Mincon Grp Regulatory News (MCON)

Mincon Group plc

("Mincon" or the "Group")

2016 Full Year Financial Results

Mincon Group plc (ESM:MIO AIM:MCON), the Irish engineering group specialising in the design, manufacture, sale and servicing of rock drilling tools and associated products, announces its results for the year ended 31 December 2016.

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

"The Mincon Group took stock in 2016 and decided to focus on assimilating what we had acquired, to begin standardising our management systems, and to develop a commonality in our marketing, brand and sales approach as we move towards building a 2020 strategic plan, and setting aggressive objectives for growth in sales and profits.

Overall 74% of the revenue was derived from Mincon Group manufactured product and this overall sales mix helped maintain the gross margin of the business at 40%, and the operating profit margin at 13%.

There has been a tone change in the market in 2016, the prices of commodities are on the rise, the companies in our sector speak with a new confidence and enthusiasm, and we see early evidence of renewed interest in reopening and developing business in some of the markets and sectors in which we operate. We also see substantial investment in sectors in which we are only peripherally involved to date, and in which we believe we should deliver an effective set of new products.

We have other products in development and are looking to considerably step up that investment for the current year. Essentially we are building out a new category and are planning a soft release toward the end of the coming year. We have been investing and expensing the R&D spend for some years now and are in the short term development spend prior to launch. Much of our current engineering resource is dedicated to this, to beta testing in the field and to building a sustainable service platform.

We are determined to produce industry leading designs aimed at longevity and economy, which reflect new thinking, and to produce and protect a margin that rewards the skill and investment in the new products.

The year has been one of investment for the future, in people, manufacturing capability, engineering design and future products. Mincon is becoming better positioned in the market, and better positioned with innovative products that should see organic growth emerge at a higher level in the coming years. Allied to this we are very active now in filling out our ancillary products by acquisition, in tidying up our channels, and better positioning ourselves for that growth.

We place a premium on people, in our group planning we are collegiate in nature, and we welcome the addition to the team of more senior people to help build our future. We have an experienced management group, adequate funding, excellent products and an exciting product stream and I look forward to reporting on further progress in 2017 and beyond."

Financial Performance

Revenue and operating margins

Growth in Mincon manufactured product was 7%, not dissimilar from the previous year, in the absence of any significant acquisitions in the period while we concentrated on developing and extending the product ranges organically. Third party sales increased by 13% to just short of €20 million. The margin on this traded product is lower than that of the manufactured product so a mix change in favour of third party reduces our gross margin. However Mincon product has remained steady at 74% of total sales which has supported the gross margin at 40% and so on to the blended operating margin at 13%.

While the Group has weathered the cyclical downturn reasonably well, showing the defensive characteristics of the market position and products, still we will expect to see price pressure, increasing competition, and a demand for rapid delivery of consumables as customers destock to suppliers.

Currency movements

The Group operates across the world in a number of currencies and is consequently exposed to movements in those currencies. There were two major movements in the year.

· A weakening in the GBP average rate against the Euro of 12% compared to 31 December 2015, which resulted in a decrease in reported revenue for the year of approximately €0.3 million. This was offset by the FX impact on the retranslation of underlying GBP costs, as a result, the weakening GBP did not significantly impact reported profit for 2016.

· Due to a significant devaluation in the rand against the Euro in late 2015 the average FX rate for 2016 decreased by 15% compared to 2015 resulting in a decrease of reported revenue by €1.2 million. This was offset by the FX impact on the retranslation of underlying rand costs.

The Group introduced new procedures in 2016 to offset the currency exposure caused by the South African rand in previous years. The closing South African rand rate strengthened by 15% compared with the opening rate and this contributed an FX gain in the Group income statement.

The closing USD rate had strengthened by 4% against the Euro compared with the opening rate in 2016, this contributed an FX gain in the Group income statement of €0.8 million. The Group will undergo further progress in 2017 to offset any FX exposures caused by the movement in the USD.

Our primary manufacturing facilities are denominated in euro, GBP, USD and CAD, and much of our sales are not denominated in those currencies so we will continue to have currency exposures. We will continue to act to mitigate those currency fluctuations but will have difficulty eliminating or significantly reducing some of the exposures.

Operating costs

Operating costs have increased by €2.1 million (11%) to €20.4 million due to increased selling and marketing expenses as the Group increases its footprint in the Americas and Australasia. Sales in those regions increased by €2.6 million (13%) in the Americas and €3.9 million (25%) in Australasia. Operating costs as a percentage of Revenue was 27% in 2016 (2015: 26%).

Operating profit and profit attributable to shareholders

Operating profit increased by €0.2 million (2%) in 2016 which reflected the increase in gross profit less the step up in operating expenses.

Profit attributable to shareholders increased by €1.3 million (16%) as a result of;

- an increase of €0.2 million in operating profit

- a reduction in finance income due to very low euro deposit rates

- a foreign exchange gain of €1.1 million

- a minimal movement on contingent consideration

The effective rate of tax was 18% in 2016, up from 17% in 2015 reflective of the rates in the jurisdictions where the Group earned its profit mix in the year.

The Mincon balance sheet

The balance sheet continues to build as accretive profits are earned on the assets in use. The net assets now stand at €106 million with net cash of c. €35 million available for investment.

Use of the IPO cash and Group cash flows

We have spent €15.4 million on nine acquisitions in the last three years from the net IPO proceeds of €47 million. During that same period we have distributed over €4 million a year in dividends, but still added €20 million to the balance sheet net value, and added to our net cash outside the IPO proceeds. Our net acquisition cash remains intact and the Group is largely free of debt.

To be quite clear, we do not lack ambition to invest and acquire, but we are keenly interested in buying what adds value to our manufacturing base, to our distribution footprint, to our access to markets and sectors and in bringing people who have a contribution to make, onto our management team.

The Group would still view the IPO cash as being available for acquisitions without reference to debt at this time, but the Group would use debt where the investment was justified by the addition to the Group. Other than that the Group has internally generated its cash for investment in the businesses and to pay dividends.

Capitalisation of development expenditure

We have capitalised €499,000 in development expenditure in 2016, which we expect to begin to release as a particular set of products become commercialised in the next year or so. While this is not hugely material as it stands and we have historically written off R&D as we spend it, we are going to have to step up the expenditure around this project in order to bring it to a commercial proposition with an accelerated timetable. This capitalisation has been in compliance with applicable international accounting standards.

We have addressed the matter in 2016 as otherwise the expenditure in 2017 would potentially cause some distortion of short term earnings. The initial product has been on live testing in a customer location, and with the emphasis that has been placed on the engineering in the last two years, has become viable in design much earlier than anticipated. It is still too early to comment on the revenue or profit value of the additional range being created, but it is expected that we will return to that at the half year in 2017.

Long term investments

We have continued to improve our invested plant to maintain the efficiency and quality of our manufactured products, and to extend our ranges. Of course it is not just a simple matter of acquiring equipment, but to commission it, and to develop the tools required to build new ranges is an iterative and time consuming process. This is normal in engineering. We have also begun the investment in our carbide plant, with new multi process machinery for powder production, robotised button pressing, and new machinery to insource components for the rest of the Group.

Other capital equipment allowed us to increase the size of the hammers and bits we make to provide the ranges appropriate for entering other sectors such as construction and piling with more complete ranges with products that maintain the standard of our current ranges. To add products to our ranges we either have to acquire businesses that have those products, or develop them ourselves, sometimes it will be the latter, and sometimes the former, it will depend on the balance of value.

Value embraces not just price, but a number of headings including the quality of the team and the product range, the distribution footprint, any unique characteristics, and need. The nature of the capital investment last year differed from previous years in that it was practically all invested in plant and machinery rather than the fixed asset pool received when businesses were acquired.

ENDS

21 MARCH 2017

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CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the Year Ended 31 December 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended 31 December 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2016

NOTES TO THE CONSOLIDATED PRELIMINARY FINANCIAL INFORMATION

1.  Description of business

The consolidated financial statements of Mincon Group Plc (also referred to as "Mincon" or "the Company") comprises the Company and its sub-sidiaries (together referred to as "the Group").

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

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

2.  Basis of Preparation

This consolidated preliminary financial information has been prepared in accordance with the International Financial report standards and interpretations approved by the International Accounting Standards Board (IASB).

The accounting policies set out in note 3 have been applied consistently in preparing the preliminary financial information for the years ended 31 December 2016 and 31 December 2015.

The Group preliminary financial information are presented in euro, which is the functional currency of the Company and also the presentation currency for the Group's financial reporting. Unless otherwise indi-cated, the amounts are presented in thousands of euro. This preliminary financial information are prepared on the historical cost basis.

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

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

3. Significant accounting principles, accounting estimates and judgements

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

The following are amendments to existing standards and interpretations that are affective for the Group's financial year from 1 January 2016:

Annual improvements to IFRSs 2012-2014 cycle

IFRS 11: Accounting for acquisitions of interests in Joint Operations

IFRS 14: Regulatory Deferral Accounts

IAS 16 & IAS 38: Acceptable methods of depreciation/ amortisation

IAS 16: Property, Plant and Equipment

IAS 41: Bearer Plants

IAS 27: Equity method in Separate Financial Statements

IAS 1: Disclosure initiative

IFRS 10, IFRS 12 and IAS 28: Investment entities: Applying the consolidation exception

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

The adoption of the above and interpretations and amendments did not have a significant impact on the Group's Consolidated Financial Statements.

New IFRSs and amendments

Annual improvements to IFRSs 2014-2016 cycle*

IFRS 15, 'Revenue from Contracts with Customers' (effective for the Group's 2018 Consolidated Financial Statements)

IFRS 9, 'Financial Instruments' (effective for the Group's 2019 Consolidated Financial Statements)*

IFRS 2: Classification and measurement of share based payments*

IAS 7: Disclosure initiative*

IAS 12: Recognition of deferred tax assets for unrealized losses*

*Not yet EU Endorsed

The directors do not believe that any of the above standards have a significant impact on Group reporting.

Revenue recognition

Segment reporting

Earnings per share

Income taxes

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

Inventories

Foreign currency

Foreign currency transactions

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

Business combinations and consolidation

Property, plant and equipment

Depreciation

The following useful lives are used for depreciation:

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

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

Leased assets

Financial assets and liabilities

Recognition and derecognition

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

Effective interest method

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

Borrowing costs

Investments in subsidiaries - Company

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

Impairment of financial assets

Equity

Contingent liabilities

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

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

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

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

Financial income and expenses

Provisions

Defined contribution plans

Share-based payment transactions

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

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

Critical accounting estimates and judgements

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

Deferred contingent consideration

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

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

Trade and other receivables

 4. Revenue

5. Operating Segments

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

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

The CODM assesses operating segment performance based on a measure of operating profit.

Segment revenue for the year ended 31 December 2016 of €76.2 million (2015: €70.3 million) is wholly derived from sales to external customers.

Entity-wide disclosures

The business is managed on a worldwide basis but operates manufacturing facilities and sales offices in Ireland, South Africa, UK, Western Australia, the United States and Canada and sales offices in ten other locations including Eastern & Western Australia, South Africa, Senegal, Spain, Namibia, Tanzania, Sweden, Chile and Peru. Sales offices in Ghana and Poland have been closed down in 2016 and a distribution model has been adopted for sales in these jurisdictions. In presenting information on geography, revenue is based on the geographical location of customers and non-current assets based on the location of these assets.

Revenue by region (by location of customers):

6. Cost of Sales and operating expenses

Included within cost of sales, selling and distribution expenses and general and administrative expenses were the following major components: 

General, selling and distribution expenses

The Group invested approximately €0.9 million on research and development projects in 2016, of this €0.4 million has been expensed in the period with the balance of €0.5 capitalised (note 11).

Pension and Other Employee Benefit Plans

The Group operates various defined contribution pension plans. During the year ended 31 December 2016, the Group recorded €0.8million (2015: €0.6 million) of expense in connection with these plans.

8. Acquisitions

A. Consideration transferred

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

In September 2016, Mincon acquired the net assets of Premier Drilling Equipment, a drill pipe manufacturer located in Johannesburg South Africa. Mincon also acquired the assets of Rockdrill Engineering Ltd., a reseller of Mincon product, located in Hebden Bridge, UK in November 2016.

In the final quarter of 2016, Premier Drilling Equipment and Rockdrill Engineering Ltd contributed additional revenue of €477,000 to the Group and €9,000 in net profit to the Group results. If these companies were purchased on 01 January 2016 they would have contributed sales of €2.9 million to the Group and €54,000 in net profit to the Group results.

Ozmine

The previous owners of Ozmine received final payment of €672,000 during 2016, based on certain profits that had to be achieved during the years ending 31 December 2015, 2016 & 2017. The payment had been fully provided for as part of the opening deferred consideration balance at 1 January 2016.

Deferred contingent consideration

B. Identifiable assets acquired and liabilities assumed

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

Measurement of fair values

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

If the information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisitions, then the accounting for the acquisition will be revised.

Goodwill

Goodwill arising from the acquisition has been recognised as follows.

The goodwill created in the acquisition in the period is primarily related to the synergies expected to be achieved from integrating these companies into the Group's existing structure. Manufactured coring product will be sold through the Group's existing sales offices.

9. Statutory and other required disclosures

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

10.  Income tax

Tax recognised in income statement:

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

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

10.  Income tax (continued)

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

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

11. Intangible Assets

Goodwill relates to the acquisition of the remaining 60% of DDS-SA Pty Limited in November 2009, the 60% acquisition of Omina Supplies in August 2014 and the 65% acquisition of Rotacan and ABC products in August 2014, the acquisition of Ozmine in January 2015, the acquisition of Mincon Chile and Mincon Tanzania in March 2015 and the acquisition of Premier and Rockdrill Engineering in November 2016 being the dates that the Group obtained control of these businesses. The Group accounts for acquisitions using the purchase accounting method as outlined in IFRS 3 Business Combinations.

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

The recoverable amount of goodwill has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash flows using forecasts covering a five-year period and terminal value (based on three year plans prepared annually). The most significant assumptions are revenues, operating profits, working capital and capital expenditure. A growth rate of 3% was applied for all periods after the three years budgeted. The discount rate in 2016 was assumed to amount to 13% (2015: 11%) after tax (approximately 16% before tax) and has been used in discounting the cash flows to determine the recoverable amounts. Goodwill impairment testing did not indicate any impairment during any of the periods being reported. Sensitivity in all calculations implies that the goodwill would not be impaired even if the discount rate increased substantially or the long-term growth was lowered to zero.

12. Other non-current assets

(1) In September 2008, the Group invested in TJM, a drilling equipment and supplies company based in Pennsylvania. The Group disposed of its investment in March 2012. The consideration for sale of the Group's shareholding was a US$700,000 interest bearing loan note repayable over 6 years. As at 31 December 2016, an amount of US$251,000 was outstanding on this loan.

13. Property, Plant and Equipment

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

14. Inventory

The company recorded write-downs of €0.17 million against inventory to net realisable value during the year ended 31 December 2016 (2015: €0.45 million). Write-downs are included in cost of sales. Included in capital equipment inventory are third party rigs held for resale in Southern Africa.

15. Trade and other receivables

At 31 December 2016, €3.4 million (21%) of trade receivables balance was past due but not impaired (2015: €1.5 million (11%)).

16. Loans and borrowings

The Group has a number of bank loans and finance leases in the United States and Australia with a mixture of variable and fixed interest rates. The Group has not been in default on any of these debt agreements during any of the periods presented. None of the debt agreements carry restrictive financial covenants.

In January 2014, Mincon Rockdrills Pty Limited drew down AUS$2.4 million (circa €1.6 million) on a 15 year variable interest loan which is secured on land & buildings of that company with a net book value of approximately AUS$3,500,000 (circa €2.3 million). This loan was fully repaid in August 2016.

In April 2015, Mincon Rockdrills USA Inc. drew down US$1,200,000 (circa €1.2 million) on a 5 year fixed finance lease which is secured on plant and equipment of that company with a net book value of approximately USD$727,000 (circa €0.6 million).

17. Share capital and reserves

Share Issuances

Voting rights

Dividends

On 26 September 2015, Mincon Group plc paid an interim dividend for 2015 of €0.01 (1 cent) per ordinary share. 2016, Mincon Group plc paid a final dividend for 2015 of €0.01 (1 cent) per ordinary share. On 25 September 2016, Mincon Group plc paid an interim dividend for 2016 of €0.01 (1 cent) per ordinary share. The directors are recommending a final dividend of €0.01 (1 cent) per ordinary share for 2016 which will be subject to approval at the company's AGM on 28 April 2017.

Share premium and other reserve

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

18. Earnings per share

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

There were a number of outstanding restricted share awards (RSAs) in issue at 31 December 2015 and 2016 (Note 19).

19. Share based payment

During the year ended 31 December 2016, the Remuneration Committee made a grant of approximately 500,000 Restricted Share Awards (RSAs) to members of the senior management team. The vesting conditions include both service and performance targets. The performance target condition is an average growth of 5% of EPS over three years. The fair value of the RSA's granted is equal to the company's share price on grant date which was €0.70c.

20. Financial Risk Management

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

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

Liquid and capital resources are monitored on the basis of the total amount of such resources available and the Group's anticipated requirements for the foreseeable future. The Group's liquid resources and shareholders' equity at 31 December 2016 were as follows:

During 2016, funds held on long term deposits matured. The Group frequently assess its liquidity requirements, together with this requirement and the rate return of long term euro deposits, the Group has decide to keep all cash readily available that is accessible within a month or less. Cash at bank earns interest at floating rates based on daily bank deposits. The fair value of cash and cash equivalents equals the carrying amount.

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

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

20. Financial Risk Management (continued)

a) Liquidity and Capital (continued)

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

b) Foreign currency risk

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

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

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

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

20. Financial Risk Management (continued)

b) Foreign currency risk (continued)

The Group's worldwide presence creates currency volatility when compared year on year. In 2016, there were two major movements in Mincon's operational currencies:

· A weakening in the GBP average rate against the Euro of 12% compared to 31 December 2015, which resulted in a decrease in reported revenue for the year of approximately €0.3 million. This was offset by the FX impact on the retranslation of underlying GBP costs, as a result, the weakening GBP did not significantly impact reported profit for 2016.

· Due to a significant devaluation in the rand against the Euro in late 2015 the average FX rate for 2016 decreased by 15% compared to 2015 resulting in a decrease of reported revenue by €1.2 million. This was offset by the FX impact on the retranslation of underlying rand costs.

In 2016 46% (2015: 45%) of Mincon's revenue, €35 million (2015: approx.€31.6 million) was generated in ZAR, AUD and SEK, compared to 15% (2015:10%) of the Group's cost of sales. The majority of the group's manufacturing base has a euro or US dollar cost base. While Group management makes every effort to reduce the impact of this currency volatility, it is impossible to eliminate or significantly reduce given the fact that the highest grades of our key raw materials are either not available or not denominated in these markets and currencies. Additionally, the ability to increase prices for our products in these jurisdictions is limited by the current market factors.

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

A 10% strengthening of the Euro against the Group's primary operating currencies at 31 December 2016 would have increased/(decreased) shareholders' equity and net profit by approximately the amounts shown below. This analysis assumes that all other variables, remain constant.

* Includes net investment exposure

A 10% weakening of the Euro against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

20. Financial Risk Management (continued)

c) Credit Risk

The majority of the Group's customers are third party distributors of drilling tools and equipment. The maximum exposure to credit risk for trade and other receivables at 31 December by geographic region was as follows:

d) Interest Rate Risk

e) Fair values

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

There are no material differences between the carrying amounts and fair value of our financial liabilities as at 31 December 2015 or 2016.

20. Financial Risk Management (continued)

e) Fair values (continued)

Financial instruments carried at fair value

The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios. The fair value of deferred contingent consideration is primarily dependent on the future performance of the acquired businesses against predetermined targets and on management's current expectations thereof. An increase or decrease of 10% in management's expectation as to the amounts that will be paid out would increase or decrease the value of contingent deferred contingent consideration at 31 December 2016 by €0.6 million.

The significant unobservable inputs are the performance of the acquired businesses and the timing of the pay-out.

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

The movements in respect of the financial assets and liabilities carried at fair value in the year to 31 December 2016 are as follows:

21. Subsidiary and Associate Undertakings

At 31 December 2016, the Group had the following subsidiary undertakings: