ES_BROADCAST_LTD - Accounts

The directors present the strategic report for the year ended 30 June 2018.

The directors are pleased with the results and progress of the group for the year to June 2018. The group monitors a number of key performance indicators to ensure it maintains the standards it expects and continues to maintain acceptable returns on its investments including into its rental fleet and new businesses. This includes turnover, net and gross margins, and indebtedness. These key operational highlights for the year to 30th June 2018 are discussed in the business review set out below.

• The group has achieved a gross profit of £9.35m (2017: £6.29m, 49% increase) with an operating profit of £4.14m (2017: £3.13m, 32% increase). Gross margins have grown from 33.7% to 50.8%. The group launched a separate Systems Integration division adding to the existing broadcast equipment sales and hire businesses, diversifying its business and reducing its risks. This business was operational from January 2018 and was profitable in its first 6 months of operation.

• The rental division benefited from a year of large major sporting including the World Cup in Russia and Winter Olympics in South Korea. The group invested heavily into its rental fleet and in particular, the latest 4k camera channels and lenses. This investment in the year to 30th June 2018 and in prior years along with a significant investment in staff, training and maintenance of equipment has allowed the business to further develop and strengthen our relationships with our customers. The rental business has also launched operations in Madrid and Brussels to be closer to our customers and further grow our opportunities.

• Stock within the group is only held by ES Broadcast Limited with stock turnover for the group/company having decreased from 5.2 to 4.7 as the business takes advantage of opportunities presented to it and with the strength of its balance sheet, it is able to purchase new and used inventory and package an attractive offer for our customers.

• Investment into new equipment has increased the amount of indebtedness in the group from £7.53m to £12.18m with debt/EBITDA increasing from 1.85 at 30th June 2017 to 2.06 (as EBITDA has increased from £4.07m to £5.91m) which the group considers manageable.

The risks that face the group are those that face similar businesses and include maintaining the strong relationships with our customers as well as increased competition. Foreign exchange movements can impact margins as can a general downturn in the economy where some customers will delay spend impacting the sales and Systems Integrations divisions. Liquidity is closely managed given the level of debt within the business as we continue to invest in new equipment and inventory within the sales and System Integration divisions.

The group also face potential risk around the uncertainty surrounding the Brexit negotiations as it is hard for us to quantify what effect it may have on the business, however we anticipate there will be some effect.

The group reviews its strategies on a regular basis to ensure its objectives are being achieved. The directors have set targets for the year to 30th June 2019 and are confident that they will be achieved with the Systems Integration division performing strongly and the sales and rental business exceeding targets despite the year not having any large sporting events.

On behalf of the board

The directors present their annual report and financial statements for the year ended 30 June 2018.

The principal activity of the group continued to be that of the sale and hire of broadcast video equipment.

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

The results for the year are set out on page 7.

Ordinary dividends were paid amounting to £1,034,000. The directors do not recommend payment of a further dividend.

The group's principal financial instruments comprise bank balances, trade creditors, trade debtors, work in progress and loans to companies under common control. The main purpose of these instruments is to raise funds for the company's operations and to finance the company's operations.

The group manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.

The group is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on bank overdrafts and loans.

The group’s principal foreign currency exposures arise from trading with overseas companies. Company policy permits but does not demand that these exposures may be hedged in order to fix the cost in sterling.

The group expects to continue to grow our business geographically and expand its footprint but also look at opportunities at segments adjacent to its existing businesses so that we can leverage our supply chain as well as the international nature of our customer relationships.

Goldblatts were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.

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

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company, and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

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

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

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

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

We have audited the financial statements of ES Broadcast Ltd (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 June 2018 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows, the company statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

• give a true and fair view of the state of the group's and the parent company's affairs as at 30 June 2018 and of the group's profit for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

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

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

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

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

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters which we are required to address

The figures for the year ended 30 June 2017 were not audited as the company claimed exemption from audit under section 477 of the Companies Act 2006 relating to small companies.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £1,071,270 (2017 - £933,318 profit).

ES Broadcast Ltd (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is 171-173 Gray's Inn Road, London WC1X 8UE.

The group consists of ES Broadcast Ltd and all of its subsidiaries.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements have been prepared with early application of the FRS 102 Triennial Review 2017 amendments in full.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

In the parent company financial statements, the cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date. Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date. Investments in subsidiaries, joint ventures and associates are accounted for at cost less impairment.

The consolidated financial statements incorporate those of ES Broadcast Ltd and all of its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes.

All financial statements are made up to 30 June 2018. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

At the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Turnover is recognised at the fair value of the consideration received or receivable for the sale, installation and hire of broadcast video equipment provided in the normal course of business, and is shown net of VAT and other sales related taxes.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from contracts for the provision of professional services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.

Revenue from equipment hire contracts is recognised in the profit and loss account by applying hire rates to the period of hire.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.

Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.

In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.

Stocks held for distribution at no or nominal consideration are measured at the lower of replacement cost and cost, adjusted where applicable for any loss of service potential.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to the profit and loss account so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation are included in the profit and loss account for the period.

In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

Management regularly review the depreciation rates given to each class of fixed asset to ensure they are carrying the asset at the appropriate value. Where necessary the impairment of assets is also considered where the Net book value seems unrealisable.

Management regularly review the Intercompany balances for recoverability.

Management regularly consider the costs incurred by all System Integration division projects to ensure the costs are correctly stated when calculating the lower of cost or net realisable value.

Management also review the stock listing and external market regularly to determine if any of the stock has reduced in value or become obsolete due to advances in technology.

Exchange differences recognised in profit or loss during the year, except for those arising on financial instruments measured at fair value through profit or loss, amounted to £32,752 (2017 - £34,514).

The average monthly number of persons (including directors) employed by the group and company during the year was:

Their aggregate remuneration comprised:

Investment income includes the following:

The actual charge for the year can be reconciled to the expected charge based on the profit or loss and the standard rate of tax as follows:

The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.

The group revalued plant and machinery as at 30 June 2016 by £426,236. The fair value of the plant and machinery has been arrived at on the basis of a valuation carried out by directors. The valuation was made on an open market value basis by reference to market evidence of transaction prices for similar items.

If revalued assets were stated on an historical cost basis rather than a fair value basis, the total amounts included would have been as follows:

The revaluation surplus is disclosed in note 24.

Details of the company's subsidiaries at 30 June 2018 are as follows:

Note 1 - 171-173 Gray's Inn Road, London WC1X 8UE

Note 2 - Calle Valdermorillo, no 50 Nave G Poligono, Industrial Ventorro del Cano, Alcorcon, Madrid, Spain

Note 3 - Weiveldlaan 41, 1930 Zaventem

The amounts owed by group undertakings, subsidiary undertakings and amounts owed by companies under common control (included under other debtors) have no security and no fixed repayment terms.

The amounts owed to group undertakings and amounts owed to companies under common control (included under other creditors) have no security and no fixed repayment terms.

ES Broadcast Limited has the following six charges outstanding at the year end:

HSBC general pledge containing fixed charges and a negative pledge dated 14th August 2017.

Paragon Bank technology charge contacting fixed charges and a negative pledge dated 1st August 2017.

HSBC charged dated 17th July 2013, containing fixed and floating charges covering all the property or undertakings of the company.

Long term licence to sub let via ING lease (UK) Limited dated 31st October 2012.

The full benefit of the sub-letting agreements and the benefit of all guarantees indemnities negotiable instruments and securities taken in connections with any and all such sub letting agreements.

Rent deposit deed dated 10th August 2017, includes an interest bearing deposit account in the name of the charge and all sums standing to the credit of such account included accrued interest.

ES Broadcast Hire Limited has the following seven charges outstanding at the year end:

HSBC Equipment finance UK dated 12th February 2018, contains fixed charge and negative pledge

HSBC Bank dated 31st January 2018, contains a legal assignment of contract monies

HSBC Invoice finance UK dated 19th October 2917, contains fixed and floating charge over the property or undertakings of the company. Contains a negative pledge.

Paragon bank technology finance dated 27th May 2017, contains fixed charge and negative pledge

Close leasing Limited dated 22nd August 2013, contains fixed charge notification of addition or amendment of charge

HSBC Bank dated 5th July 2013, contains fixed and floating charge over the property or undertakings of the company. Contains a negative pledge.

Fineline media finance dated 6th March 2013, all the rights, benefit and interest arising out of or in respect of a sub hire agreement.

The company has provided guarantees in respect of the bank overdraft facilities of its 65% subsidiary company, ES Broadcast Hire Ltd as part of a cross-company guarantee arrangement in favour of the parent and subsidiary company's bankers up to a combined net maximum facility of £250,000, after offset of bank balances in hand. At 30th June 2018, the combined net amount of the bank overdraft facility utilised by the subsidiary and parent amounted to £169,881 (2017 - £117,088).

Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 5 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:

£416,775 of the deferred tax liability is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

At the year end the company had committed to purchase items amounting to £396,010 for resale.

Amounts contracted for but not provided in the financial statements:

During the year the group entered into the following transactions with related parties:

During the year the company provided the following services to Related parties , in the course of normal operations to the following:

Sale of equipment £756,202 (2017 - £278,259).

Management services £88,846 (2017 - £137,346).

Loan interest £13,051 (2017 - £0).

The following amounts were outstanding at the reporting end date:

The company is ultimately controlled by Mr E Saunders, who owns 75% of the issued share capital of ES Broadcast Limited.