HAYT.L Regulatory News (HAYT)

5 July 2016

Hayward Tyler Group plc

Results for the year ended 31 March 2016

Transformation for Growth

Hayward Tyler Group plc ("HTG", the "Company" or "Group"), the specialist engineering group, comprising the operating companies of Hayward Tyler and Peter Brotherhood, today announces its audited consolidated results for the year ended 31 March 2016.

Financial Highlights

§ Like for like gross profit margin at 37% (FY2015: 35%) with actual gross profit margin lower at 33% (FY2015: 35%) - driven by Peter Brotherhood

§ 36% increase in trading** earnings per share to 9.47p (FY2015: 6.98p) - excluding £0.7m of exceptional tax benefits detailed in the Finance Review, the trading diluted earnings per share would have been 8.09 pence per share

§ Group strongly cash generative with cash conversion of 127%

§ Net debt of £8.6m, representing 1.2x trading EBITDA (FY2015: £7.9m, 1.2x) despite significant capex

Operational Highlights

§ Excellent progress made towards strategic objective of transforming the Group and investing for the future

§ £10.1m spent on Peter Brotherhood acquisition in October 2015 and £9.8m invested in Centre of Excellence

§ Revitalisation of Peter Brotherhood already achieving good progress with the brand resurrected and new orders won

§ Hayward Tyler achieved a credible performance and set to strengthen further

§ Oversubscribed placing successfully completed in December 2015, raising £8.4m gross

§ Sale and leaseback of the Peter Brotherhood site completed in March 2016, raising £7.5m gross

§ Agreements with Ebara Corp and FMC technologies already successfully delivering new orders for Hayward Tyler

§ Building work completed at the Centre of Excellence in Luton

- Increased throughput rate should reduce working capital significantly

- Potential to double manufacturing capacity

* Trading profit before tax represents the underlying performance of HTG and is stated after adding back non trading costs of £1.8m.

*\* Trading earnings per share represents the underlying performance of HTG and is stated after adding back non trading costs of £1.8m and non-trading finance costs of £0.4m, net of a non-trading tax charge of £0.04m.

Commenting on the performance and outlook, Ewan Lloyd-Baker, CEO, said:

"Hayward Tyler has been transformed into a forward-thinking, profitable market-leader in its specialist niche markets. Additionally the acquisition of Peter Brotherhood during the year increased the critical mass and robustness of the Group and is bedding-in well. Taken together with other areas of investment including research and development, the Centre of Excellence and the training and development of our people, this means we are ready for our next stage of growth.

"The Group is well placed to achieve the Board's growth ambitions and provided the recent political and economic uncertainty does not dramatically affect all our end markets, the Board remains confident in the prospects for the business."

For more information:

Hayward Tyler Group plc +44 (0)1582 731 144

Ewan Lloyd-Baker, CEO

Nick Flanagan, CFO

FinnCap Limited-NOMAD and Broker +44(0)20 7220 0500

Matt Goode, Corporate Finance

Grant Bergman. Corporate Finance

Emily Watts, Corporate Finance

Tony Quirke, Corporate Broking

Akur Limited - Corporate Finance Adviser +44 (0) 20 7493 3631

David Shapton

Tom Morrell

Buchanan Communications, Financial PR +44(0)207 466 5000

Charles Ryland

Chris Judd

Jane Glover

Chairman's statement

A year of investment

"The Group is well placed to achieve the Board's growth ambitions"

Dear Shareholder

I am delighted to report on further successful transformational changes made by HTG in FY2016 and I would like to take this opportunity to thank the Executive Directors and all the team, on your behalf, for their contribution.

Results Overview

The results for the year reflect a steady performance from the Hayward Tyler business and a good first five months from Peter Brotherhood.

Against a backdrop of challenging end markets and continuing uncertain economic times, Hayward Tyler's performance is highly credible and we expect it to strengthen further in FY2017. This strengthening will come from amongst others the improving prospects for Hayward Tyler in our US market and the beneficial impact of the Centre of Excellence, which comes on-line this year. We are encouraged by the capabilities of Peter Brotherhood and the key for the success of this business is to fully re-establish it as a force in the global power, oil and gas and process markets, a process which is well underway. Accordingly, the major focus for HTG looking forward is development of the order pipeline and order book.

Further details of the trading performance are set out in the Chief Executive's Business Review and the Financial Review.

Dividend

We have previously stated that we will adopt a progressive dividend policy to which end we increased the interim dividend by a further 5% to just over 0.55 pence per ordinary share, paid in February 2016. Subject to shareholder approval, we will pay a final dividend of 0.83 pence per share on 25 August 2016 to shareholders on the register on 12 August 2016 (ex-dividend date: 11 August 2016), which is an increase of 5% on FY2015.

Acquisition of Peter Brotherhood

During the year we made our first acquisition by purchasing the trade and assets of the Peterborough operations from Dresser-Rand, a Siemens company for a total consideration of £10.1 million following an adjustment for working capital. The consideration was paid in cash from new facilities from National Westminster Bank that were subsequently prepaid out of the proceeds of an equity placing and sale and leaseback of the business' Peterborough freehold site.

Post-acquisition we subsequently resurrected the Peter Brotherhood brand and incorporated Peter Brotherhood Ltd. Peter Brotherhood is a UK based engineering business specialising in steam turbines, reciprocating gas compressors and combined heat and power units for the power generation, oil and gas, marine and process markets. It shares a number of characteristics with Hayward Tyler, which include its long heritage and that its revenue is generated from original equipment manufacturing and aftermarket services from the UK together with a substantial portion from overseas. The transaction increases the Group's scale, number of customers and orders, and thus diversifies the Group's operations.

Further details of the acquisition are set out in the Chief Executive's Business Review and the Financial Review.

Corporate Governance

I set out my review of governance in Corporate Governance.

Risk Management

We set how we manage risk within the business in Principal Risks and Uncertainties.

Outlook

The expansion of the Group through the acquisition of Peter Brotherhood together with the continued focus on developing our Hayward Tyler branded businesses, by expanding our production capabilities and investing in research and development, means that the Group is well placed to achieve the Board's growth ambitions. As anticipated at the time of the acquisition the focus continues to be on building the sales pipeline for Peter Brotherhood as well as for Hayward Tyler. The development of the Group's order book is likely to see the financial performance having a stronger bias towards the second half of FY2017. Overall the Board remains confident in the prospects for the business.

Yours faithfully

John May

Non-Executive Chairman

4 July 2016

Chief Executive's Business Review

"A simple vision, a clear strategy and solid foundations - we are ready to deliver on our next chapter focused on growth"

Introduction

In FY2016 we achieved a number of key developments that demonstrate our commitment to the long-term growth of the Group. The previous four years have been characterised by focusing on the continuous improvement of our operations and the related improvement to our financial stability. We now have a strong foundation on which to develop our longer term growth strategy. We have formed some key strategic alliances with the likes of FMC Technologies and Ebara Corporation, delivered the Centre of Excellence, invested in training, research and development and completed our first acquisition, that of Peter Brotherhood.

From a performance perspective, I am pleased to report substantially increased revenue for the year, which was ahead by 27% to £61.6m driven by the acquisition of Peter Brotherhood, trading1 operating profit was up by 8% to £5.8 million and trading earnings per share ahead by 36% at 9.47 pence. This despite challenging times and weakness in some of our end markets.

The foundations on which we have built our platform for future growth are underpinned by our people and we continue to devote significant time to learning and development. This is to strengthen the Group, create an integrated business and provide a stimulating place for all our people to develop and progress. We operate with a mind set of "Working Together, Succeeding Together" with a shared set of values across the Group which we refer to as PIPE:

· Pride in what we do;

· Innovation in thought, process and product;

· Pace - getting things done; and

· Excellence - in everything we do.

Strategic Alliances

The recently signed strategic alliances with both FMC Technologies and Ebara Corporation have already begun to deliver tangible benefits in terms of orders won. 

In May 2015 we were delighted to announce that we had entered into a production alliance agreement with FMC Technologies, the global market leader in subsea systems, and since then FMC has placed a number of orders with Hayward Tyler. Under the terms of the agreement, Hayward Tyler will manufacture permanent magnet motors for use in FMC Technologies' 3.2MW subsea pump systems. This production alliance represents a cornerstone for our subsea activity and the Centre of Excellence includes a dedicated test facility for subsea motors that will give rise to additional process capability and ultimately a separable revenue stream.

In addition, as part of our on-going market expansion we signed an agency agreement with Ebara Corporation, a leading Japanese manufacturer of pumps for the energy, oil and gas, and general industry sectors. The scope of the agreement covers the supply of Hayward Tyler's boiler circulating pumps in Japan and globally through Ebara with a number of major engineering, procurement and construction groups. Historically Hayward Tyler has over 40 units installed in Japan but it represents a very small fraction of our world-wide installed base. Over 40 coal fired power stations are planned to be built in Japan during the next decade using ultra-super-critical and other more efficient technologies, which creates huge opportunities for both companies. Furthermore the benefits of working with Ebara has already borne fruit with Hayward Tyler contracted to provide a submersible motor for application in the municipal water market in the USA. Opportunities in this market are significant.

Centre of Excellence

The development of the Centre of Excellence, which includes investment in research and development, training and development, new capital equipment and new infrastructure, is at the heart of the future of Hayward Tyler and ensures that we will be "Fit for Nuclear". The single process flow-lines in the expanded facility are expected to:

· Increase throughput;

· Reduce lead times;

· Reduce working capital requirements; and

· Enable Hayward Tyler Luton to potentially double its capacity.

Whilst the research and development, training and development and investment in new capital equipment will continue, the expansion of the Luton facility is drawing to a close. This expansion has involved building a c.25,000 square foot extension to the existing structure, fitting it out with state-of-the-art facilities, such as particulate control systems and specialist test facilities, and renewing the existing structure. The latter process has included the re-cladding of the walls and replacement of the roof, all to improve the environmental footprint of the business and to "future-proof" our production facilities for decades to come.

The project has been financed from a number of sources including the Regional Growth Fund, a secured loan note programme, National Westminster Bank and funds generated from our operations. I would like to take this opportunity to thank all of those stakeholders for the support they have shown the business to enable us to make this investment and I look forward to celebrating the formal opening of the Centre of Excellence later in the year.

Research & Development

Research and development ("R&D") is a key tenet of our strategy for growth. During FY2016 we increased our expenditure on R&D by 65% to £1.1 million, of which £0.8 million was capitalised (FY2015: £0.4 million). This R&D was focused on a number of areas that included:

· New product development;

· Developing a renewable testing system for subsea motors;

· Enhancing our existing product range;

· Finding new applications for existing products in new markets; and

· Developing new markets.

We are continuing to invest in R&D and ultimately we expect to further diversify our product offering by developing new products for new markets.

Acquisition of Peter Brotherhood

In October we announced the acquisition of the trade and assets of the Peter Brotherhood business from Dresser-Rand Company Ltd, a Siemens-owned business, which represented a non-core disposal for Dresser-Rand. Following an adjustment for a working capital benchmark, the total purchase consideration was £10.1 million which was paid in cash wholly funded through new facilities from National Westminster Bank. These facilities were subsequently prepaid in full out of the proceeds of an equity issue and the sale and leaseback of the Peterborough freehold property. The acquisition is of strategic significance as it brings important diversification to the Group's operations in our chosen markets, widens the customer base and offers the opportunity to cross-sell products and services.

Peter Brotherhood is a UK engineering business based in Peterborough with 145 employees that can trace its history back to 1867. More recently it has focused on energy efficient solutions for land and marine based applications including steam turbines, reciprocating gas compressors and combined heat and power units for the power generation, oil and gas, marine and process markets. Peter Brotherhood is the UK's only producer of steam turbines with an output up to 40MW which has applications in waste heat recovery, floating vessels (including FPSO, FSRU and FLNG) and the Royal Navy Astute class submarine new build programme. Steam turbines tend to have higher operational availability and lower operating costs, when compared to gas turbines. Peter Brotherhood has nearly 1,500 units that continue to operate across 100 countries globally, having supplied steam turbines to many of the world's leading operators including Woodside, SBM, Saipem, Aker, Fred Olsen, Samsung and Maersk. 

Over the past near 150 years Peter Brotherhood has built a leading reputation in its end markets for reliability and on-time delivery at a competitive price. We believe there is a significant opportunity to re-invigorate the Peter Brotherhood brand to win new business and drive revenues from its existing installed base. Furthermore we are confident that, operating within HTG, Peter Brotherhood will benefit from improved manufacturing processes, broader geographical coverage and access to overseas service facilities as well as accelerated investment in new product development and design. The business is bedding-inwell and we are encouraged by the progress made to date.

Further details of the acquisition are set out in the Financial Review and in note 16 of the financial statements. 

"With Peter Brotherhood and Hayward Tyler together we have 350 years of combined engineering pedigree - the start of an exciting new chapter"

Other Developments

Beyond the numbers we have continued to make progress across the business. In June 2015 we took all 213 of Hayward Tyler Luton's employees through the planned operation of the Centre of Excellence from order intake, through design and build along the single-process flow lines, to assembly, test and despatch. The very positive level of employee engagement reinforced our conviction that development of this 21st century design and manufacturing facility will herald an exciting new chapter in Hayward Tyler's history. This occasion was one of a number of events held across the Group with customers, suppliers, employees and other stakeholders to record the 200th year of Hayward Tyler.

In November Hayward Tyler's achievements were recognised again at The Manufacturer MX Awards for 2015. The business was awarded Exporter of the Year and joint runner-up Manufacturer of the Year, highly commended in the People & Skills category and shortlisted for its Leadership & Strategy. These highly coveted awards are a recognition by our peer group that Hayward Tyler has made significant strides forward in a number of fields and demonstrates that our strategy of focusing on our people, processes and products is paying-off. In addition, from past experience we know that the awards are a great advert for the business, particularly for the recruitment of graduates and apprentices, so thank you to all of the team who contributed to this success.

Throughout the year, as part of our marketing initiatives, we show-cased Hayward Tyler at a number of trade fairs including the Offshore Technology Conference in Houston, which helped to cement our position as a key supplier to the subsea sector, and Power-Gen India, which represents a key strategic market for Hayward Tyler. More recently we have been able to include Peter Brotherhood in these initiatives to help re-establish that business. Post year-end, the Group was also honoured to receive the Queen's Award for Enterprise in International Trade, which was announced on 21 April 2016.

Order Intake

Order intake2 increased by 47% to £61.4 million, helped in-part by the Peter Brotherhood acquisition completed in October 2015, which contributed £7.4 million. Underlying growth in order intake from the Hayward Tyler branded business units was 29% (to £54.0m), which represented an order intake to historical revenue in line with our KPI target of 1.1x.

As at 31 March 2016, the Group's order book3 stood at £36.1 million compared with £21.6 million as of 31 March 2015, which represented an increase of 67%. The increase reflects both the contribution from the recently acquired Peter Brotherhood (order book of £9.4 million) and organic growth of 24% from the Hayward Tyler branded business units (order book of £26.7 million). 

A key feature of contracts won in the year was the recovery of order intake from the oil and gas sector, which formed 21% of order intake (FY2015: 2%). This performance was on the back of Hayward Tyler subsea orders and a turbo gen-set project for Peter Brotherhood, its first contract win as a standalone company. The nuclear orders remained strong at 25% (FY2015: 32%) with Hayward Tyler Colchester securing two large orders, representing a combined value of USD12.0 million, from KHNP of South Korea and an US domestic order from Bechtel for delivery in FY2017 and FY2018. Power remained the largest sector representing 45% of order intake (FY2015: 54%) with the 'Other' sector at 9% (FY2015: 12%). In geographical terms, the USA was the largest segment at 35% (FY2015: 30%) reflecting a strong year for Hayward Tyler Colchester and, in addition, subsea orders from FMC Technologies for Hayward Tyler Luton. Asia Pacific (excluding China) was again strong at 29% (FY2015: 21%) reflecting orders from South Korea. These markets were followed in order of importance by Europe (excluding UK), the UK and China.

Outlook

Over the past five years we have transformed Hayward Tyler into a forward-thinking, profitable market-leader in its specific niche markets. We are now starting to re-establish the Peter Brotherhood business such that it is able to benefit from its significant installed base and to grow into new product and market areas. The acquisition increases the critical mass and robustness of the Group and, taken together with other areas of investment including research and development, the Centre of Excellence and training and development of our people, means that we are ready for our next stage of growth.

Provided recent economic and political uncertainty does not affect general industrial activity, the outlook for HTG is positive. In the current year and as anticipated at the time of the acquisition of Peter Brotherhood, we expect to see the financial performance of the Group to be heavily weighted towards the second half, influenced by the need of Peter Brotherhood to develop a sales pipeline from a standing start. Bidding activity levels continue to increase both driven by the recruitment of a new sales team at Peter Brotherhood but also the developing benefit of leveraging existing Hayward Tyler relationships.

We live in exciting times and our ability to continue to develop and grow the Group is built upon the abilities of our people and the team we have. As ever I would like to thank each and every one of our employees for their unrelenting enthusiasm and drive to ensure that we continue to improve, to deliver and to take advantage of whatever opportunities arise in our chosen markets.

With thanks and best wishes to our wider stakeholders,

Ewan Lloyd-Baker

Chief Executive Officer

4 July 2016

Financial Review

"The Group has moved-up a gear with the strategic investment in Peter Brotherhood and the Centre of Excellence"

Introduction

I am delighted to report increased profit, strong cash generation and firm financial foundations at a time of significant investment in the future of the business.

Basis of Reporting

The Group financial statements in this report have been prepared in accordance with International Financial Reporting Standards ("IFRSs").

Trading Operating Results

Revenue

Overall Group revenue was substantially higher at £61.6 million (FY2015: £48.6 million) with the increase almost entirely due to the acquisition of Peter Brotherhood, which contributed £12.5 million to revenue. Of that sum, £9.4 million was derived from the order book that we acquired and £3.1 million was from order intake during the five months of our ownership of the business.

Our broad geographical coverage and diversity of markets provides us with a significant degree of resilience to adverse market fluctuations in a single market. That being said we experienced some headwinds in FY2016 with revenue for the Hayward Tyler branded businesses rising by just 1% to £49.1 million (FY2015: £48.6 million). That increase reflects a slower recovery in revenue by our Hayward Tyler US business than we had expected, however, I am glad to report that the strong order intake by that business late in the year will provide a good foundation for revenues in FY2017 and FY2018.

In terms of the total Group, Power was the largest sector at 51% of revenue (FY2015: 59%) whilst Nuclear remained more or less level at 21% (FY2015: 20%). Oil and gas was stronger at 11% (FY2015: 8%) reflecting turnover from Peter Brotherhood and Hayward Tyler's subsea and submersible units. Revenue from other markets that include chemical, defence, industrial and renewables formed a higher proportion of the total at 17% (FY2015: 13%). That revenue reflects sales of turbo generator sets by Peter Brotherhood to Rolls Royce for the Astute-class submarines for the Royal Navy, which has also been a source of revenue for Hayward Tyler over recent years. The largest geographical market was Asia Pacific (excluding China) at 25% of revenue (FY2015: 32%), of which South Korea was the single largest market. China was 13% (FY2015: 5%) reflecting sales of BCP new units and aftermarket services. The USA accounted for 22% of revenue (FY2015: 24%) followed by the UK at 19% of revenue (FY2015: 12%), driven by the sales to Rolls Royce. Europe excluding the UK was 10% (FY2015: 8%).

Profit and Profit Margin

We continue to operate two service lines within Hayward Tyler and now Peter Brotherhood as well. These lines are original equipment manufacturing ("OE") and aftermarket services ("AM"), which deliver products and services worldwide and across a number of energy and process markets. Whilst the overall gross profit margin was 33% (FY2015: 35%), I am encouraged to report that the margin from the Hayward Tyler branded business was noticeably ahead of our KPI target of 35% at 37% reflecting both an increase in the margin on Hayward Tyler's original equipment manufacturing ("OE") business to 22% (FY2015: 18%) and a slightly higher proportion of aftermarket services ("AM") revenue in the year of 63% (FY2015: 60%). The increase in the OE margin continues the upward trend of the last few years and is testament to the process of continuous improvement (particularly in operations) implemented throughout the Group.

Generally, looking to the future we expect the gross profit margin from Peter Brotherhood to be lower than Hayward Tyler, reflecting in part that its OE business has a significant proportion of bought-in parts such as generators. This proved to be the case with a margin of 20% (OE 14%, AM 37%), which also reflected OE making-up 74% of Peter Brotherhood's revenue in the period. Despite this difference in expectations we are working hard to improve the overall gross margin and therefore will retain our stated gross margin KPI at or in excess of 35% and likewise for the trading operating profit margin KPI of 10-15% as highlighted below.

Trading operating charges in the year were £14.7 million, of which Peter Brotherhood represented £1.4 million and the Hayward Tyler operations and non-operational costs represented £13.3 million (FY2015: £11.7 million). The increased charges in Hayward Tyler in FY2016 mainly reflect higher headcount, Centre of Excellence costs (see Centre of Excellence below) and depreciation. Taken together that delivered an overall trading operating profit around 8% higher at £5.8 million (FY2015: £5.3 million) and a trading operating profit margin of 9.4% (FY2015: 11.0%). Trading1 profit before tax was £5.1 million (FY2015: £4.4 million) with trading EBITDA (earnings before interest, tax, depreciation and amortisation) for the year up 13% at £7.2 million (FY2015: £6.4 million).

The Group is exposed to the US Dollar through its operating business in the USA and from UK exports to China. On a constant exchange rate2 basis revenue and operating profit in FY2015 would have been higher by £1.9 million and £0.7 million respectively.

Non-Trading Operating Results

Non-trading operating charges were £1.8 million (FY2015: £nil), which represent the costs of the acquisition of Peter Brotherhood (£1.3 million), the cost of the sale and leaseback of the Peterborough property (£0.1 million) and amortisation of the Peter Brotherhood order book (£0.4 million) (see Peter Brotherhood Acquisition below below).

Finance Charges

Trading finance costs in the year were £0.6 million (FY2015: £0.7 million). In addition, the fair value of derivatives was a charge of £40,000 (FY2015: £0.3 million), driven by the mark-to-market of foreign exchange hedging instruments that were outstanding at 31 March 2016, which have an average exchange rate of GBP1:USD1.5014 compared to a year-end rate of GBP1:USD1.4373. Non-trading finance costs were £0.4 million (FY2015: £nil), which relate to the one-off cost of expensing bank arrangement fees on loans associated with the acquisition of Peter Brotherhood that were prepaid.

Tax

There was a trading tax charge for the year of £0.6 million (FY2015: £1.2 million), which mainly represents tax payable on profits in the USA and China of £0.7 million (FY2015: £0.7 million). The effective tax charge is 12% (FY2015: 28%) as a result of exceptional high capital allowances, mainly from the investment in the Centre of Excellence, and prior year adjustments. Without these two benefits the tax charge would have been £0.7 million higher, which would have given an overall effective tax rate of 24%, closer to more normalised levels. There was a non-trading tax charge of £41,000 (FY2015: £nil) representing a reduction in the deferred tax asset following the change in UK corporation tax rate from 20% to 18% (£253,000) offset by a tax credit on non-trading operating and finance charges (£212,000).

Net Profit

The trading profit for the year was £4.6 million (FY2015: £3.1 million), which delivered a trading basic earnings per share of 9.47 pence per share (FY2015: 6.98 pence) and trading diluted earnings per share of 9.47 pence (FY2015: 6.98 pence). Excluding the exceptional tax benefits set out above, the trading diluted earnings per share would have been 8.09 pence per share. Net of the non-trading items, total profit was £2.4 million (FY2015: £3.1 million), which delivered a diluted earnings per share of 4.89 pence per share.

Dividends

The Group paid its interim dividend of 0.552 pence per share in February 2016 at a total cost of £0.3 million. Subject to shareholder approval, we will pay a final dividend of 0.83 pence per share, which is an increase of 5% on FY2015.

Centre of Excellence

The development of the Centre of Excellence includes investment in new infrastructure and new equipment as well as research, development and training. During the year the Group incurred capital expenditure on the Centre of Excellence of £9.8 million (FY2015: £2.5 million) together with capitalised development costs of £0.5 million (FY2015: £0.2 million). The capital expenditure mainly relates to:

· The building extension and refurbishment of £7.0 million (FY2015: £1.9 million); and

· Plant and machinery of £2.7 million (FY2015: £0.6 million).

In addition, the net expense on the project was £0.9 million (FY2015: £0.5 million) representing costs of £1.2 million (FY2015: £0.8 million), which mainly related to research, development and training, offset by grant income of £0.3 million (FY2015: £0.3 million).

This expenditure was partly funded by a £3.5 million grant from the Regional Growth Fund (RGF) programme. As at 31 March 2016 the business had received grant income as cash of £3.3 million (FY2015: £1.4 million) with the consolidated statement of financial position including the remaining grant receivable of £0.2 million (FY2015: £2.1 million) in other non-current assets and the deferred income in respect of the programme in other creditors of £2.8 million (FY2015: £3.2 million), analysed between current and non-current.

Further details of the accounting treatment of the RGF programme are given in note 2.24 to these financial statements.

Peter Brotherhood Acquisition

As reported elsewhere in this report, the Group acquired the trade and assets of Peter Brotherhood for a total consideration of £10.1 million (USD15.445 million) following an adjustment for working capital. Under IFRS 3 (Business Combinations) a buyer is required to consider the fair value of the assets and liabilities that it has purchased. Such assets and liabilities include both those identified by the seller and those not identified. The fair value exercise can be undertaken in the first 12 months of ownership and the provisional fair value of the net assets acquired has been determined to be £9.8 million, which gives rise to goodwill on acquisition of £0.4 million. The provisional fair value includes valuing the order book of Peter Brotherhood at 30 October 2015, which was determined to be £0.5 million.

The purchase consideration was paid in cash from new term borrowing facilities from National Westminster Bank of £11.0 million. These facilities were prepaid in full out of the proceeds of an equity placing in December 2015 and a sale and leaseback of the business' Peterborough freehold site at the end of March 2016. The site was sold for just under £7.5 million with Peter Brotherhood Limited as the tenant and the Company as the guarantor. The lease is for 15 years at a market rent of £0.6 million per annum and subject to market reviews after five and ten years.

Details of the acquisition are given in note 16 to the financial statements.

"The strong relationship we have established with our banking partners and UKEF provide us with the confidence to take HTG forward"

Cash Generation and Working Capital

Net cash generated from operating activities increased by 30% to £5.1 million. This strong performance together with our flexible funding arrangements allowed us to accelerate expenditure on the Centre of Excellence to maximise our utilisation of the RGF grant, while it remained available to draw, and to invest in a dedicated test facility that will give rise to an additional separable revenue stream.

Net working capital reduced from £9.2 million at 31 March 2015 to £7.2 million at 31 March 2016 driven by Peter Brotherhood, including negative net working capital of £1.6 million that was purchased with the business. In spite of high trade receivables at year-end, undrawn borrowing facilities were strong at £5.1 million (FY2015: £5.9 million). Details of cash, borrowings and related interest rates are given in notes 23 and 29 to the financial statements.

Funding

In December 2015 we raised £8.4 million equity before expenses from a placing of ordinary shares with current and new large shareholders. The proceeds were used to prepay a £5.0 million bridging facility from National Westminster Bank and the remainder is being used to fund capital expenditure in Luton and Peterborough. The placing was significantly oversubscribed reflecting strong support for the Group and its strategy.

During the year we arranged a number of borrowing and ancillary facilities to support the Group's on-going business and to finance the acquisition of Peter Brotherhood. The acquisition borrowings have been prepaid in full. The additional facilities to support the on-going business include:

· A £3.0 million increase to the UK committed revolving credit facility;

· A £1.5 million increase to the equipment finance line to help fund the purchase of new plant and machinery;

· A £4.5 million increase in the bonds and guarantees facility to support commercial contracts;

· The remaining balance of the loan note programme representing £1.365 million to help fund the extension of the Luton facility; and

· An increase of USD3.0 million to the US borrowing and ancillary facilities covering working capital, equipment finance and bonds and guarantees.

The strong relationship that we have established with our banking partners and the support that we have been able to access from UK Export Finance, taken together with the existing and additional banking and borrowing facilities, provide us with the confidence to take HTG forward.

Borrowings

Net debt increased as planned from £7.9 million at 31 March 2015 to £8.6 million at 31 March 2016 mainly driven by investment in the Luton Centre of Excellence. However, with the five months of profit contribution from Peter Brotherhood, the ratio of net debt to trading EBITDA remained at the same level as last at, which is well within the Group's target KPI of less than 2.0:1.

At 31 March 2016 net debt comprised:

· Term borrowings of £5.9 million (FY2015: £6.0 million);

· Finance leases of £1.6 million (FY2015: £0.7 million); and

· Drawings under revolving credit facilities of £6.2 million (FY2015: £2.9 million) offset by cash £5.1 million (FY2015: £1.7 million).

Pensions

Within the UK, the Group operates a defined benefit plan, with benefits linked to final salary, and a defined contribution plan ("DCP"). With effect from 1 June 2003 the defined benefit plan was closed to future service accruals and new UK employees offered membership of the DCP.

A full actuarial valuation of the defined benefit plan is produced every three years (the last one being as at 1 January 2014) and a valuation is prepared at each financial year end for the purposes of the report and accounts by independent qualified actuaries. The net obligation has been eliminated in the year and now shows a net surplus of £0.2 million at 31 March 2016 (FY2015: net obligation of £0.2 million) mainly due to improved actuarial assumptions.

Details of pensions and employee obligations are given in note 28 to the financial statements.

Statement of Financial Position

Total equity increased by £10.4 million to £25.8 million mainly as a result of the net proceeds of the equity placing of £8.0 million, profit for the year of £2.4 million, movement on reserves of £0.6 million and the gain in value of the pension scheme of £0.1 million offset by the payment of dividends in the year of £0.7 million.

Nick Flanagan

Chief Financial Officer

4 July 2016

1 Trading represents the underlying performance of the Group

2 Constant exchange rate is calculated by rebasing prior year figures at current year

Statements of Financial Position

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Company Statement of Changes in Equity

Cash Flow Statement

Notes to the Financial Statements

1. General information

Hayward Tyler Group PLC is incorporated and resident in the Isle of Man. The Company's registered office is Peregrine Corporate Services Limited, Burleigh Manor, Peel Road, Douglas, Isle of Man, IM1 5EP. The Company's principal place of business is 1 Kimpton Road, Luton, UK, LU1 3LD. Hayward Tyler Group PLC's shares are listed on the Alternative Investment Market (AIM).

Hayward Tyler Group PLC is the ultimate parent company of the Group and its consolidated financial statements are presented in Pounds Sterling (£), which is its functional currency. These consolidated financial statements have been approved for issue by the Board of Directors on 04 July 2016. The Directors have recommended a final dividend of 0.83 pence per share. 

The Group includes both the Hayward Tyler and Peter Brotherhood businesses, which together provide nearly 350 years of engineering experience, heritage and pedigree. The Group is focused on delivering performance-critical solutions for the most demanding requirements to meet current and future global energy needs. Hayward Tyler is a market leader in the design, manufacture and servicing of performance-critical motors and pumps for the harshest of environments. Peter Brotherhood is a market leader in the design, manufacture and servicing of performance-critical steam turbines, turbo gen-sets, compressors and combined heat and power systems. The end markets served by the Group include oil and gas (topside and subsea), power generation (conventional and nuclear), the chemical and industrials sectors, the marine market and the sugar industry.

In addition to the head office in Luton (England), Hayward Tyler has manufacturing and service support facilities in Kunshan (China), Delhi (India), East Kilbride (Scotland) and Colchester (USA) together with a sales office in Shanghai (China). Peter Brotherhood has its manufacturing and servicing facility in Peterborough (England). These facilities and staff provide cover 24 hours 7 days a week for maintenance, overhaul and repair.

2. Summary of significant accounting policies

2.1 Going concern 

The consolidated financial statements have been prepared on a going concern basis. The Directors have taken note of the guidance issued by The Financial Reporting Council on Going Concern Assessments in determining that this is the appropriate basis of preparation of the financial statements and have considered a number of factors.

After making due enquiry, and having considered the Group's budget for the coming year and its projections through to 2019 together with its banking and borrowing arrangements, the Directors confirm that they have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Company continues to adopt the going concern basis of accounting in preparing the financial statements for the year ended 31 March 2016.

2.2 Basis of preparation

The company and consolidated financial statements for the year ended 31 March 2016 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the requirements of the Isle of Man Companies Act 1931-2006. The financial statements have been prepared under the historical cost basis for the purposes of inclusion in this document with the exception of some financial instruments which are carried at fair value (see note 31) and freehold properties which are held at revalued amounts (see note 19). The accounting policies set out below have been consistently applied to all the periods presented. In accordance with the exemption by the Isle of Man Companies Act 2006 no separate Income Statement or Statement of Comprehensive Income is presented for the Company.

The financial information set out in this report does not constitute the Company's statutory accounts for the years ended 31 March 2016 or 2015 but is derived from the 2016 accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered in due course. The auditor has reported on those accounts; its report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.

2.3 Basis of consolidation

The Group financial statements consolidate those of the Company and all of its subsidiaries as of 31 March 2016. Subsidiaries are all entities over which the company is exposed to, or has rights to, variable returns from its involvement, and has the ability to affect those returns through its power over the subsidiary in accordance with IFRS10 - Consolidated Financial Statements.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal as applicable.

2.4 Business combinations

For business combinations occurring since 1 January 2010, the requirements of IFRS 3R have been applied. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of (a) fair value of consideration transferred, (b) the recognised amount of any non-controlling interest in the acquiree and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

2.5 Trading and non-trading

The consolidated income statement reports the results for the year under the headings Trading and Non-trading. Trading represents the underlying performance of Hayward Tyler and Peter Brotherhood together with head office costs. Non-trading represents non-recurring items. There were non-trading operating charges in the year of £1.8 million. These charges relate to cost of the acquisition of the Peter Brotherhood business of £1.3 million, the sale and leaseback of the Peterborough site of £0.1 million and amortisation of the Peter Brotherhood order book of £0.4 million. Non-trading finance costs of £0.4 million relate to the one-off cost of expensing bank arrangement fees on loans associated with the acquisition of Peter Brotherhood that were prepaid. Non-trading tax charges of £41,000 relate to a reduction in the deferred tax asset of £253,000 following the change in the enacted UK corporation tax rate from 20% to 18% offset by a tax credit on non-trading operating and finance charges of £212,000.

2.6 Segmental reporting

In identifying its operating segments, management follows the Group's service lines, which represent the main products and services provided by the Group. The activities undertaken by the original equipment manufacturing segment ("OE") includes the design and manufacture of motors, pumps and steam generators. The aftermarket segment ("AM") provides a comprehensive range of aftermarket services and spares supporting the Group's own product range as well as those of other original equipment manufacturers. Each of these operating segments is managed separately as they require different resources and have a different customer base, including sales and marketing approach. All inter-segment transfers are carried out at arm's length prices.

The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements, except that:

§ Centre of Excellence expenses net of grant income

§ expenses relating to share-based payments; and

§ unallocated central costs 

are not included in arriving at the operating profit of the operating segments. In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment. There have been no change from prior periods in the measurement methods used to determine reported segment profit or loss.

2.7 Foreign currency translation

The consolidated financial statements are presented in Pounds Sterling, which is the Company's functional currency.

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). In the Group's financial statements, all assets, liabilities and transactions of the Group entities, with a functional currency other than the Pound Sterling (the Group's presentation currency) are translated into Pounds Sterling upon consolidation. The functional currencies of the entities in the Group have remained unchanged during the reporting period.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency of the respective Group entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not re-translated). Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.

(c) Foreign subsidiaries

The assets and liabilities in the financial statements of foreign subsidiaries and related goodwill are translated at the rate of exchange ruling at the reporting date. Income and expenses are translated at the average rate. The exchange differences arising from the re-translation of the opening net investment in subsidiaries are recognised in other comprehensive income and accumulated in the "Foreign Currency Translation Reserve" in equity. On disposal of a foreign operation the cumulative translation differences are reclassified from equity to profit or loss when the gain or loss on disposal is recognised.

2.8 Property, plant and equipment

Land held for use in production or administration is stated at historical cost. As land is considered to have an unlimited useful life, related carrying amounts are not depreciated. Buildings for use in production or administration are initially recognised at acquisition cost and subsequently measured using the cost model, cost less accumulated depreciation and impairment losses.

Property and equipment held under finance leases are capitalised and included in property, plant and equipment. Such assets are depreciated on a straight line basis over their expected useful lives (determined by reference to comparable owned assets) or over the term of the lease, if shorter. Buildings are stated at cost or revaluation less depreciation and impairment losses. Equipment, furniture and fittings are stated at cost less depreciation and impairment losses. Depreciation is provided at rates calculated to write off the cost or revaluation of fixed assets, less their estimated residual value, over their expected useful lives. The following useful lives are applied:

Buildings - 25 years

Plant and machinery - 5-10 years

Fixtures and fittings - 3-5 years

Short leasehold improvements - over period of lease

Material residual value estimates and estimates of the useful life are updated as required, but at least annually, whether or not the asset is revalued.

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within "other income" or "other expenses".

2.9 Leased assets

The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance leasing liability. Leases of land and buildings are classified separately and are split into a land and a building element, in accordance with the relative fair values of the leasehold interests at the date the asset is recognised initially.

Depreciation methods and useful lives for assets held under finance lease agreements correspond to those applied to comparable assets which are legally owned by the Group. The corresponding finance leasing liability is reduced by lease payments, less finance charges, which are expensed as part of finance costs.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease.

All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

2.10 Goodwill

Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment losses. Goodwill is considered to have an indefinite useful life. Refer to Note 2.12 for a description of impairment testing procedures.

2.11 Other intangible assets

Other intangible assets include capitalised development costs of the Hayward Tyler businesses incurred in the development of new pump and motor technology and product and process development. They are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful life. Management assess the useful life of group intangible assets to be in the range of five to ten years.

Costs that are directly attributable to the development phase of technology are recognised as an intangible asset, provided they meet the following recognition requirements:

§ completion of the intangible asset to the development phase is technically feasible, so that it will be available for use or sale;

§ the Group intends to complete the intangible asset and use or sell it;

§ the Group has the ability to use or sell the intangible asset;

§ the intangible asset will generate probable future economic benefits. Among other things, this requires that there be a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

§ there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

§ the expenditure attributable to the intangible asset during its development can be measured reliably.

Development costs not meeting these criteria for capitalisation are expensed as incurred.

Directly attributable costs include employee costs incurred on the development along with an appropriate portion of relevant overheads. Development costs recognised as an intangible asset are subject to the same subsequent measurement method. However, until completion of the development project, the assets are subject to impairment testing only as described below in the note on impairments.

In addition, other intangible assets include the fair value of intangible assets acquired in a business combination at their acquisition date less any amortisation of such assets. In the case of Peter Brotherhood, these assets include the value of the order book at the acquisition date less the value of the orders that had traded during the period from the acquisition date to 31 March 2016.

2.12 Impairment testing of goodwill, other intangible assets and property, plant and equipment

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of a related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Group's management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's (or cash-generating unit's) carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect current market assessments of the time value of money and asset-specific risk factors.

Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount.

2.13 Investments

Investments in subsidiaries are recorded at fair value of consideration paid less impairment.

2.14 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises the direct purchase price, including all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less applicable variable selling expenses.

2.15 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments maturing within 90 days from the date of acquisition that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

2.16 Equity, reserves and dividend payments

Share capital represents the nominal value of shares that have been issued.

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

The foreign currency translation reserve represents differences arising on the re-translation of net investments in overseas subsidiary undertakings, based on the rate of exchange ruling at the balance sheet date.

The merger reserve of £14.5 million includes £9.9 million arising as a result of the acquisition of Southbank in January 2010. The merger reserve represents the difference between the nominal value of the share capital issued by Hayward Tyler Group PLC and its fair value at 20 January 2010, the date of the acquisition.

Treasury stock reserve represents the cost of stock issued and subsequently reacquired.

The reverse acquisition reserve arises as a result of the method of accounting for the acquisition of Southbank by Hayward Tyler Group PLC. In accordance with IFRS 3 Business Combinations (Revised 2008) the acquisition has been accounted for as a reverse acquisition.

Share based payment reserve comprises the fair value of options and restricted shares recognised as an expense less the nominal value of restricted shares which is presented in share capital. Upon exercise of options or performance share rights, any proceeds received are credited to share capital.

Retained earnings include all current and prior period retained profits.

Dividend distributions payable to equity shareholders are included in "other liabilities" when the dividends have been approved in a general meeting prior to the reporting date.

Treasury Stock

On 28 January 2014 the Company purchased 419,204 of its own shares at 65 pence per share. During the year the Company sold the shares held at 82.5 pence per share. The costs of purchasing own shares held by the Company are shown as a deduction against equity. The gain on the sale of the shares is recorded in share premium.

2.17 Taxation

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method.

Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Group's forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit.

Deferred tax liabilities are generally recognised in full, although IAS 12 'Income Taxes' specifies limited exemptions. As a result of these exemptions the Group does not recognise deferred tax on temporary differences relating to goodwill, or to its investments in subsidiaries.

2.18 Post-employment benefits, short-term employee benefits and share-based employee remuneration

Post employee benefits

The Group provides post-employment benefits through defined benefit plans as well as various defined contribution plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The contributions are recognised as an employee benefit expense when they are due.

Plans that do not meet the definition of a defined contribution plan are defined benefit plans. Under the Group's defined benefit plans, the amount of pension benefit that an employee will receive on retirement is defined by reference to the employee's length of service and final salary. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plan have been set aside. Plan assets may include assets specifically designated to a long-term benefit fund as well as qualifying insurance policies.

The liability recognised in the statement of financial position for defined benefit plans is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value of plan assets. The net obligation has been eliminated in the year and now shows a net surplus of £0.2 million.

Management estimates the DBO annually with the assistance of independent actuaries. This is based on standard rates of inflation, salary growth rate and mortality. Discount factors are determined close to each year-end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.

Service cost on the Group's defined benefit plan is included in employee benefits expense. Employee contributions, all of which are independent of the number of years of service, are treated as a reduction of service cost. Net interest expense on the net defined benefit liability is included in finance costs. Gains and losses resulting from remeasurements of the net defined benefit liability are included in other comprehensive income.

Short-term benefits

Short-term employee benefits, including holiday entitlement, are current liabilities included in pension and other employee obligations, measured at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.

Share-based employee remuneration

The Group operates equity-settled share-based remuneration plans for its key management personnel. None of the Group's plans are cash-settled.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values.

Where employees are rewarded using share-based payments, the fair value of employees' services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions.

All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to share-based payment reserve. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest.

Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current period.

The number of vested options ultimately exercised by holders does not impact the expense recorded in any period.

Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium.

2.19 Provisions, contingent liabilities and contingent assets

Provisions are recognised when present obligations as a result of a past event will probably lead to an outflow of economic resources from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, product warranties granted to a customer, legal disputes or onerous contracts. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material.

Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.

No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.

2.20 Revenue recognition

Revenue comprises revenue from the sale of goods and the rendering of services.

Revenue is measured at the fair value of consideration received or receivable and represents amounts obtained through trading activities, net of value added tax and trade discounts. The Group applies the revenue recognition criteria set out below to each separately identifiable component of the sales or service transaction in order to reflect the substance of the transaction. The consideration received from these transactions is allocated to the separately identifiable component by taking into account the relative fair value of each component.

Revenue is recognised when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, the costs incurred or to be incurred can be measured reliably, and when the criteria for each of the Group's different activities has been met. These activity-specific recognition criteria are based on the goods or solutions provided to the customer and the contract conditions in each case, and are described below.

(a) Original equipment manufacture

The Group provides pumps, motors, turbo gen-sets, compressors and steam turbines specifically customised to each customer. The contracts for the sale of these goods specify a fixed price for their development and installation.

When the outcome can be assessed reliably, contract revenue and associated costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. Revenue is measured at the fair value of consideration received or receivable in relation to that activity.

When the Group cannot measure the outcome of a contract reliably, revenue is recognised only to the extent of the contract costs incurred and to the extent that such costs are recoverable. Contract costs are recognised in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the total expected loss is recognised immediately in profit or loss.

The stage of completion of any contract is assessed by management by taking into consideration all information available at the reporting date. The percentage of completion is calculated by comparing costs incurred to date with the total estimated costs of the contract. The gross amount due from customers for contract work is presented as an asset within "trade and other receivables" for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. The gross amount due to customers for contract work is presented as a liability within "trade and other payables" for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less losses).

(b) Aftermarket

Revenue comprises the sale of spare parts and other aftermarket services, which is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and services supplied. Significant risks and rewards are generally considered to be transferred to the buyer when the customer has taken undisputed delivery of the goods and services.

(c) Interest income

Interest income is recorded on an accrual basis using the effective interest method.

2.21 Operating expenses

Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised.

2.22 Borrowing costs

Borrowing costs primarily comprise interest on the Group's borrowings. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, are capitalised as part of the cost of that asset when it is probable that they will result in future economic benefits and the costs can be measured reliably. All other borrowing costs are expensed in the period in which they are incurred and reported within "finance costs".

2.23 Financial instruments

Financial assets and liabilities are recognised on the Group's Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or when the financial asset and all substantial risks and rewards are transferred.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Financial assets and financial liabilities are measured initially at fair value plus transactions costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.

Financial assets and financial liabilities are measured subsequently as described below.

Financial assets

For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition - loans and receivables.

The category determines subsequent measurement and whether any resulting income and expense is recognised in profit or loss or in other comprehensive income.

All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within "finance costs" or "finance income", except for impairment of trade receivables, which is presented within "other expenses".

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents and trade and most other receivables fall into this category of financial instruments.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other available features of shared credit risk characteristics. The impairment loss is then based on recent historical counterparty default rates for each identified group.

Financial liabilities

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments.

Financial liabilities other than derivatives are measured subsequently at amortised cost using the effective interest method, except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognised in profit or loss.

All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within "finance costs" or "finance income".

Derivative financial instruments

Derivatives are financial assets or financial liabilities classified as held for trading and recorded at fair value through profit and loss.

Due to certain customer contracts being settled in foreign currencies, the Group enters into forward exchange contracts and swaps in order to reduce the exposure to foreign currency risk.

2.24 Government Grants 

A government grant is recognised only when there is reasonable assurance that (a) the Group will comply with any conditions attached to the grant and (b) the grant will be received.

A grant is recognised as income in the income statement over the period necessary to match it with the expense, to which it relates, on a systematic basis. For reporting purposes the grant income is deducted from the related expense. A grant relating to assets is presented as deferred income in the consolidated statement of financial position, and released over the life of the asset in line with depreciation.

In the prior period, Hayward Tyler Limited ("HTL"), based in Luton, UK, was awarded a £3.5 million grant from the Regional Growth Fund ("RGF"). In the year ended 31 March 2016 the Group has concluded that there is reasonable assurance that it will be able to comply with the RGF grant conditions. The grant is conditional upon HTL achieving a job target of 231 full time jobs at the Luton business by 2024 and defraying £21.6 million on eligible spending by 2020. This eligible spending relates to the extension to the existing factory, plant and machinery, training, and research and development. Failure to hit either target could result in the repayment of part of the grant. Accordingly, at inception of the grant the Group recognised a receivable for the full grant amount of £3.5 million, presented as an other debtor, and a deferred income liability of £3.5 million, presented as an other creditor. In the year ended 31 March 2016 the group received £1.9 million (2015: £1.4 million), leaving a remaining debtor at the year end of £0.2 million. Also in the year ended 31 March 2016, the deferred income liability was reduced to £2.9 million by £0.3 million of grant income (2015: £0.3 million) that is recognised in the consolidated income statement. This grant income is included in operating charges as a deduction from related research, development and training expenses.

3 Changes in accounting policies

New and revised standards that are effective for annual periods beginning on or after 1 January 2015

'Defined Benefit Plans: Employee Contributions' (Amendments to IAS 19) came into mandatory effect for the first time in 2015. The Group adopted these amendments early in 2014. Other amendments to IFRSs that became mandatorily effective in 2015 have no material impact on the Group's financial results or position. Accordingly, the Group have made no changes to its accounting policies in 2015.

Standards, amendments and interpretations to existing standards that are not yet

effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been published by the IASB that are not yet effective, and have not been adopted early by the Group. Information on those expected to be relevant to the Group's financial statements is provided below.

Management anticipates that all relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or listed below are not expected to have a material impact on the Group's financial statements.

IFRS 9 'Financial Instruments' (2014)

The IASB recently released IFRS 9 'Financial Instruments' (2014), representing the completion of its project to replace IAS 39 'Financial Instruments: Recognition and Measurement'.

The new standard introduces extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new 'expected credit loss' model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting.

Management has started to assess the impact of IFRS 9 but is not yet in a position to provide quantified information. At this stage the main areas of expected impact are as follows:

§ the classification and measurement of the Group's financial assets will need to be reviewed based on the new criteria that considers the assets' contractual cash flows and the business model in which they are managed;

§ an expected credit loss-based impairment will need to be recognised on the Group's trade receivables it will no longer be possible to measure equity investments at cost less impairment and all such investments will instead be measured at fair value. Changes in fair value will be presented in profit or loss unless the Group makes an irrevocable designation to present them in other comprehensive income; and if the Group continues to elect the fair value option for certain financial liabilities fair value movements will be presented in other comprehensive income to the extent those changes relate to the Group's own credit risk.

The Group has no financial liabilities classified as 'Available for Sale or Held to Maturity'

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018.

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts' and several revenue-related interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options and other common complexities.

IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018.

Management has started to assess the impact of IFRS 15 but is not yet in a position to provide quantified information.

Amendments to IFRS 11 'Joint Arrangements'

These amendments provide guidance on the accounting for acquisitions of interests in joint operations constituting a business. The amendments require all such transactions to be accounted for using the principles on business combinations accounting in IFRS 3 'Business Combinations' and other IFRSs except where those principles conflict with IFRS 11. Acquisitions of interests in joint ventures are not impacted by this new guidance.

Currently the Group has no joint arrangements in place. The amendments are effective for reporting periods beginning on or after 1 January 2016. Accordingly, if adopted today, these amendments would have no impact on the consolidated financial statements.

4 Significant management judgements in applying accounting policies

The following are significant management judgements in applying accounting policies of the Group that have the most effect on the financial statements. 

Internally generated development costs

Management monitors progress of internal research and development projects by using a project management system. Significant judgement is required in distinguishing research from the development phase. Development costs are recognised as an asset when all the criteria are met, whereas research costs are expensed as incurred.

To distinguish any research-type project phase from the development phase, it is the Group's accounting policy to require a detailed forecast of sales or cost savings expected to be generated by the intangible asset. The forecast is incorporated into the Group's overall budget forecast as the capitalisation of development costs commences. This ensures that managerial accounting, impairment testing procedures and accounting for internally-generated intangible assets is based on the same data.

The Group's management also monitors whether the recognition requirements for development costs continue to be met and an assessment made of its recoverability. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems after the time of recognition. Further information on intangible assets is contained in note 17.

Revenue recognition - original equipment manufacture

The stage of completion of a contract is assessed by management taking into consideration all information available at the reporting date. In this process management carries out significant judgements about milestones, actual work performed and the estimated costs to complete the work. Further information on the Group's accounting policy for contracts is contained in note 2.20.

Deferred tax assets

The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group's latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances. All unused tax losses and credits have been recognised in the year as management believes that use of the deferred tax asset created is probable.

Leases

In applying the classification of leases in IAS 17, management considers its leases of equipment as finance lease arrangements. In some cases, the lease transaction is not always conclusive and management uses judgement in determining whether the lease is a finance lease arrangement that transfers substantially all the risks and rewards incidental to ownership. Further information on the Group's leases are contained in note 27.

Property leases are spilt between land and the building to assess whether they are operating or finance leases. Land is almost always an operating lease due to its long life but judgment is required to assess the classification between operating and finance lease for buildings which are assessed individually against the criteria in IAS 17.10. Refer to note 27 in respect of the new lease entered into in the year.

5 Estimation uncertainty

When preparing financial statements management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses.

The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results.

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

Original equipment revenue

The stage of completion of any contract is assessed by management by taking into consideration all information available at the reporting date. In this process management formulates estimates regarding actual work performed and the estimated costs to complete the work.

Deferred tax asset - refer to note 22

The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry-forwards can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

Defined benefit pension liability - refer to note 28

Management estimates the defined benefit pension liability annually with the assistance of independent actuaries; however, the actual outcome may vary due to estimation uncertainties. The estimate of its defined benefit pension gross liability of £13.2 million (FY2015: £14.1 million) is based on standard rates of inflation and mortality. The estimate does not include anticipation of future salary increases as there are no members with benefits related to future salary progression. Discount factors are determined close to each period end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Estimation uncertainties exist particularly with regard to medical cost trends, which may vary significantly in future appraisals of the Group's defined benefit pension obligations. The value of the defined benefit pension asset at 31 March 2016 was £0.2 million (FY2015: £0.2 million liability).

Provisions - refer to note 26

The amount recognised for warranties for which customers are covered for the cost of repairs is estimated based on management's past experience, current knowledge and future expectation that defects may arise. The value of warranty provisions at 31 March 2016 was £0.8 million (FY2015: £0.6 million).

The amount recognised for restoration is a management estimate in relation to the estimated cost to restore the property to the agreed condition set out in the lease rental agreement for Peter Brotherhood's Peterborough property.

Goodwill - refer to note 15

Management carry out impairment tests at each reporting date and indicate present values of future cash flows in respect of both the OE and AM divisions are far in excess of the carrying values of the associated assets including goodwill such that management considers the likelihood of any impairment arising to be remote.

Business combinations - refer to note 16

A number of estimates and valuation techniques were used when determining the provisional fair values of certain assets and liabilities acquired in the acquisition of the trade and assets of Peter Brotherhood. The principal estimates were in relation to customer contracts, PPE, stock and work in progress and debtors.

A valuation methodology was applied to determine the fair value of the customer contracts acquired which involved a number of key estimates, including the future profitability of those contacts and attributable costs. The fair value of the freehold property has been measured by reference to the sale and leaseback transaction, which occurred before the end of the financial period, making adjustments for estimated restoration costs required under the lease. Plant and machinery has been measured by estimating the net present value of future cash flows based on forecasted future usage, and attributing a profit factor to each usage based on historical margins. Inventory has been reduced to net realisable value by estimating future usage and recoverable amount and work in progress by reference to estimated cost to complete less selling price. The fair value of debtors reflects estimated recoverable amounts.

6 Segment information

Management currently identifies the Group's two service lines, OE and AM, as operating segments. The activities undertaken by the OE segment include the manufacture of pumps, motors and steam turbines. The activities of the AM division include the servicing of, and provision of spares for, a wide range of goods.

In light of the new acquisition of Peter Brotherhood Limited, management have reviewed whether the current segmental reporting framework is appropriate. As the chief operating decision maker continues to regularly review results based on the OE and AM segments no change has been made to the segmental reporting. The newly acquired Peter Brotherhood business is divided between OE and AM. The classification of these segments are consistent with the Group segmental treatment and have been included below.

Segment information can be analysed as follows for the reporting periods under review:

6 Segment information (continued)

The Group's revenues from external customers and its non-current assets (other than goodwill and deferred tax assets) are divided into the following geographical areas:

Revenues from external customers in the Group's domicile, United Kingdom, as well as its major markets, have been identified on the basis of the customers' geographical location. Non-current assets are allocated based on their physical location.

No customer represented greater than 10% of Group revenue in the year to 31 March 2016 or in the year to 31 March 2015.

The totals presented for the Group's operating segments reconcile to the entity's key financial figures as presented in its financial statements as follows:

6 Segment information (continued)

Segment total assets can be reconciled to Group assets as follows:

7 Operating profit

Operating profit is stated after charging:

Foreign currency exchange differences relate to realised losses on receipts and payments together with an unrealised loss arising on the re-translation of net current assets.

8 Employee remuneration

Employee benefits expense

The employee benefit expense during the year was as follows:

The average numbers of employees during the year were as follows:

Key management personnel

Key management of the Group are members of the Board of Directors in Hayward Tyler Group PLC.

Remuneration in respect of the Directors including employer's national insurance cost was as follows:

The amounts set out above include remuneration in respect of the highest paid Director as follows:

None of the Directors participate in the Group's defined benefit plan. Details of related party transactions are given in note 32 to the financial statements.

Share-based employee remuneration

As at 31 March 2016, the Group maintained two share-based payment schemes as long-term incentive plans that align management's interest with those of shareholders. The plans are the Total Shareholder Return Long-Term Incentive Plan ("TSR LTIP") and the Peter Brotherhood Limited Long-Term Incentive Plan ("PBL LTIP"). Both programmes will be settled in equity.

In both schemes there are options and restricted shares. Participants awarded restricted shares pay only the nominal value of the shares and the shares are subject to clawback if performance conditions are not met. The dates and performance conditions are identical on restricted shares and options, however on vesting, only restricted shares are entitled to receive any accrued dividends on the underlying shares during the vesting period. Those granted restricted shares are required to pay the nominal value of the shares at the commencement of the lease period creating share capital at the grant date. Subsequently, the accounting treatment for the restricted shares is the same as the share options.

In total, £106,000 (2015: £nil) of employee remuneration expense (all of which related to equity-settled share-based payment transactions) net of related deferred tax has been included in the income statement and credited to share-based payment reserve.

TSR LTIP

The TSRLTIP is part of the remuneration package of the Executive Directors and certain senior managers ("Executives"). Options and restricted shares under this programme will vest only if the total shareholder return achieved by the Company over the three year vesting period is greater or equal to the TSR of the median company in a defined comparator group of companies over that period. The percentage of the award that vests operates on a sliding scale with 0% below the median, 20% at the median and 100% in the upper quartile. In addition, participants in this programme have to be employed until the end of the agreed vesting period. Upon vesting, each option allows the holder to purchase one ordinary share at a nominal value of £0.01 up to 10 years from the grant date. Total expense included in the income statement relating to the TSR LTIP is £53,000 (2015: £nil).

The TSR LTIP options and restricted shares together with their related exercise prices were as follows for the reporting period:

Fair values have been determined by a Monte Carlo model. The following principal assumptions were used in the valuation:

1 Dividend yield for restricted shares is 0.00%

The underlying expected volatility was determined by reference to historical share price of the Company over the same period as the expected life of the awards that were granted.

Weighted average fair value of options granted during the period is 28 pence, and weighted average fair value of restricted shares granted is 30 pence.

PBL LTIP

The PBL LTIP is part of the remuneration package of the Group's Executives. Options and restricted shares under this programme will vest only if Peter Brotherhood Limited (a subsidiary of Hayward Tyler Group PLC) delivers an operating profit (before intercompany charges) of £1.6 million or higher, and/or revenues of £27.5 million or higher, in its audited results for the year ended 31 March 2017. Upon vesting, each option allows the holder to purchase one ordinary share at a nominal value of £0.01 up to 10 years from the grant date. Total expense included in the income statement relating to the PBL LTIP is £53,000 (2015: £nil).

The PBL LTIP options and restricted shares together with their exercise prices were as follows for the reporting period:

Fair values have been determined using a Black Scholes option pricing model. The following principal assumptions were used in the valuation:

2 Dividend yield for restricted shares is 0.00%

3 Options vest as at the later of 1 June 2017 or the date that the audited accounts are published

Options vest as at the later of 1 June 2017 or the date that the audited accounts of Peter Brotherhood Limited are published for the year ended 31 March 2017. The underlying expected volatility was determined by reference to historical share price of the Company over the same period as the expected life of the awards that were granted.

Weighted average fair value of options granted during the period is 88 pence, and weighted average fair value of restricted shares granted is 90 pence.

9 Trading EBITDA

Trading earnings before interest, tax, depreciation and amortisation are as follows:

10 Finance costs

11 Income tax expense

(a) Analysis of total tax charge

(b) Reconciliation of profit before tax total to tax charge

The relationship between the expected tax expense based on the domestic effective tax rate of Hayward Tyler Group PLC at 20% (FY2015: 21%) and the reported tax expense in the income statement is set out below, which also shows the major components of tax expense:

Note 22 provides information on the entity's deferred tax assets and liabilities, including the amounts recognised directly in the income statement.

12 Income tax asset/(liability)

13 Earnings per share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post-tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.

Dividends

An interim dividend of 0.552 pence per ordinary share was declared during the year representing a total of £305,723 (FY2015: £238,913).

14 Dividends

A final dividend of 0.83 pence per share payable on 25 August 2016 is proposed subject to shareholder approval.

15 Goodwill

The net carrying amount of goodwill can be analysed as follows:

Impairment testing

For the purpose of annual impairment testing, goodwill is allocated to the operating segments expected to benefit from the synergies of the business combinations in which the goodwill rises, as follows:

The recoverable amount of each segment was determined based on value-in-use calculations, covering a detailed three-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives using a declining growth rate determined by management. The recoverable amount of each operating segment is set below:-

The key assumptions used in the calculations were:

§ the forecast operating cash flows for the next three years and a terminal value of such flows based on approved budgets and plans. These budgets and plans are based on past performance, current orders, future order pipeline and expectations for the market development of the CGU, taking into account the current economic climate and forecast assumptions (both internal and external where appropriate) around the relevant product markets;

§ an estimate of the long-term growth rate for the CGU representing management's best estimate of future long-term growth in the respective divisions, taking into account both internal and external projections for the markets in which they operate. The growth rate used for the first five years was 12% for OE and 8% for AM which has been based on a review of historic growth rates over the last one to five years. The terminal growth rate used was 2%, which is based on the UK's long-term consumer price index growth rate; and

§ a discount rate of 11.04% was used to discount future cash flows and reflects management's estimate of the weighted average cost of capital of the Group.

Impairment test are carried out at each reporting date and indicate present values of future cash flows in respect of both the OE and AM divisions are far in excess of the carrying values of the associated assets including goodwill such that management considers the likelihood of any impairment arising to be remote.

16 Business combinations

On 30 October 2015 the Company acquired the trade and assets of the Peter Brotherhood business from Dresser-Rand Company Ltd.

Peter Brotherhood is a UK engineering business based in Peterborough with 145 employees that can trace its history back to 1867. More recently it has focused on energy efficient solutions for land and marine based applications including steam turbines, reciprocating gas compressors and combined heat and power units for the power generation, oil and gas and marine markets. Peter Brotherhood is the UK's only producer of steam turbines with an output up to 40MW which has applications in waste heat recovery, the FPSO and FLNG markets and the British Navy Astute class submarine new build programme. Steam turbines tend to have higher operational availability and lower operating costs, when compared to gas turbines. Peter Brotherhood has nearly 1,500 units that continue to operate across 100 countries globally, having supplied steam turbines to many of the world's leading operators including Woodside, SBM, Saipem, Aker, Fred Olsen, Samsung and Maersk.

Consideration transferred

The acquisition was settled in cash amounting to £10,132,266. Of this consideration £9,813,543 was paid on 30 October 2015 and a further £318,723 following an adjustment for a working capital benchmark. Acquisition-related costs amounting to £1,244,456 are not included as part of consideration transferred and have been recognised as non-trading operating charges in the consolidated income statement.

Identifiable net assets

The fair value of the trade and other receivables acquired as part of the business combination amounted to £1,462,599, with a gross contractual amount of £1,559,077. As of the acquisition date, the Group's best estimate of the contractual cash flow not expected to be collected amounted to £96,478.

The fair value of the land and buildings at the time of acquisition has been determined by reference to the sale and leaseback arrangements during March 2016. Management do not judge there to be any significant movement in the value of the land and buildings between the acquisition date in October 2015 and the disposal in March 2016. The fair value is based upon the proceeds from the sale and leaseback less the estimated cost to restore the property to the agreed condition set out in the lease rental agreement.

The value of key plant and machinery was assessed by considering the net present value of the future cash flows that they are expected to generate, as well as their current condition, repair requirements and any obsolescence. That assessment led to a write down of £1.1 million from the acquired value, which resulted in a revised opening valuation of £2.0 million for plant and machinery.

At the date of acquisition the Company acquired the order book of customer contracts relating to Peter Brotherhood equipment. These represent an intangible asset and were valued at £462,000 based on their forecast gross margins less appropriate adjustments including overheads, taxation and other less significant factors. Most of the contracts were completed in the period and they accounted for 75% of the revenues recognised by Peter Brotherhood. During the period £418,000 of the order book value was therefore amortised against those sales. The remaining balance of £44,000 is expected to trade out and be amortised in FY2017. The fair value of customer contracts is presented on the balance sheet as part of "Other intangible assets".

Goodwill

Goodwill on acquisition was £354,260. It relates primarily to (1) management's expectations for the growth and future profitability of Peter Brotherhood and (2) the substantial skill and expertise of Peter Brotherhood's workforce. Goodwill has been allocated to the aftermarket and original equipment segments and is not deductible for tax purposes.

Peter Brotherhood's contribution to the Group

In the period from 30 October 2015 to 31 March 2016 Peter Brotherhood generated revenue of £12,500,000 and trading operating profit of £1,022,000, which mainly arose from the original equipment order book acquired as part the trade and assets of the business. Without access to the records of Dresser-Rand Company Ltd producing an accurate assessment of the revenue and profit of Peter Brotherhood for the period had they been acquired at the beginning of the accounting period is impractical, therefore no estimate has been disclosed.

17 Other intangible assets

The Group's other intangible assets comprise (1) internally generated development costs and (2) the order book acquired on acquisition of Peter Brotherhood (see note 2.11). The net carrying amounts for the reporting periods under review can be analysed as follows: