earnings    Total        interests   equity 
                  EUR'000  EUR'000   EUR'000     EUR'000         EUR'000  EUR'000      EUR'000   EUR'000  EUR'000          EUR'000  EUR'000 
---------------  --------  -------  --------  ----------  --------------  -------  -----------  --------  -------  ---------------  ------- 
 
Balances at 1 
 January 
 2018               2,105   67,647  (17,393)           -              39      512      (2,940)    57,391  107,361              787  108,148 
                 --------  -------  --------  ----------  --------------  -------  -----------  --------  -------  ---------------  ------- 
Comprehensive 
income: 
Profit for the 
 year                   -        -         -           -               -        -            -    13,573   13,573              274   13,847 
Other 
comprehensive 
income/(loss): 
Foreign 
 currency 
 translation            -        -         -           -               -        -      (3,081)         -  (3,081)                -  (3,081) 
                                                                                   -----------  --------  -------  ---------------  ------- 
Total 
 comprehensive 
 income                                                                                (3,081)    13,573   10,492              274   10,766 
                                                                                   -----------  --------  -------  ---------------  ------- 
Non Taxable 
 income                 -        -         -       1,511               -        -                           1,511                     1,511 
Transactions 
with 
Shareholders: 
Share based 
 payments               -        -         -           -               -      762            -         -      762                -      762 
Dividends               -        -         -           -               -        -            -   (4,421)  (4,421)                -  (4,421) 
Balances at 31 
 December 
 2018               2,105   67,647  (17,393)       1,511              39    1,274    (6,021)      66,543  115,705            1,061  116,766 
---------------  --------  -------  --------  ----------  --------------  -------  -----------  --------  -------  ---------------  ------- 
Comprehensive 
income: 
Profit for the 
 year                   -        -         -           -               -        -            -    12,329   12,329               54   12,383 
Other 
comprehensive 
income/(loss): 
Foreign 
 currency 
 translation            -        -         -           -               -        -        2,153         -    2,153                -    2,153 
                                                                                   -----------  --------  -------  ---------------  ------- 
Total 
 comprehensive 
 income                                                                                  2,153    12,329   14,482               54   14,436 
                                                                                   -----------  --------  -------  ---------------  ------- 
Non-taxable 
 income                 -        -         -     (1,092)               -        -            -         -  (1,092)                -  (1,092) 
Transactions 
with 
Shareholders: 
Equity-settled 
 share-based 
 payments               5        -         -           -               -        -            -         -        5                -        5 
Share-based 
 payments               -        -         -           -               -      355            -         -      355                -      355 
Dividends               -        -         -           -               -        -            -   (4,426)  (4,426)                -  (4,426) 
Balances at 31 
 December 
 2019               2,110   67,647  (17,393)         419              39    1,629      (3,868)    74,446  125,029            1,115  126,144 
---------------  --------  -------  --------  ----------  --------------  -------  -----------  --------  -------  ---------------  ------- 
 
 

The accompanying notes are an integral part of these financial statements. See note 20 for explanation of movements in reserve balances.

1. Description of business

The consolidated financial statements of Mincon Group Plc (also referred to as "Mincon" or "the Group") comprises the Company and its subsidiaries (together referred to as "the Group"). The companies registered address is Smithstown Industrial Estate, Smithstown, Shannon, Co. Clare, Ireland.

The Group is an Irish engineering group, specialising in the design, manufacturing, sale and servicing of rock drilling tools and associated products. Mincon Group Plc is domiciled in Shannon, Ireland.

On 26 November 2013, Mincon Group plc was admitted to trading on the Enterprise Securities Market (ESM) of the Euronext Dublin and the Alternative Investment Market (AIM) of the London Stock Exchange.

2. Basis of preparation

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (EU IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), and endorsed by the EU.

The individual financial statements of the Company have been prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the Companies Act 2014 which permit a company that publishes its Group and Company financial statements together to take advantage of the exemption in Section 304 of the Companies Act 2014 from presenting to its members its Company income statement, statement of comprehensive income and related notes that form part of the approved Company financial statements.

The accounting policies set out in note 3 have been applied consistently in preparing the Group and Company financial statements for the years ended 31 December 2019 and 31 December 2018.

The Group and Company financial statements are presented in euro, which is the functional currency of the Company and also the presentation currency for the Group's financial reporting. Unless otherwise indicated, the amounts are presented in thousands of euro. These financial statements are prepared on the historical cost basis.

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The judgements, estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates. The areas involving a high degree of judgement and the areas where estimates and assumptions are critical to the consolidated financial statements are discussed in note 3.

The directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to continue to prepare our consolidated financial statements on a going concern basis.

3. Significant accounting principles, accounting estimates and judgements

 
The accounting principles as set out in the following paragraphs have, 
 unless otherwise stated, been consistently applied to all periods 
 presented in the consolidated financial statements and for all entities 
 included in the consolidated financial statements. 
 

Impact of the adoption of IFRS 16

The following new and amended standard is effective for the Group for the first time for the financial year beginning 1 January 2019:

   --           IFRS 16: Leases 

3. Significant accounting principles, accounting estimates and judgements (continued)

Impact of the adoption of IFRS 16(continued)

The Group initially applied IFRS 16 Leases effective 1 January 2019

The Group opted to adopt the modified retrospective approach and applied the practical expedients, recording the lease liability equal to the right of use asset at 1 January 2019, therefore there is no opening adjustment to retained earnings. Comparative information presented for 2018 is not restated-i.e. it is presented as previously reported under IAS 17 and related interpretations.

Definition of a lease

IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Control over the leased asset requires accounting for it as an asset and liability on the balance sheet under IFRS.

As a lessee

The Group recognises assets and liabilities for its operating leases of land and buildings, plant and machinery and motor vehicles. The nature of expenses related to those leases has changed because the Group recognises a depreciation charge for 'ROU' assets and interest expense on lease liabilities.

IFRS 16 introduced a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability showing its obligation to make lease payments. For leases previously classified as operating leases (under IAS 17) Mincon chose the option to measure the ROU asset equal to the lease liability (adjusted for prepaid/accrued lease payments). Where applying the modified retrospective approach to leases previously classified as operating leases (under IAS 17) the Group used a number of the following practical expedients available under the new standard;

a. Discount rates: A company may apply a single discount rate to a portfolio of leases with reasonably similar characteristics.

b. Leases with a short remaining term: A company may account for leases when the lease term ends within 12 months of the date of initial application as short term leases.

c. Leases of low value assets : Leases of assets such as Printers, office furniture etc. with a value less than EUR4,497.

d. Use of hindsight: A company may use hindsight e.g. in determining the lease term if the contract contains options to extend or terminate the lease.

As a lessor

The Group leases company owned property to tenants in the USA under various agreements. The group recognises these leases as operating leases from a lessor perspective due to the fact they do not transfer substantially all of the risks and rewards incidental to the ownership of the assets. The Group entered into the sublease of a property which has been recognised as a finance lease.

Impact on financial statements

Impact on transition

On transition to IFRS 16, the Group recognised additional right of use assets and corresponding additional lease liabilities.

The impact on transition is summarised below.

 
                                             1 January 2019 
                                                    EUR'000 
----------------------------------------  ----------------- 
Right of use assets-property, plant and 
 equipment                                            4,683 
Lease Liabilities                                     4,683 
 

Further disclosures on the financial impact after inception of this standard can be seen in note 25.

3. Significant accounting principles, accounting estimates and judgements (continued)

Standards, interpretations and amendments to published standards but not yet effective

A number of new Standards, Amendments to Standards and Interpretations are effective for annual periods beginning after 1 January 2020 and earlier application is permitted; however, the Group has chosen not to introduce early adoption of the new or amended standards in preparing these consolidated financial statements.

The following amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements

-- Amendments to References to Conceptual Framework in IFRS Standards

-- Definition of a Business (Amendments to IFRS3)

-- Definition of Material (Amendments to IAS 1 and IAS 8)

-- IFRS17 Insurance Contracts

Revenue Recognition

The Group is involved in the sale and servicing of rock drilling tools and associated products. Revenue from the sale of these goods and services to customers is measured at the fair value of the consideration received or receivable (excluding sales taxes). The Group recognises revenue when it transfers control of goods to a customer.

Earnings per share

 
 Basic earnings per share is calculated based on the profit for the 
  year attributable to owners of the Company and the basic weighted 
  average number of shares outstanding. Diluted earnings per share 
  is calcu-lated based on the profit for the year attributable to owners 
  of the Company and the diluted weighted average number of shares 
  outstanding. 
 
 
      3. Significant accounting principles, accounting estimates and judgements 
       (continued) 
 
       Taxation 
       Current tax comprises the expected tax payable or receivable on the 
       taxable income or loss for the year and any adjustment to the tax 
       payable or receivable in respect of previous years. The amount of 
       current tax payable or receivable is the best estimate of the tax 
       amount expected to be paid or received that reflects uncertainty related 
       to income taxes, if any. It is measured using tax rates enacted or 
       substantively enacted at the reporting date. Current tax also includes 
       any tax arising from dividends. 
 
       Current tax assets and liabilities are offset only if certain criteria 
       are met. 
 
       Deferred tax 
       Deferred tax is recognised in respect of temporary differences between 
       the carrying amounts of assets and liabilities for financial reporting 
       purposes and the amounts used for taxation purposes. Deferred tax 
       is not recognised for: 
 
        *    temporary differences on the initial recognition of 
             assets or liabilities in a transaction that is not a 
             business combination and that affects neither 
             accounting nor taxable profit or loss; 
 
 
        *    temporary differences related to investments in 
             subsidiaries, associates and joint arrangements to 
             the extent that the Group is able to control the 
             timing of the reversal of the temporary differences 
             and it is probable that they will not reverse in the 
             foreseeable future; and 
 
 
        *    taxable temporary differences arising on the initial 
             recognition of goodwill. 
 
 
 
       Deferred tax assets are recognised for unused tax losses, unused tax 
       credits and deductible temporary differences to the extent that it 
       is probable that future taxable profits will be available against 
       which they can be used. Future taxable profits are determined based 
       on the reversal of relevant taxable temporary differences. If the 
       amount of taxable temporary differences is insufficient to recognise 
       a deferred tax asset in full, then future taxable profits, adjusted 
       for reversals of existing temporary differences, are considered, based 
       on the business plans for individual subsidiaries in the Group. Deferred 
       tax assets are reviewed at each reporting date and are reduced to 
       the extent that it is no longer probable that the related tax benefit 
       will be realised; such reductions are reversed when the probability 
       of future taxable profits improves. 
 
       Unrecognised deferred tax assets are reassessed at each reporting 
       date and recognised to the extent that it has become probable that 
       future taxable profits will be available against which they can be 
       used. 
 
       Deferred tax is measured at the tax rates that are expected to be 
       applied to temporary differences when they reverse, using tax rates 
       enacted or substantively enacted at the reporting date. 
 
       The measurement of deferred tax reflects the tax consequences that 
       would follow from the manner in which the Group expects, at the reporting 
       date, to recover or settle the carrying amount of its assets and liabilities. 
 
       Deferred tax assets and liabilities are offset only if certain criteria 
       are met. 
 
 

Inventories and capital equipment

 
Inventories and capital equipment are valued at the lower of cost 
 or net realisable value. Net realisable value is the estimated selling 
 price in the ordinary course of business less the estimated costs 
 of completion and selling expenses. The cost of inventories is based 
 on the first-in, first-out principle and includes the costs of acquiring 
 inventories and bringing them to their existing location and condition. 
 Inventories manufactured by the Group and work in progress include 
 an appropriate share of production overheads based on normal operating 
 capacity. Inventories are reported net of deductions for obsolescence. 
 
 
 Intangible Assets and Goodwill 
 Goodwill 
 The Group accounts for acquisitions using the purchase accounting 
 method as outlined in IFRS 3 Business Combinations. Group management 
 has determined that the Group has one operating segment and therefore 
 all goodwill is tested for impairment at Group level and this is tested 
 for impairment annually. 
 

3. Significant accounting principles, accounting estimates and judgements (continued)

Intangible assets

Expenditure on research activities is recognised in profit or loss as incurred.

Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

Foreign Currency

Foreign currency transactions

 
Transactions in foreign currencies (those which are denominated in 
 a currency other than the functional currency) are translated at the 
 foreign exchange rate ruling at the date of the transaction. Monetary 
 assets and liabilities denominated in foreign currencies are translated 
 using the foreign exchange rate at the statement of financial position 
 date. Exchange gains and losses related to trade receivables and payables, 
 other financial assets and payables, and other operating receiv-ables 
 and payables are separately presented on the face of the income statement. 
 Exchange rate differences on translation to functional currency are 
 reported in profit or loss, except when reported in other compre-hensive 
 income for the translation of intra-group receivables from, or liabilities 
 to, a for-eign operation that in substance is part of the net investment 
 in the foreign operation. 
 Exchange rates for major currencies used in the various reporting 
 periods are shown in note 23. 
 

Translation of accounts of foreign entities

The assets and liabilities of foreign entities, including goodwill and fair value adjustments arising on consolidation, are translated to Euro at the exchange rates ruling at the reporting date. Revenues, expenses, gains, and losses are translated at average exchange rates, when these approximate the exchange rate for the respective transaction. Foreign exchange differences arising on translation of foreign entities are recognised in other comprehensive income and are accumulated in a separate component of equity as a translation reserve. On divestment of foreign entities, the accumulated exchange differences, are recycled through profit or loss, increasing or decreasing the profit or loss on divestments.

Business combinations and consolidation

 
 
The consolidated financial statements include the financial statements 
 of the Group and all companies in which Mincon Group plc, directly 
 or indirectly, has control. The Group controls an entity when it is 
 exposed to, or has rights to, variable returns from its involvement 
 with the entity and has the ability to affect those returns through 
 its power over the entity. The financial statements of subsidiaries 
 are included in the consolidated financial statements from the date 
 on which control commences until the date on which control ceases. 
 
 The consolidated financial statements have been prepared in accordance 
 with the acquisition method. According to this method, business combinations 
 are seen as if the Group directly acquires the assets and assumes 
 the liabilities of the entity acquired. At the acquisition date, i.e. 
 the date on which control is obtained, each identifiable asset acquired 
 and liability assumed is recognised at its acquisition-date fair value. 
 
 Consideration transferred is measured at its fair value. It includes 
 the sum of the acquisition date fair values of the assets transferred, 
 liabilities incurred to the previous owners of the acquiree, and equity 
 interests issued by the Group. Deferred contingent consideration is 
 initially measured at its acquisition-date fair value. Any subsequent 
 change in such fair value is recognised in profit or loss, unless 
 the deferred contingent consideration is classified as equity. In 
 that case, there is no remeasurement and the subsequent settlement 
 is accounted for within equity. Deferred contingent consideration 
 arises in the current year where part payment for an acquisition is 
 deferred to the following year or years. 
 
 Transaction costs that the Group incurs in connection with a business 
 combination, such as legal fees, due diligence fees, and other professional 
 and consulting fees are expensed as incurred. 
 
 
 
 
 3. Significant accounting principles, accounting estimates and judgements 
 (continued) 
 
 Business combinations and consolidation (continued) 
 Goodwill is measured as the excess of the fair value of the consider-ation 
 transferred, the amount of any non-controlling interest in the acquiree, 
 and the fair value of the Group's previously held equity interest 
 in the acquiree (if any) over the net of acquisition-date fair values 
 of the identifiable assets acquired and liabilities assumed. Goodwill 
 is not amortised but tested for impairment at least annually. 
 
 Non-controlling interest is initially measured either at fair value 
 or at the non-controlling interest's proportionate share of the fair 
 value of the acquiree's identifiable net assets. This means that goodwill 
 is either recorded in "full" (on the total acquired net assets) or 
 in "part" (only on the Group's share of net assets). The choice of 
 mea-surement basis is made on an acquisition-by-acquisition basis. 
 
 Earnings from the acquirees are reported in the consolidated income 
 statement from the date of control. 
 Intra-group balances and transactions such as income, expenses and 
 dividends are eliminated in preparing the consolidated financial statements. 
 Profits and losses resulting from intra-group transactions that are 
 recognised in assets, such as inventory, are eliminated in full, but 
 losses are only eliminated to the extent that there is no evidence 
 of impairment. 
 

Property, plant and equipment

 
Items of property, plant and equipment are carried at cost less accu-mulated 
 depreciation and impairment losses. Cost of an item of property, plant 
 and equipment comprises the purchase price, import duties, and any 
 cost directly attributable to bringing the asset to its location and 
 condition for use. The Group capitalises costs on initial recognition 
 and on replacement of significant parts of property, plant and equip-ment, 
 if it is probable that the future economic benefits embodied will 
 flow to the Group and the cost can be measured reliably. All other 
 costs are recognised as an expense in profit or loss when incurred. 
 

Depreciation

 
Depreciation is calculated based on cost using the straight-line method 
 over the estimated useful life of the asset. 
 

The following useful lives are used for depreciation:

 
                        Years 
 Buildings              20-30 
 Plant and equipment    3-10 
 

The depreciation methods, useful lives and residual values are reassessed annually. Land is not depreciated.

Right of use assets are depreciated using the straight-line method over the estimated useful life of the asset being the remaining duration of the lease from inception date of the asset. The depreciation methods, useful lives and residual values are reassessed annually.

3. Significant accounting principles, accounting estimates and judgements (continued)

Financial Assets and Liabilities

Recognition and derecognition

Financial assets and liabilities are recognised at fair value when the Group becomes a party to the contractual provisions of the instrument. Purchases and sales of financial assets are accounted for at trade date, which is the day when the Group contractually commits to acquire or dispose of the assets. Trade receivables are recognised on delivery of product. Liabilities are recognised when the other party has performed and there is a contractual obligation to pay. Derecognition (fully or partially) of a financial asset occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of own-ership have been removed from the Group. The Group derecognises (fully or partially) a financial liability when the obligation specified in the contract is discharged or otherwise expires. A financial asset and a financial liability are offset and the net amount presented in the statement of financial position when there is a legally enforce-able right to set off the recognised amounts and there is an intention to either settle on a net basis or to realise the asset and settle the liability simultaneously.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant periods. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument, or when appropriate a shorter period, to the net carrying amount of the financial asset or financial liability. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transac-tion costs, and all other premiums or discounts.

Borrowing costs

 
All borrowing costs are expensed in accordance with the effective 
 interest rate method. 
 

Investments in subsidiaries - Company

Investments in subsidiary undertakings are stated at cost less provision for impairment in the Company's statement of financial position. Loans to subsidiary undertakings are initially recorded at fair value in the Company statement of financial position and subsequently at amortised cost using an effective interest rate methodology.

Impairment of financial assets

 
Financial assets are assessed at each reporting date to determine 
 whether there is any objective evidence that they are impaired. A 
 financial asset is considered to be impaired if objective evidence 
 indicates that one or more events have had a negative effect on the 
 estimated future cash flows of that asset. 
 

Equity

 
Shares are classified as equity. Incremental costs directly attributable 
 to the issue of ordinary shares and share options are recognised as 
 a deduction from equity, net of any tax effect. 
 

Contingent liabilities

A contingent liability is a possible obligation or a present obligation that arises from past events that is not reported as a liability or provision, as it is not probable that an outflow of resources will be required to settle the obligation or that a sufficiently reliable calculation of the amount cannot be made.

Financial instruments carried at fair value: Non-derivative financial liabilities

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

Finance income and expenses

 
Finance income and expense are included in profit or loss using the 
 effective interest method. 
 
 Cash and cash equivalents 
 Cash and cash equivalents comprise cash balances and call deposits 
 with maturities of three months or less. 
 

3. Significant accounting principles, accounting estimates and judgements (continued)

Provisions

 
 A provision is recognised in the statement of financial position 
  when the Group has a legal or constructive obligation as a result 
  of a past event, it is proba-ble that an outflow of economic benefits 
  will be required to settle the obligation, and the outflow can be 
  estimated reliably. The amount recognised as a provision is the best 
  estimate of the expenditure required to settle the present obligation 
  at the reporting date. If the effect of the time value of money is 
  material, the provision is determined by discounting the expected 
  future cash flows at a pre-tax rate that reflects the current market 
  assessments of the time value of money and, where appropriate, the 
  risks specific to the liability. 
  A provision for restructuring is recognised when the Group has approved 
  a detailed and formal restructuring plan and the restructuring has 
  either commenced or been announced publicly. Future operating losses 
  are not provided for. 
 

Exceptional Items

The Group has adopted an Income Statement format which seeks to highlight significant items within the Group results for the year. Exceptional items may include restructuring, profit or loss on disposal or termination of operations, litigation costs and settlements, profit or loss on disposal of investments, profit or loss on disposal of property, plant and equipment, acquisition costs, adjustment to contingent consideration and impairment of assets relating to significant transactions. Judgement is used by the Group in assessing particular items, which by virtue of their scale and nature, should be presented in the Income Statements and disclosed in the related notes as exceptional items.

Defined contribution plans

 
 A defined contribution pension plan is a post-employment benefit 
  plan under which the Group pays fixed contributions into a separate 
  entity and will have no legal or constructive obligation to pay further 
  amounts. Obligations for contributions to defined contribution pension 
  plans are recognised as an employee benefit expense in profit or 
  loss when employees provide services entitling them to the contributions. 
 

Share-based payment transactions

The Group operates a long term incentive plan which allows the Company to grant Restricted Share Awards ("RSAs") to executive directors and senior management. All schemes are equity settled arrangements under IFRS 2 Share-based Payment.

The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

Critical accounting estimates and judgements

 
 The preparation of financial statements requires management's judgement 
  and the use of estimates and assumptions that affect the amounts 
  reported in the consolidated financial statements and accompanying 
  notes. These estimates and associated assumptions are based on his-torical 
  experience and various other factors that are believed to be rea-sonable 
  under the prevailing circumstances. Actual results may differ from 
  those estimates. The estimates and assumptions are reviewed on an 
  ongoing basis. Revisions to the accounting estimates are recognised 
  in the period in which they are revised and in any future periods 
  affected. 
 

Following are the estimates and judgements which, in the opinion of management, are significant to the underlying amounts included in the financial reports and for which there is a significant risk that future events or new information could entail a change in those estimates or judgements.

Deferred contingent consideration

The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios. The fair value of deferred contingent consideration is primarily dependent on the future performance of the acquired businesses against predetermined targets and on management's current expectations thereof.

3. Significant accounting principles, accounting estimates and judgements (continued)

Trade and other receivables

 
 Trade and other receivables are included in current assets, except 
  for those with maturities more than 12 months after the reporting 
  date, which are classified as non-current assets. The Group estimates 
  the risk that receivables will not be paid and pro-vides for doubtful 
  debts in line with IFRS 9. 
 

4. Revenue

In the following table, revenue is disaggregated between Mincon manufactured product and product that is purchased outside the Group and resold through Mincon distribution channels.

 
                                 2019     2018 
                              EUR'000  EUR'000 
----------------------------  -------  ------- 
Product revenue: 
Sale of Mincon product        103,797  100,319 
Sale of third party product    19,948   17,369 
Total revenue                 123,745  117,688 
----------------------------  -------  ------- 
 

Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control of goods to a customer.

The following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies.

Customers obtain control of products when one of the following conditions are satisfied:

   1.   The goods have been picked up by the customer from Mincon's premises. 

2. When goods have been shipped by Mincon, the goods are delivered to the customer and have been accepted at their premises.

Invoices are generated at that point in time. Invoices are payable within the timeframe as set in agreement with the customer at the point of placing the order of the product. Discounts are provided from time-to-time to customers.

Customers may be permitted to return goods where issues are identified with regard to quality of the product. Returned goods are exchanged only for new goods or credit note. No cash refunds are offered.

Where the customer is permitted to return an item, revenue is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Therefore, the amount of revenue recognised is adjusted for expected returns, which are estimated based on the historical data for specific types of product. In these circumstances, a refund liability and a right to recover returned goods asset are recognised.

5. Operating Segment

An operating segment is a component of the Group that engages in busi-ness activities from which it may earn revenue and incur expenses, and for which discrete financial information is available. The operating results of all operating segments are reviewed regularly by the Board of Directors, the chief operating decision maker, to make deci-sions about allocation of resources to the segments and also to assess their performance.

Results are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). Our CODM has been identified as the Board of Directors.

The Group has determined that it has one reportable segment. The Group is managed as a single business unit that sells drilling equipment, primarily manufactured by Mincon manufacturing sites.

The CODM assesses operating segment performance based on a measure of operating profit. Segment revenue for the year ended 31 December 2019 of EUR123.7 million (2018: EUR117.7 million) is wholly derived from sales to external customers.

Entity-wide disclosures

The business is managed on a worldwide basis but operates manufacturing facilities and sales offices in Ireland, Sweden, South Africa, UK, Western Australia, the United States and Canada and sales offices in nine other locations including Eastern & Western Australia, South Africa, Finland, Spain, Namibia, Sweden, Chile and Peru. In presenting information on geography, revenue is based on the geographical location of customers and non-current assets based on the location of these assets.

Revenue by region (by location of customers):

 
                                              2019     2018 
                                           EUR'000  EUR'000 
-----------------------------------------  -------  ------- 
Region: 
Ireland                                        772      915 
Americas                                    39,410   24,732 
Australasia                                 27,351   28,256 
Europe, Middle East, Africa                 56,212   63,785 
Total revenue from continuing operations   123,745  117,688 
-----------------------------------------  -------  ------- 
 

During 2019 Mincon had sales in the USA of EUR20.8 million (2018: EUR11.5 million), Australia of EUR18.5 million (2018: EUR20.8 million) and Sweden of EUR12.8 million (2018: EUR14.5 million), these separately contributed to more than 10% of the entire Group's sales for 2019.

 
Non-current assets by region (location of assets): 
                                                         2019     2018 
                                                      EUR'000  EUR'000 
Region: 
Ireland                                                17,064   15,255 
Americas                                               21,846   17,271 
Australasia                                            11,144    8,795 
Europe, Middle East, Africa                            23,055   24,362 
Total non-current assets(1)                            73,109   65,683 
----------------------------------------------------  -------  ------- 
(1) Non-current assets exclude deferred tax assets. 
 

During 2019 Mincon held non-current assets (excluding deferred tax assets) in Sweden of EUR17 million and in the USA of EUR10.8 million, these separately contributed to more than 10% of the entire Group's non-current assets (excluding deferred tax assets) for 2019.

   6.   Cost of Sales and operating expenses 

Included within cost of sales and operating costs were the following major components:

 
 
Cost of sales 
                                                     2019     2018 
                                                  EUR'000  EUR'000 
------------------------------------------------  -------  ------- 
Raw materials                                      39,190   33,221 
Third party product purchases                      14,204   13,625 
Employee costs                                     14,045   14,728 
Depreciation                                        3,312    3,214 
Distribution costs                                  2,380    2,988 
Energy costs                                        1,450    1,648 
Maintenance of machinery                            1,363    1,302 
Impairment of capital inventory (note 8)                -    (747) 
Impairment of finished goods inventory (note 8)     1,692        - 
Cost of sales of disposed operations                2,489        - 
Other                                               2,522    2,336 
Total cost of sales                                82,647   72,315 
------------------------------------------------  -------  ------- 
 

Operating costs

 
 
                                                             2019     2018 
                                                          EUR'000  EUR'000 
--------------------------------------------------------  -------  ------- 
Employee costs (including director emoluments)             15,899   18,373 
Depreciation                                                1,930      683 
Rent                                                          865    1,287 
Travel                                                      2,375    2,309 
Professional costs                                          1,938    2,138 
Administration                                              2,247    1,978 
Marketing                                                     886      698 
Acquisition and related costs (note 8)                          -      166 
Salary and termination payments for redundant employees 
 (note 8)                                                   2,754        - 
Impairment of trade receivable (note 8)                       799        - 
Operating costs of disposed operations                      2,359        - 
Other                                                       1,764      808 
Total other operating costs                                33,816   28,440 
--------------------------------------------------------  -------  ------- 
 

The Group invested approximately EUR3.2 million on research and development projects in 2019 (2018: EUR2.7 million). EUR1.8 million of this has been expensed in the period (2018: EUR1.0 million), with the balance of EUR1.4 million capitalised (2018: EUR1.7 million) (note 12).

 
7. Employee information 
                                                              2019     2018 
                                                           EUR'000  EUR'000 
--------------------------------------------------------  --------  ------- 
Wages and salaries - excluding directors                    25,088   26,997 
Wages, salaries, fees and pensions - directors                 760      765 
Salary and termination payments for redundant employees      2,754       17 
Social security costs                                        2,677    3,070 
Retirement benefit costs of defined contribution 
 plans                                                       1,064    1,551 
Share based payment expense (note 22)                          355      701 
Total employee costs                                        32,698   33,101 
--------------------------------------------------------  --------  ------- 
 
 
     The Group capitalised payroll costs of EUR0.5million in 2019 (2018: 
                EUR0.1 million) in relation to research and development. 
 
The average number of employees was as follows: 
                                                            2019    2018 
                                                          Number  Number 
------------------------------------------------------  --------  ------ 
Sales and distribution                                       124     126 
General and administration                                    56      56 
Manufacturing, service and development                       290     332 
------------------------------------------------------  --------  ------ 
Average number of persons employed                           470     514 
------------------------------------------------------  --------  ------ 
 

Retirement benefit and Other Employee Benefit Plans

The Group operates various defined contribution pension plans. During the year ended 31 December 2019, the Group recorded EUR1.1 million (2018: EUR1.6 million) of expense in connection with these plans.

8. Exceptional Items

 
 
                                                             2019      2018 
                                                          EUR'000   EUR'000 
--------------------------------------------------------  -------  -------- 
Revenue 
Revenue from disposed operations                            3,074         - 
--------------------------------------------------------  -------  -------- 
Total Revenue                                               3,074         - 
--------------------------------------------------------  -------  -------- 
 
  Cost of sales 
Impairment of capital equipment inventory                       -       747 
Cost of sales of disposed operations                      (2,489)         - 
Total cost of sales                                       (2,489)       747 
--------------------------------------------------------  -------  -------- 
 
Operating costs 
Salary and termination payments for redundant employees   (2,754)         - 
Acquisition related costs                                       -     (166) 
Operating costs of disposed operations                    (2,359)         - 
--------------------------------------------------------  -------  -------- 
Total operating costs                                     (5,113)     (166) 
--------------------------------------------------------  -------  -------- 
 
Tax on disposals and discontinued operations                (127)         - 
--------------------------------------------------------  -------  -------- 
 
Profit on Disposal (note 10)                                7,489         - 
--------------------------------------------------------  -------  -------- 
 
Total exceptional profit after tax                          2,834       581 
--------------------------------------------------------  -------  -------- 
 

8. Exceptional Items (continued)

At 31 December 2018 the Group reversed EUR0.7 million of previously recognised impairment due to information obtained during the year on the valuation of capital equipment inventory.

The Group has undertaken a reorganisation of its activities across all regions during 2019, including relocation of activities; closing of regional offices; and redundancies where necessary.

The Group has also disposed of operations in two distribution centres, Mincon Tanzania and Mincon Russia, following a strategic decision to place greater focus and emphasis on the Group's key competencies while focusing on the profitability of the core business activities and growth areas where there are synergies and tangible growth opportunities.

The Group has chosen to present exceptional items separately from the reorganisation.

9. Acquisitions & Disposals

In January 2019, Mincon acquired 100% shareholding in Pacific Bit, a Canadian-based mining and construction product distributor, for a consideration of EUR1.8 million. Cash transferred at the date of acquisition was EUR0.8 million with a deferred consideration of EUR1.0m.

   A.    Consideration transferred 

The following table summarises the acquisition date fair value of each major class of consideration transferred.

 
 
                                        Pacific     Total 
                                         Bit of 
                                         Canada 
                                        EUR'000   EUR'000 
  -----------------------------------  --------  -------- 
 Cash                                       770       770 
 Deferred contingent consideration        1,032     1,032 
 Total consideration transferred          1,802     1,802 
-------------------------------------  --------  -------- 
 
   B.    Identifiable assets acquired and liabilities assumed 

The following table summarises the recognised amounts of assets and liabilities assumed at the date of acquisition.

 
                                                         Total 
                                                       EUR'000 
-----------------------------------------------  ------------- 
Property, plant and equipment                               75 
Inventories                                              1,009 
Trade receivables                                          650 
Other assets                                               123 
Trade and other payables                                 (626) 
Other accruals and liabilities                           (315) 
Fair value of identifiable net assets acquired             916 
-----------------------------------------------  ------------- 
 

Measurement of fair values

The valuation techniques used for measuring the fair value of material assets acquired were as follows.

 
Assets acquired  Valuation Technique 
 
 
Property, plant  Market comparison technique and cost technique: The valuation 
 and equipment    model considers quoted market prices for similar items 
                  when they are available, and depreciated replacement cost 
                  when appropriate. Depreciated replacement cost reflects 
                  adjustments for physical deterioration as well as functional 
                  and economic obsolescence. 
 
 
Inventories  Market comparison technique: The fair value is determined 
              based on the estimated selling price in the ordinary course 
              of business less the estimated costs of completion and 
              sale, and a reasonable profit margin based on the effort 
              required to complete and sell the inventories. 
-----------  ------------------------------------------------------------ 
 

9. Acquisitions & Disposals (continued)

Goodwill

Goodwill arising from the acquisition has been recognised as follows.

 
                                          Pacific   Total 
                                           Bit of 
                                           Canada 
---------------------------------------  --------  ------ 
 Consideration transferred                  1,802   1,802 
 Fair value of identifiable net assets      (916)   (916) 
---------------------------------------  --------  ------ 
 Goodwill                                     886     886 
---------------------------------------  --------  ------ 
 

The goodwill created in the acquisition in the period is primarily related to the synergies expected to be achieved from integrating these companies into the Group's existing structure. Mincon will sell it's product range of hammers, bits and drill pipe through Pacific Bit of Canada to the end user of our products in Western Canada.

   C.   Profit on Disposal 

During the year the Group disposed of two subsidiaries in Sweden (Hardtekno and Cebeko) and a distribution subsidiary in South Africa (Premier Drilling Solutions).

 
                                                      Total 
-------------------------------------------------  -------- 
Consideration received                                8,997 
Cash and cash equivalents disposed of                 (480) 
Net assets                                          (1,028) 
Profit on Disposal                                    7,489 
-------------------------------------------------  -------- 
 
                                                      Total 
-------------------------------------------------  -------- 
Profit on disposal of Hardtekno                       7,551 
Profit on disposal of Cebeko                            106 
Profit on disposal of Premier Drilling Solutions         98 
Cost on disposal                                      (266) 
Profit on Disposal                                    7,489 
-------------------------------------------------  -------- 
 

10. Statutory and other required disclosures

 
Operating profit is stated after charging the following               2019     2018 
 amounts: 
                                                                   EUR'000  EUR'000 
--------------------------------------------------------  ----------------  ------- 
Directors' remuneration 
Fees                                                                   192      161 
Wages and salaries                                                     477      546 
Other emoluments                                                         -        - 
Retirement benefit contributions                                        57       58 
--------------------------------------------------------  ----------------  ------- 
Total directors' remuneration                                          726      765 
--------------------------------------------------------  ----------------  ------- 
 
 
 
10. Statutory and other required disclosures (continued)      2019     2018 
 
 Auditor's remuneration: 
                                                           EUR'000  EUR'000 
---------------------------------------------------------  -------  ------- 
Auditor's remuneration - Fees payable to lead audit 
 firm 
Audit of the Group financial statements                        195      186 
Audit of the Company financial statements                       15       14 
Other assurance services                                        20       10 
Tax advisory services (a)                                        -       28 
Other non-audit services                                         2        3 
---------------------------------------------------------  -------  ------- 
                                                               232      241 
---------------------------------------------------------  -------  ------- 
Auditor's remuneration - Fees payable to other firms 
 in lead audit firm's network 
Audit services                                                 158      150 
Other assurance services                                         2        3 
Tax advisory services                                           63        3 
Total auditor's remuneration                                   223      156 
---------------------------------------------------------  -------  ------- 
 

(a) Includes tax compliance work on behalf of Group companies.

11. Income tax

Tax recognised in income statement:

 
                                                       2019      2018 
Current tax expense                                 EUR'000   EUR'000 
--------------------------------------------------  -------  -------- 
Current year                                          1,648     2,594 
Adjustment for prior years                             (89)     (412) 
--------------------------------------------------  -------  -------- 
Total current tax expense                             1,559     2,182 
--------------------------------------------------  -------  -------- 
Deferred tax expense 
Origination and reversal of temporary differences       231       287 
Adjustment for prior years                                3      (32) 
Total deferred tax (credit)/expense                     234       255 
--------------------------------------------------  -------  -------- 
 
Total income tax expense                              1,793     2,437 
--------------------------------------------------  -------  -------- 
 

A reconciliation of the expected income tax expense for continuing operations is computed by applying the standard Irish tax rate to the profit before tax and the reconciliation to the actual income tax expense is as follows:

 
                                                           2019     2018 
                                                        EUR'000  EUR'000 
------------------------------------------------------  -------  ------- 
Profit before tax from continuing operations             14,176   16,284 
Irish standard tax rate (12.5%)                           12.5%    12.5% 
Taxes at the Irish standard rate                          1,772    2,036 
Foreign income at rates other than the Irish standard 
 rate                                                       957      446 
Losses creating no income tax benefit                       288      559 
Other                                                   (1,224)    (604) 
------------------------------------------------------  -------  ------- 
Total income tax expense                                  1,793    2,437 
------------------------------------------------------  -------  ------- 
 

11. Income tax (continued)

The Group's net deferred taxation liability was as follows:

 
                                          2019      2018 
                                       EUR'000   EUR'000 
-------------------------------------  -------  -------- 
Deferred taxation assets: 
Reserves, provisions and tax credits       610       278 
Tax losses and unrealised FX gains           6         - 
Total deferred taxation asset              616       278 
-------------------------------------  -------  -------- 
Deferred taxation liabilities: 
Property, plant and equipment          (1,742)   (1,154) 
Accrued income                               -         - 
Profit not yet taxable                    (52)      (68) 
Total deferred taxation liabilities    (1,794)   (1,222) 
-------------------------------------  -------  -------- 
 
Net deferred taxation liability        (1,178)     (944) 
-------------------------------------  -------  -------- 
 

The movement in temporary differences during the year were as follows:

 
 
 
 
                                        Balance  Recognised           Acquired in       Balance 
                                                         in                     a 
                                      1 January   Profit or  Business combination   31 December 
                                                       Loss 
1 January 2018 - 31 December 
 2018                                   EUR'000     EUR'000               EUR'000       EUR'000 
------------------------------------  ---------  ----------  --------------------  ------------ 
Deferred taxation assets: 
Reserves, provisions and tax 
 credits                                     69         209                     -           278 
Tax losses                                   81        (81)                     -             - 
------------------------------------  ---------  ----------  --------------------  ------------ 
Total deferred taxation asset               150         128                     -           278 
------------------------------------  ---------  ----------  --------------------  ------------ 
Deferred taxation liabilities: 
Property, plant and equipment             (194)       (439)                 (521)       (1,154) 
Accrued income                             (30)          30                     -             - 
Profit not yet taxable                     (94)          26                     -          (68) 
------------------------------------  ---------  ----------  --------------------  ------------ 
Total deferred taxation liabilities       (318)       (383)                 (521)       (1,222) 
------------------------------------  ---------  ----------  --------------------  ------------ 
 
Net deferred taxation liability           (168)       (255)                 (521)         (944) 
------------------------------------  ---------  ----------  --------------------  ------------ 
 

11. Income tax (continued)

 
                                        Balance  Recognised           Acquired in       Balance 
                                                         in                     a 
                                      1 January   Profit or  Business combination   31 December 
                                                       Loss 
1 January 2019 - 31 December 
 2019                                   EUR'000     EUR'000               EUR'000       EUR'000 
------------------------------------  ---------  ----------  --------------------  ------------ 
Deferred taxation assets: 
Reserves, provisions and tax 
 credits                                    278         332                     -           610 
Tax losses                                    -           6                     -             6 
------------------------------------  ---------  ----------  --------------------  ------------ 
Total deferred taxation asset               278         338                     -           616 
------------------------------------  ---------  ----------  --------------------  ------------ 
Deferred taxation liabilities: 
Property, plant and equipment           (1,154)       (588)                     -       (1,742) 
Accrued income                                -           -                     -             - 
Profit not yet taxable                     (68)          16                     -          (52) 
------------------------------------  ---------  ----------  --------------------  ------------ 
Total deferred taxation liabilities     (1,222)       (572)                     -       (1,794) 
------------------------------------  ---------  ----------  --------------------  ------------ 
 
Net deferred taxation liability           (944)       (234)                     -       (1,178) 
------------------------------------  ---------  ----------  --------------------  ------------ 
 

Deferred taxation assets have not been recognised in respect of the following items:

 
                2019      2018 
             EUR'000   EUR'000 
-----------  -------  -------- 
Tax losses     4,112     3,824 
Total          4,112     3,824 
-----------  -------  -------- 
 

12. Intangible assets and goodwill

 
                                   Product 
                               development   Goodwill     Total 
                                   EUR'000    EUR'000   EUR'000 
----------------------------  ------------  ---------  -------- 
Balance at 1 January 2018            1,662     23,432    25,094 
----------------------------  ------------  ---------  -------- 
Internally developed                 1,715          -     1,715 
----------------------------  ------------  ---------  -------- 
Acquisitions                             -      4,491     4,491 
----------------------------  ------------  ---------  -------- 
Translation differences                  -      (547)     (547) 
----------------------------  ------------  ---------  -------- 
Balance at 31 December 2018          3,377     27,376    30,753 
----------------------------  ------------  ---------  -------- 
Internally developed                 1,405          -     1,405 
----------------------------  ------------  ---------  -------- 
Acquisitions (note 9)                    -        886       886 
----------------------------  ------------  ---------  -------- 
Disposal (note 9)                        -    (1,529)   (1,529) 
----------------------------  ------------  ---------  -------- 
Translation differences                  -        422       422 
----------------------------  ------------  ---------  -------- 
Balance at 31 December 2019          4,782     27,155    31,937 
----------------------------  ------------  ---------  -------- 
 

Goodwill relates to the acquisition of the below companies, being the dates that the Group obtained control of these business:

--..... The remaining 60% of DDS-SA Pty Limited in November 2009.

--..... The 60% acquisition of Omina Supplies in August 2014.

--..... The 65% acquisition of Rotacan in August 2014.

--..... The acquisition of ABC products in August 2014.

--..... The acquisition of Ozmine in January 2015.

--..... The acquisition of Mincon Chile in March 2015.

--..... The acquisition of and Mincon Tanzania in March 2015.

--..... The acquisition of Premier in November 2016.

--..... The acquisition of Rockdrill Engineering in November 2016.

--..... The acquisition of PPV in April 2017.

--..... The acquisition of Viqing July 2017.

--..... The acquisition of Driconeq in March 2018.

--..... The acquisition of Pacific Bit of Canada in January 2019

The Group accounts for acquisitions using the purchase accounting method as outlined in IFRS 3 Business Combinations.

The businesses acquired were integrated with other Group operations soon after acquisition. Impairment testing (including sensitivity analysis) is performed at each period end. Group management has determined that the Group has multiple cash generating units, which are aggregated into one operating segment and therefore all goodwill is tested for impairment at Group level.

The recoverable amount of goodwill has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash flows using forecasts covering a three-year period and terminal value (based on three year plans prepared annually). The most significant assumptions are revenues, operating profits, working capital and capital expenditure. A growth rate of 3% was applied for all periods after the three year budget. The discount rate in 2019 was assumed to amount to 7% (2018: 13%) after tax and has been used in discounting the cash flows to determine the recoverable amounts. Goodwill impairment testing did not indicate any impairment during any of the periods being reported. Sensitivity in all calculations implies that the goodwill would not be impaired even if the discount rate increased or decreased by 5% or the long-term or short-term growth was substantially increased or decreased.

Investment expenditure of EUR1.4 million, which has been capitalised, is in relation to ongoing product development within the Group. Amortisation will begin at the stage of commercialisation and charged to the income statement over a period of three to five years, or the capitalised amount will be written off if the project is deemed no longer viable by management.

13. Property, plant and equipment

 
                                                Land &    Plant &       ROU 
                                             Buildings  Equipment    Assets     Total 
                                               EUR'000    EUR'000   EUR'000   EUR'000 
-------------------------------------------  ---------  ---------  --------  -------- 
Cost: 
At 1 January 2018                               10,846     29,659         -    40,505 
-------------------------------------------  ---------  ---------  --------  -------- 
Acquisitions through business combinations         501      3,511         -     4,012 
Additions                                        4,353      8,199         -    12,552 
Disposals                                            -      (601)         -     (601) 
Foreign exchange differences                      (50)      (421)         -     (471) 
At 31 December 2018                             15,650     40,347         -    55,997 
-------------------------------------------  ---------  ---------  --------  -------- 
 
Acquisitions through business combinations           -         75         -        75 
Right of use asset on inception                      -          -     4,683     4,683 
Additions                                        1,223      6,707       490     8,420 
Disposals and derecognition of ROU 
 assets                                          (482)    (2,913)     (455)   (3,850) 
Foreign exchange differences                     (163)      1,613       114     1,564 
At 31 December 2019                             16,228     45,829     4,832    66,889 
-------------------------------------------  ---------  ---------  --------  -------- 
 
Accumulated depreciation: 
At 1 January 2018                              (2,419)   (15,510)         -  (17,929) 
-------------------------------------------  ---------  ---------  --------  -------- 
Charged in year                                  (448)    (3,448)         -   (3,896) 
Disposals                                            -        598         -       598 
Foreign exchange differences                        12        148         -       160 
                                             ---------  ---------  --------  -------- 
At 31 December 2018                            (2,855)   (18,212)         -  (21,067) 
-------------------------------------------  ---------  ---------  --------  -------- 
 
Charged in year                                  (442)    (3,456)   (1,344)   (5,242) 
Disposals                                          279      1,582         -     1,861 
Foreign exchange differences                       (9)    (1,260)         -   (1,269) 
-------------------------------------------  ---------  ---------  --------  -------- 
At 31 December 2019                            (3,027)   (21,346)   (1,344)  (25,717) 
-------------------------------------------  ---------  ---------  --------  -------- 
 
Carrying amount: 31 December 2019               13,201     24,483     3,488    41,172 
-------------------------------------------  ---------  ---------  --------  -------- 
Carrying amount: 31 December 2018               12,795     22,135         -    34,930 
-------------------------------------------  ---------  ---------  --------  -------- 
Carrying amount: 1 January 2018                  8,427     14,149         -    22,576 
-------------------------------------------  ---------  ---------  --------  -------- 
 

The depreciation charge for property, plant and equipment is recognised in the following line items in the income statement:

 
 
                                                          2019      2018 
                                                       EUR'000   EUR'000 
-----------------------------------------------------  -------  -------- 
Cost of sales                                            3,312     3,214 
General, selling and distribution expenses                 586       682 
General, selling and distribution expenses ROU asset     1,344         - 
Total depreciation charge for property, plant and 
 equipment                                               5,242     3,896 
-----------------------------------------------------  -------  -------- 
 

14. Inventory and capital equipment

 
                                         2019      2018 
                                      EUR'000   EUR'000 
------------------------------------  -------  -------- 
Finished goods and work-in-progress    38,212    36,158 
Capital equipment                         962     2,365 
Raw materials                           9,416    10,834 
------------------------------------  -------  -------- 
Total inventory                        48,590    49,357 
------------------------------------  -------  -------- 
 

The Group recorded an impairment of EUR1.7 million against inventory to take account of net realisable value during the year ended 31 December 2019 (2017: EUR0.1 million). Write-downs are included in cost of sales.

At 31 December 2019 and 31 December 2018, capital equipment are rigs held in South Africa for resale.

15. Trade and other receivables and other current assets

a) Trade and other receivables

 
                                     2019      2018 
                                  EUR'000   EUR'000 
--------------------------------  -------  -------- 
Gross receivable                   21,424    21,519 
Provision for impairment          (1,078)     (808) 
Net trade and other receivables    20,346    20,711 
--------------------------------  -------  -------- 
 
 
                                  Provision 
                                for impairment 
                                       EUR'000 
----------------------------  ---------------- 
Balance at 1 January 2019                (808) 
Additions                                (270) 
Balance at 31 December 2019            (1,078) 
----------------------------  ---------------- 
 
 
                                     2019      2018 
                                  EUR'000   EUR'000 
Less than 60 days                  17,112    14,451 
61 to 90 days                       1,659     3,437 
Greater than 90 days                1,575     2,823 
--------------------------------  -------  -------- 
Net trade and other receivables    20,346    20,711 
--------------------------------  -------  -------- 
 

At 31 December 2019, EUR3.2 million of trade receivables balances (16%) were past due but not impaired (2018: EUR5.6 million (27%)).

b) Prepayments and other current assets

 
 
                                             2019     2018 
                                          EUR'000  EUR'000 
-------------------------------------  ----------  ------- 
Plant and machinery prepaid                 3,302    4,943 
Prepayments and other current assets        2,766    1,635 
Prepayments and other current assets        6,098    6,578 
-------------------------------------  ----------  ------- 
 

16. Trade creditors, accruals and other liabilities

 
                                         2019     2018 
                                      EUR'000  EUR'000 
-----------------------------------  --------  ------- 
Trade creditors                        10,853   12,027 
Total creditors and other payables     10,853   12,027 
-----------------------------------  --------  ------- 
 
 
                                           2019     2018 
                                        EUR'000  EUR'000 
-------------------------------------  --------  ------- 
VAT                                         207      476 
Social security costs                       674    3,048 
Other accruals and liabilities            4,946    3,472 
Total accruals and other liabilities      5,827    6,996 
-------------------------------------  --------  ------- 
 

17. Capital management

The Group's policy is to have a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital, as well as the level of dividends to ordinary shareholders.

The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position.

The Group monitors capital using a ratio of 'net debt' to equity. Net debt is calculated as total liabilities less cash and cash equivalents (as shown in the statement of financial position).

 
                                       2019      2018 
                                    EUR'000   EUR'000 
--------------------------------  ---------  -------- 
Total liabilities                  (39,784)  (34,135) 
Less: cash and cash equivalents      16,368     8,042 
Net debt                           (23,416)  (26,093) 
--------------------------------  ---------  -------- 
Total equity                        126,144   116,766 
--------------------------------  ---------  -------- 
Net debt to equity ratio               0.18      0.22 
--------------------------------  ---------  -------- 
 

18. Loans and borrowings

 
                                            2019      2018 
                Maturity                 EUR'000   EUR'000 
 --------------------------------------  -------  -------- 
Bank loans                    2020-2027    4,879     4,576 
Finance leases                2020-2023    5,903     2,620 
Right of Use leases           2020-2028    4,140         - 
---------------------------  ---------- 
Total loans and borrowings                14,922     7,196 
                                         -------  -------- 
Current                                    4,043     2,735 
                                         -------  -------- 
Non-current                               10,879     4,461 
                                         -------  -------- 
 

The Group has a number of bank loans and finance leases in Sweden, the UK, the United States and Australia with a mixture of variable and fixed interest rates. The Group has not been in default on any of these debt agreements during any of the periods presented. None of the debt agreements carry restrictive financial covenants. Interest rates on current borrowings are at an average rate of 6.8%

During 2019, the Group availed of the option to enter into overdraft facilities and to draw down loans of EUR1.7 million with interest rate between 2% and 13.8%.

18. Loans and borrowings (continued)

Reconciliation of movements of liabilities to cash flows arising from financing activities

 
 
                                                   Loans  Finance    Right   Retained 
                                          and borrowings   leases   of Use   earnings 
                                                                    leases               Total 
                                                 EUR'000  EUR'000  EUR'000    EUR'000  EUR'000 
---------------------------------------  ---------------  -------  -------  ---------  ------- 
At 1 January 2019:                                 4,576    2,620        -          -    7,196 
Proceeds from loans and borrowings                 1,709        -        -          -    1,709 
Inception of finance leases                            -    4,473        -          -    4,473 
Inception of right of use liability                    -        -    4,589          -    4,589 
Repayment of borrowings                          (1,290)        -        -          -  (1,290) 
Repayment of finance lease liabilities                 -  (1,039)        -          -  (1,039) 
Repayment of right of use leases                       -        -    (449)          -    (449) 
Dividend paid                                          -        -        -    (4,426)  (4,426) 
Foreign exchange differences                       (116)    (151)        -          -    (267) 
Total at 31 December 2019                          4,879    5,903    4,140    (4,426)   10,496 
---------------------------------------  ---------------  -------  -------  ---------  ------- 
 

19. Non-controlling interest

The following table summarises the information relating to the Group's subsidiary, Mincon West Africa SL, that has material non-controlling interests, before any intra-group eliminations. The non-controlling interest is 20% of this subsidiary.

 
                                     2019     2018 
 Non-controlling Interest 20%     EUR'000  EUR'000 
-------------------------------  --------  ------- 
Non-current assets                     97      106 
Current assets                      4,253    3,762 
Non-current liabilities                 -        - 
Current liabilities                 (874)    (664) 
-------------------------------  --------  ------- 
Net assets                          3,476    3,204 
-------------------------------  --------  ------- 
Net assets attributable to NCI        695      641 
-------------------------------  --------  ------- 
Revenue                             6,176    6,978 
-------------------------------  --------  ------- 
Profit                                273    1,368 
-------------------------------  --------  ------- 
OCI                                     -        - 
-------------------------------  --------  ------- 
Total comprehensive income            272    1,368 
-------------------------------  --------  ------- 
Profit allocated to NCI                54      274 
-------------------------------  --------  ------- 
 

20. Share capital and reserves

 
At 31 December 2019 
 
Authorised Share Capital               Number  EUR000 
--------------------------------  -----------  ------ 
Ordinary Shares of EUR0.01 each   500,000,000   5,000 
 
 
Allotted, called-up and fully paid up shares        Number  EUR000 
---------------------------------------------  -----------  ------ 
Ordinary Shares of EUR0.01 each                210,973,102   2,110 
 

Share issuances

 
On 26 November 2013, Mincon Group plc was admitted to trading on the 
 Enterprise Securities Market (ESM) of the Euronext Dublin and the 
 Alternative Investment Market (AIM) of the London Stock Exchange. 
 

20. Share capital and reserves (continued)

Voting rights

 
The holders of Ordinary Shares have the right to receive notice of 
 and attend and vote at all general meetings of the Company and they 
 are entitled, on a poll or a show of hands, to one vote for every 
 Ordinary Share they hold. Votes at general meetings may be given either 
 personally or by proxy. Subject to the Companies Act and any special 
 rights or restrictions as to voting attached to any shares, on a show 
 of hands every member who (being an individual) is present in person 
 and every proxy and every member (being a corporation) who is present 
 by a representative duly authorised, shall have one vote, so, however, 
 that no individual shall have more than one vote for every share carrying 
 voting rights and on a poll every member present in person or by proxy 
 shall have one vote for every share of which he is the holder. 
 

Dividends

In September 2019, Mincon Group plc paid an interim dividend for 2019 of EUR0.0105 (1.05 cent) per ordinary share. In June 2019, Mincon Group plc paid a final dividend for 2018 of EUR0.0105 (1.05 cent) per ordinary share. In September 2018, Mincon Group plc paid an interim dividend for 2018 of EUR0.01 (1 cent) per ordinary share. The directors are recommending a final dividend of EUR0.0105 (1.05 cent) per ordinary share for 2019 which will be subject to approval at the company's AGM in May 2020.

Share premium and other reserves

As part of a Group reorganisation of the Company, Mincon Group plc, became the ultimate parent entity of the Group. On 30 August 2013, the Company acquired 100% of the issued share capital in Smithstown Holdings and acquired (directly or indirectly) the shareholdings previously held by Smithstown Holdings in each of its subsidiaries, thereby creating a merger reserve.

Restricted equity reserve

Restricted equity reserve arises on the acquisition of the Driconeq Group, representing the local requirement to allocate reserves between the equity and deferred taxes.

21. Earnings per share

Basic earnings per share (EPS) is computed by dividing the profit for the period available to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is computed by dividing the profit for the period by the weighted average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares. The following table sets forth the computation for basic and diluted net profit per share for the years ended 31 December:

 
                                                       2019         2018 
Numerator (amounts in EUR'000): 
Profit attributable to owners of the Parent          12,329       13,573 
 
Denominator (Number):Basic shares outstanding 
 Restricted share awards 
 
 Diluted weighted average shares outstanding    210,973,102  210,541,102 
---------------------------------------------- 
                                                  1,546,189    2,469,176 
                                                212,519,291  213,010,278 
----------------------------------------------  -----------  ----------- 
Earnings per Ordinary Share 
Basic earnings per share, EUR                          5.84        6.45c 
 Diluted earnings per share, EUR                       5.80        6.37c 
                                                ----------- 
 

22. Share based payment

During the year ended 31 December 2019, the Remuneration Committee did not grant any Restricted Share Awards (RSAs) to key management or to members of the senior management team.

The vesting conditions of the scheme state that the minimum growth in EPS shall be CPI plus 5% per annum, compounded annually, over the relevant three accounting years up to the share award of 100% of the participants basic salary. Where awards have been granted to a participant in excess of 100% of their basic salary, the performance condition for the element that is in excess of 100% of basic salary is that the minimum growth in EPS shall be CPI plus 10% per annum, compounded annually, over the three accounting years.

 
 
                                                   Number of 
                                                     Options 
 Reconciliation of outstanding share options    in thousands 
---------------------------------------------  ------------- 
Outstanding on 1 January 2019                          2,469 
Forfeited during the year                              (491) 
Exercised during the year                              (432) 
Granted during the year                                    - 
Outstanding at 31 December 2019                        1,546 
---------------------------------------------  ------------- 
 

23. Financial risk management

The Group is exposed to various financial risks arising in the normal course of business. Its financial risk exposures are predominantly related to changes in foreign currency exchange rates and interest rates, as well as the creditworthiness of our counterparties.

The Company's board of directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Group's risk management policies. The committee reports regularly to the board of directors on its activities.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group audit committee oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

 
23. Financial risk management (continued) 
 
 a) Liquidity and capital 
 

The Group defines liquid resources as the total of its cash, cash equivalents and short term deposits. Capital is defined as the Group's shareholders' equity and borrowings.

 
The Group's objectives when managing its liquid resources are: 
  *    To maintain adequate liquid resources to fund its 
       ongoing operations and safeguard its ability to 
       continue as a going concern, so that it can continue 
       to create value for investors; 
 
 
  *    To have available the necessary financial resources 
       to allow it to invest in areas that may create value 
       for shareholders; and 
 
 
 -- To maintain sufficient financial resources to mitigate against 
 risks and unforeseen events. 
 

Liquid and capital resources are monitored on the basis of the total amount of such resources available and the Group's anticipated requirements for the foreseeable future. The Group's liquid resources and shareholders' equity at 31 December 2019 and 31 December 2018 were as follows:

 
                               2019     2018 
                            EUR'000  EUR'000 
--------------------------  -------  ------- 
Cash and cash equivalents    16,368    8,042 
Loans and borrowings         14,922    7,196 
Shareholders' equity        125,029  115,705 
--------------------------  -------  ------- 
 

The Group frequently assess its liquidity requirements, together with this requirement and the rate return of long term euro deposits, the Group has decided to keep all cash readily available that is accessible within a month or less. Cash at bank earns interest at floating rates based on daily bank deposits. The fair value of cash and cash equivalents equals the carrying amount.

Cash and cash equivalents are held by major Irish, European, United States and Australian institutions with credit rating of A3 or better. The Company deposits cash with individual institutions to avoid concentration of risk with any one counterparty. The Group has also engaged the services of a depository to ensure the security of the cash assets.

Risk of counterparty default arising on cash and cash equivalents and derivative financial instruments is controlled by dealing with high-quality institutions and by policy, limiting the amount of credit exposure to any one bank or institution.

 
The Group is also exposed to credit risk on its liquid resources (cash), 
 of which the euro equivalent of EUR3.4 million was held in US Dollar 
 (USD 3.8 million), EUR2 million was held in Swedish krona (SEK 21 million) 
 and the euro equivalent of EUR1.7 million was held Australian Dollar 
 (AUD 2.8 million). The Directors actively monitor the credit risk associated 
 with this exposure. 
 

At year-end, the Group's total cash and cash equivalents were held in the following jurisdictions:

 
                                                       31 December  31 December 
                                                              2019         2018 
                                                           EUR'000      EUR'000 
Ireland                                                      5,759        1,068 
Americas                                                     2,339        1,558 
Australasia                                                  1,625          266 
Europe, Middle East, Africa                                  6,645        5,150 
-----------------------------------------------------  -----------  ----------- 
Total cash, cash equivalents and short term deposits        16,368        8,042 
-----------------------------------------------------  -----------  ----------- 
 

There are currently no restrictions that would have a material adverse impact on the Group in relation to the intercompany transfer of cash held by its foreign subsidiaries. The Group continually evaluates its liquidity requirements, capital needs and availability of resources in view of, among other things, alternative uses of capital, the cost of debt and equity capital and estimated future operating cash flow.

23. Financial risk management (continued)

a) Liquidity and capital (continued)

In the normal course of business, the Group may investigate, evaluate, discuss and engage in future company or product acquisitions, capital expenditures, investments and other business opportunities. In the event of any future acquisitions, capital expenditures, investments or other business opportunities, the Group may consider using available cash or raising additional capital, including the issuance of additional debt. The maturity of the contractual undiscounted cash flows (including estimated future interest payments on debt) of the Group's financial liabilities at 31 December were as follows:

 
                                         Total 
                                    Fair Value  Less than                        More than 
                                            of 
                                    Cash Flows     1 Year  1-3 Years  3-5 Years    5 Years 
                                       EUR'000    EUR'000    EUR'000    EUR'000    EUR'000 
----------------------------------  ----------  ---------  ---------  ---------  --------- 
At 31 December 2018: 
Deferred contingent consideration        5,470      1,596      3,874          -          - 
Loans and borrowings                     4,677      2,246        479        416      1,536 
Finance leases                           2,630        655      1,025        950          - 
Trade and other payables                12,027     12,027          -          -          - 
Accrued and other financial 
 liabilities                             6,996      6,996          -          -          - 
----------------------------------  ----------  ---------  ---------  ---------  --------- 
Total at 31 December 2018               31,800     23,520      5,378      1,366      1,536 
----------------------------------  ----------  ---------  ---------  ---------  --------- 
At 31 December 2019: 
Deferred contingent consideration        4,962      2,452      2,510          -          - 
Loans and borrowings                     4,879      1,441        847        782      1,809 
Finance leases                           5,903      1,244      2,895      1,764          - 
Right of use leases                      4,140      1,360      1,807        735        238 
Trade and other payables                10,853     10,853          -          -          - 
Accrued and other financial 
 liabilities                             5,827      5,827          -          -          - 
----------------------------------  ----------  ---------  ---------  ---------  --------- 
Total at 31 December 2019               36,564     23,177      8,059      3,281      2,047 
----------------------------------  ----------  ---------  ---------  ---------  --------- 
 

b) Foreign currency risk

The Group is a multinational business operating in a number of countries and the euro is the presentation currency. The Group, however, does have revenues, costs, assets and liabilities denominated in currencies other than euro. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the reporting date and the resulting gains and losses are recognised in the income statement. The Group manages some of its transaction exposure by matching cash inflows and outflows of the same currencies. The Group does not engage in hedging transactions and therefore any movements in the primary transactional currencies will impact profitability. The Group continues to monitor appropriateness of this policy.

The Group's global operations create a translation exposure on the Group's net assets since the financial statements of entities with non-euro functional currencies are translated to euro when preparing the consolidated financial statements. The Group does not use derivative instruments to hedge these net investments.

The principal foreign currency risks to which the Group is exposed relate to movements in the exchange rate of the euro against US dollar, South African rand, Australian dollar, Swedish krona and Canadian dollar.

The Group has material subsidiaries with a functional currency other than the euro, such as US dollar, Australian dollar, South African rand, Canadian dollar, British pound and Swedish krona.

23. Financial risk management (continued)

b) Foreign currency risk (continued)

The Group's worldwide presence creates currency volatility when compared year on year. During 2019, there were positive movements in US Dollar, however all the major currencies in which Mincon operates through, except for Swedish Krona, finished the year stronger than the previous year. Strong economic growth in the USA, and a weakening Euro are a key driver for increases in the US Dollar versus the Euro. The Australian dollar had a weaker performance during 2019 due to the economic tensions between the USA and China, however easing tensions towards the end of the year had a positive effect on the currency. The movements in the South African Rand were not significant in comparison to previous years. There were also very slight movements in the valuation of the Swedish Krona against the Euro due to the Swedish economy's close links with the economic area of the Euro. In particular we note the following:

-- The US Dollar increased by 2% against the closing 2018 Euro rate (2018 decrease of 2% against 2017).

-- The Australian Dollar has increased 2% against the closing 2018 Euro rated (2018 decrease of 6% against 2017).

-- The South African Rand has increased 4% against the closing 2018 Euro rated (2018 decrease of 11% against 2017).

-- The Swedish Krona has decreased 3% against the closing 2018 Euro rated (2018 decrease of 4% against 2017).

In 2019, 60% (2018: 53%) of Mincon's revenue EUR124 million (2018: EUR118 million) was generated in AUD, SEK and USD. The majority of the group's manufacturing base has a Euro, US dollar or Swedish Krona cost base. While Group management makes every effort to reduce the impact of this currency volatility, it is impossible to eliminate or significantly reduce given the fact that the highest grades of our key raw materials are either not available or not denominated in these markets and currencies. Additionally, the ability to increase prices for our products in these jurisdictions is limited by the current market factors.

 
                            2019                2018 
Euro exchange rates   Closing   Average   Closing   Average 
US Dollar                1.12      1.11      1.14      1.18 
Australian Dollar        1.59      1.61      1.62      1.58 
South African Rand      15.72     15.93     16.46     15.60 
Swedish Krona           10.51     10.53     10.21     10.25 
--------------------  -------  --------  --------  -------- 
 

The table below shows the Group's net monetary asset/(liability) exposure. Such exposure comprises the monetary assets and monetary liabilities that are not denominated in the functional currency of the operating unit involved. These exposures were as follows:

23. Financial risk management (continued)

c) Credit risk

Credit risk is the risk that the possibility that the Group's customers may experience financial difficulty and be unable to meet their obligations. The Group monitors its collection experience on a monthly basis and ensures that a stringent policy is adopted to provide for all past due amounts. The majority of the Group's customers are third party distributors and end users of drilling tools and equipment.

Expected credit loss assessment

The Group allocates each exposure to a credit risk grade based on data that is determined to be predictive of the risk of loss and applying experienced credit judgement. Credit risk grades are defined using quantitative factors that are indicative of the risk of default and are aligned to past experiences. Loss rates are based on accrual credit loss experience over the past five years.

The maximum exposure to credit risk for trade and other receivables at 31 December 2019 and 31 December 2018 by geographic region was as follows:

 
                                 2019     2018 
                              EUR'000  EUR'000 
----------------------------  -------  ------- 
Ireland                            88      122 
Americas                        6,141    5,154 
Australasia                     4,495    4,772 
Europe, Middle East, Africa     9,622   10,663 
Total amounts owed             20,346   20,711 
----------------------------  -------  ------- 
 

The Group is also exposed to credit risk on its liquid resources (cash), of which the euro equivalent of EUR3.4 million was held in US Dollars ($3.8 million ), the euro equivalent of EUR2 million was held in Swedish krona (SEK 21 million) and the euro equivalent of EUR1.7 million was held in Australian Dollars ($2.7 million). The Directors actively monitor the credit risk associated with this exposure, cash and cash equivalents are held by major Irish, European, United States and Australian institutions with credit rating of A3 or better.

d) Interest rate risk

 
 Interest Rate Risk on financial liabilities 
  Movements in interest rates had no significant impact on our financial 
  liabilities or finance cost recognised in either 2018 or 2019. 
 
  Interest Rate Risk on cash and cash equivalents 
  Our exposure to interest rate risk on cash and cash equivalents is 
  actively monitored and managed, the rate risk on cash and cash equivalents 
  is not considered material to the Group. 
 

e) Fair values

Fair value is the amount at which a financial instrument could be exchanged in an arms-length transaction between informed and willing parties, other than in a forced or liquidation sale. The contractual amounts payable less impairment provision of trade receivables, trade payables and other accrued liabilities approximate to their fair values. Under IFRS 7, the disclosure of fair values is not required when the carrying amount is the reasonable approximation of fair value.

There are no material differences between the carrying amounts and fair value of our financial liabilities as at 31 December 2018 or 2019.

Financial instruments carried at fair value

The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios.

23. Financial risk management (continued)

e) Fair values (continued)

Movements in the year in respect of Level 3 financial instruments carried at fair value

The movements in respect of the financial assets and liabilities carried at fair value in the year to 31 December 2019 are as follows:

 
 
                                                                 Deferred 
                                                               contingent 
                                                            consideration 
                                                                  EUR'000 
---------------------------------------------------------  -------------- 
Balance at 1 January 2019                                           5,470 
Arising on acquisition                                              1,032 
Cash payment                                                      (1,600) 
Foreign currency translation adjustment                                70 
Fair value movement on deferred contingent consideration             (10) 
Balance at 31 December 2019                                         4,962 
---------------------------------------------------------  -------------- 
 

24. Subsidiary undertakings

At 31 December 2019, the Group had the following subsidiary undertakings:

 
                                             Group                              Registered Office & 
  Company                                     Share %                         Country of Incorporation 
-------------------------------------------  --------  --------------------------------------------------------------- 
Mincon International Limited                 100%      Smithstown, Shannon, Co. Clare, Ireland 
Manufacturer of rock drilling equipment 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Rockdrills USA Inc.                   100%*     107 Industrial Park, Benton, IL 62812, USA 
Manufacturer of rock drilling equipment 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Rockdrills PTY Ltd                    100%      8 Fargo Way, Welshpool, WA 6106, Australia 
Manufacturer of rock drilling equipment 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
1676427 Ontario Inc. (Operating as Rotacan)  100%      400B Kirkpatrick Street, North Bay, 
                                                        Ontario, P1B 8G5, Canada 
                                                       --------------------------------------------------------------- 
Manufacturer of rock drilling equipment 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Carbide Ltd                           100%      Windsor St, Sheffield S4 7WB, United Kingdom 
Manufacturer of tungsten carbide 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Viqing Drilling Equipment AB                 100%*     Svarvarevagen 1, SE-686 33 Sunne, Sweden 
Manufacturer of drill pipe equipment 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Inc.                                  100%      603 Centre Avenue, N.W. Roanoke, VA 24016, USA 
                                                       --------------------------------------------------------------- 
Sales company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Sweden AB                             100%      Industrivagen 2-4, 61202 Finspang, Sweden 
Sales company 

-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Nordic OY                             100%      Hulikanmutka 6, 37570 Lempäälä, Finland 
Sales company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Holdings Southern Africa (Pty)        100%      1 Northlake, Jetpark 1469, Gauteng, South Africa 
Sales company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
ABC Products (Rocky) Pty Ltd                 95%       2/57 Alexandra Street, North Rockhampton, Queensland, 4701 
                                                       Australia 
                                                       --------------------------------------------------------------- 
Sales company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon West Africa SARL                      80%       Villa TF 4635 GRD, Almadies, Dakar B.P. 45534, Senegal 
                                                       --------------------------------------------------------------- 
Dormant company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon West Africa SL                        80%       Calle Adolfo Alonso Fernández, s/n, Parcela P-16, Planta 
                                                       2, Oficina 23, Zona Franca de 
                                                       Gran Canaria, Puerto de la Luz, Código Postal 35008, Las 
                                                       Palmas de Gran Canari 
                                                       --------------------------------------------------------------- 
 
  Sales company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Poland                                100%      ul.Mickiewicza 32, 32-050 Skawina, Poland 
Dormant company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
Pacific Bit of Canada                        100%      9485 189 Unit204, Surrey, BC V4N 5L8, Canada 
Sales company 
-------------------------------------------  --------  --------------------------------------------------------------- 
 
 
24. Subsidiary undertakings (continued) 
 
 
                                          Group                               Registered Office & 
  Company                                  Share %                          Country of Incorporation 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Rockdrills Ghana Limited           80%       P.O. Box CT5105, Accra, 
                                                     Ghana 
                                                    --------------------------------------------------------------- 
Dormant company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon S.A.C.                             100%      Calle La Arboleda 151, Dpto 201, La Planicie, La Molina, Peru 
                                                    --------------------------------------------------------------- 
Sales company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Ozmine International Pty Limited          100%      Gidgegannup, WA 6083, Australia 
                                                    --------------------------------------------------------------- 
Sales company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Chile                              100%      Av. La Dehesa #1201, Torre Norte, Lo Barnechea, Santiago, Chile 
                                                    --------------------------------------------------------------- 
Sales company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Tanzania                           100%      Plot 1/3 Nyakato Road, 
                                                     Mwanza, Tanzania 
                                                    --------------------------------------------------------------- 
Dormant company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Namibia Pty Ltd                    100%      Ausspannplatz, Windhoek, Namibia 
Sales company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Russia                             100%      4,4 Lesnoy In,125047 Moscow, Russia 
Dormant Company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon International UK Ltd               100%      Windsor St, Sheffield S4 7WB, United Kingdom 
Sales company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Mining Equipment Inc               100%*     19789-92a Avenue, Langley, British Columbia V1M3B3, Canada 
                                                    --------------------------------------------------------------- 
Sales company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Pirkanmaan Poraveikot OY PPV              100%*     Hulikanmutka 6, 37570 Lempäälä, Finland 
Engineering company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon Exports USA Inc.                   100%      603 Centre Ave, Roanoke VA 24016, USA 
                                                    --------------------------------------------------------------- 
Group finance company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Mincon International Shannon              100%*     Smithstown, Shannon, Co. Clare, Ireland 
Dormant company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Smithstown Holdings                       100%      Smithstown, Shannon, Co. Clare, Ireland 
Holding company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
  Mincon Canada Drilling Products Inc.      100% 
                                                    --------------------------------------------------------------- 
Holding company                                     Suite 1800-355 Burrard Street, Vancouver, BC V6C 268, Canada 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Lotusglade Limited                        100%*     Smithstown, Shannon, Co. Clare, Ireland 
Holding company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
Floralglade Company                       100%      Smithstown, Shannon, Co. Clare, Ireland 
Holding company 
----------------------------------------  --------  --------------------------------------------------------------- 
 
24. Subsidiary undertakings (continued) 
 
 
                                     Group                               Registered Office & 
  Company                             Share %                          Country of Incorporation 
-----------------------------------  --------  ---------------------------------------------------------------- 
 
Castle Heat Treatment Limited        100%*     Smithstown, Shannon, Co. Clare, Ireland 
Holding company 
-----------------------------------  --------  ---------------------------------------------------------------- 
 
Mincon Microcare Limited             100%*     Smithstown, Shannon, Co. Clare, Ireland 
-----------------------------------  --------  ---------------------------------------------------------------- 
Holding company 
-----------------------------------  --------  ---------------------------------------------------------------- 
 
Cebeko Elast AB                      100%*     Svarvarevagen 1, SE-686 33 Sunne, Sweden 
Holding company 
-----------------------------------  --------  ---------------------------------------------------------------- 
 
Driconeq AB                          100%      Svetsarevägen 4, 686 33, Sunne, Sweden 
Holding company 
-----------------------------------  --------  ---------------------------------------------------------------- 
 
Driconeq Production AB               100%      Svetsarevägen 4, 686 33, Sunne, Sweden 
-----------------------------------  --------  ---------------------------------------------------------------- 
Manufacturing facility 
 
Driconeq Fastighet AB                100%      Svetsarevägen 4, 686 33, Sunne, Sweden 
-----------------------------------  --------  ---------------------------------------------------------------- 
Property holding company 
 
Driconeq Do Brasil                   100%      Rua Dr. Ramiro De Araujo Filho, 348, Jundai, SP, Brasil 
-----------------------------------  --------  ---------------------------------------------------------------- 
Sales company 
 
Driconeq Africa Ltd                  100%      Cnr of Harriet and James Bright Avenue, Driehoek. Germiston 1400 
-----------------------------------  --------  ---------------------------------------------------------------- 
Manufacturing facility 
 
Driconeq Australia Holdings Pty Ltd  100%      47 Greenwich Parade, AU-6031 Neerabup, WA, Australia 

-----------------------------------  --------  ---------------------------------------------------------------- 
Holding company 
 
Driconeq Australia Pty Ltd           100%      47 Greenwich Parade, AU-6031 Neerabup, WA, Australia 
-----------------------------------  --------  ---------------------------------------------------------------- 
Manufacturing facility 
 
Mincon Drill String AB               100%      Svetsarevägen 4, 686 33, Sunne, Sweden 
Holding company 
 
 
 

* Indirectly held shareholding

25. Leases

   A.   Leases as Lessees (IFRS 16) 

The group leases property, plant and equipment across its global operations. During the year one of the leased properties in Australia was sublet. The lease and sublease expire in 2024.

The property and equipment leases recognised on inception were entered into in the previous years and were classified as operating leases under IAS17.

The Group leases IT and other equipment with contract terms of less than 12 months and also for low value items.

The Group has elected not to recognise right-of -use assets and lease liabilities for these leases in line with availing of the exemptions for such leases allowable under IFRS16.

Information about leases for which the Group is a lessee is presented below.

   i)          Right-of-use assets 
 
                                        31 December 
                                               2019 
                                            EUR'000 
Balance at 1January                           4,683 
Depreciation charge for the year            (1,344) 
Additions to right of use assets                490 
Derecognition of right of use asset*          (455) 
Foreign exchange difference                     114 
--------------------------------------  ----------- 
Balance at 31 December 2019                   3,488 
--------------------------------------  ----------- 
 

*Derecognition of the right of use asset during 2019 is as a result of entering into a finance sub-lease.

   ii)          Amounts recognised in income statement. 
 
                                                        31 December 
                                                               2019 
                                                            EUR'000 
2019-Leases under IFRS 16 
Interest on lease liabilities                                   247 
Expenses related to short term leases                           363 
Expenses related to leases of low value assets                   28 
------------------------------------------------  ----------------- 
Total 2019-Leases under IFRS 16                                 638 
------------------------------------------------  ----------------- 
 
 
                                                 31 December 
                                                        2018 
                                                     EUR'000 
2018-Operating Leases under IAS 17 
Lease expenses                                         2,155 
Total 2018-Operating Leases under IAS 17               2,155 
------------------------------------------  ---------------- 
 
   iii)         Amounts recognised in statement of cash flows 
 
                                     31 December 
                                            2019 
                                         EUR'000 
2019-Cash outflow of leases 
Total cash outflow for leases              2,121 
-----------------------------------  ----------- 
Total 2019-Cash outflow of leases          2,121 
-----------------------------------  ----------- 
 
   iv)         Extension options 

Some property leases contain extension options exercisable by the group. The group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The group is reasonably certain it will not incur future lease liabilities beyond what is currently calculated.

25. Leases (continued)

   B.   Leases as Lessor (IFRS 16) 
   i)          Financing Lease 

The group subleased a property that had been recognised as a right of use asset in Australia. The group recognised income interest in the year in relation to this totalling EUR21,000.

The following table sets out a maturity analysis of lease receivable, showing the undiscounted lease payments to be received after the reporting date.

 
                                           31 December 
                                                  2019 
                                               EUR'000 
Less than one year                                 138 
One to two years                                   138 
Two to three years                                 135 
Three to four years                                135 
More than five years                                 - 
------------------------------------   --------------- 
Balance at 31 December 2019                        546 
-------------------------------------  --------------- 
Unearned finance income                           (62) 
-------------------------------------  --------------- 
Total undiscounted lease receivable                484 
-------------------------------------  --------------- 
 
   ii)          Operating leases 

The group leases company owned property out to tenants in the USA under various agreements. The group recognises these leases as operating leases from a lessor perspective due to the fact they do not transfer substantially all of the risks and rewards incidental to the ownership of the assets.

Rental income recognised by the Group during 2019 was EUR125,000 (2018: EUR9,000)

The following table sets out a maturity analysis of lease receivable, showing the undiscounted lease payments to be received after the reporting date.

 
                        31 December 
                               2019 
                            EUR'000 
Less than one year               76 
One to two years                 26 
Two to three years                - 
Three to four years               - 
More than five years              - 
---------------------   ----------- 
Total                           102 
----------------------  ----------- 
 

26. Commitments

The following capital commitments for the purchase of property, plant and equipment had been authorised by the directors at 31 December 2019:

 
                     31 December   31 December 
                            2019          2018 
                         EUR'000       EUR'000 
Contracted for               358         3,553 
Not-contracted for             -           185 
-------------------  -----------  ------------ 
Total                        358         3,738 
-------------------  -----------  ------------ 
 
 

27. Litigation

The Group is not involved in legal proceedings that could have a material adverse effect on its results or financial position.

28. Related parties

As at 31 December 2019, the share capital of Mincon Group plc was 56.72% owned by Kingbell Company which is ultimately controlled by Patrick Purcell and members of the Purcell family. Patrick Purcell is also a director of the Company.

In September 2019, the Group paid an interim dividend for 2019 of EUR0.0105 to all shareholders. The total dividend paid to Kingbell Company was EUR1,256,551 (September 2018: EUR1,256,551).

In June 2019, the Group paid a final dividend for 2018 of EUR0.0105 to all shareholders. The total dividend paid to Kingbell Company EUR1,256,551.

The Group has a related party relationship with its subsidiary and its joint venture undertakings (see note 24) for a list of these undertakings), directors and officers. All transactions with subsidiaries eliminate on consolidation and are not disclosed.

Transactions with Directors

The Group is owed EURNil from directors and shareholders at 31 December 2019 and 2018. The Group has amounts owing to directors of EURNil as at 31 December 2019 and 2018.

Key management compensation

The profit before tax from continuing operations has been arrived at after charging the following key management compensation:

 
                                             2019     2018 
                                          EUR'000  EUR'000 
Short term employee benefits                1,369    1,686 
Share based payment charged in the year        67      600 
Bonus and other emoluments                     10      188 
Post-employment contributions                  68      109 
Social security costs                         133      164 
----------------------------------------  -------  ------- 
Total                                       1,647    2,747 
----------------------------------------  -------  ------- 
 

The key management compensation amounts disclosed above represent compensation to those people having the authority and responsibility for planning, directing and controlling the activities of the Group, which comprises the Board of Directors and executive management (nine in total at year end). Amounts included above are time weighted for the period of the individuals employment.

29. Events after the reporting date

The Board of Mincon Group plc is recommending the payment of a final dividend for the year ended 31 December 2019 in the amount of EUR0.0105 (1.05 cent) per ordinary share, which will be subject to approval at the Annual General Meeting of the Company in May 2020. This final dividend, when added to the interim dividend of 1.05 cent paid in September 2019, makes a total distribution for the year of 2.10 cent per share. Subject to Shareholder approval at the Company's annual general meeting, the final dividend will be paid on 19 June 2020 to Shareholders on the register at the close of business on 29 May 2020.

Acquisition of the Lehti Group Oy

On 15 January 2019, the Group completed the acquisition of the Lethi Group Oy, a manufacture of drilling consumables for a consideration of EUR8 million. The goodwill arising on acquisition is circa EUR4.3 million, with expected 2020 revenue of between EUR10 million and EUR14 million. (What will Mincon Goup's revenue increase be as a result of this acquisition? Most of the sales were to Mincon Nordic.)

30. Approval of financial statements

The Board of Directors approved the consolidated financial statements on 20 March 2020.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

FR EAKDEASAEEFA

(END) Dow Jones Newswires

March 23, 2020 03:00 ET (07:00 GMT)