Mincon Grp Regulatory News (MCON)

Mincon Group plc

2014 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 2014.

* 2013 numbers exclude exceptional items related to once-off employee recognition funded by the two majority shareholders

Kevin Barry, Chief Executive Officer, commenting on the results, said:

"The Mincon Group has delivered another strong performance in 2014 despite the downturn in the mining industry and the challenges faced by certain markets that we serve. In this difficult environment we grew our revenue by a healthy 4% and achieved a net margin of 17.0%. The decline in the commodity prices of base and precious metals such as gold, iron ore and copper has had a major impact on the global exploration and mining market and has also been a factor in the significant devaluation of certain key currencies in which we trade, particularly the South African Rand and the Australian Dollar.

Given this global macroeconomic environment we are pleased with the robustness of our business model and the strong net margin delivered by the Group. The exploration industry is cyclical in nature and therefore our focus has always been on the production mining and other market sectors such as waterwell, geothermal and construction drilling, which are less cyclical and provide a more stable platform for the long term success and growth of the business. We continued to grow our product range through the acquisition in August 2014 of a 65% stake in Rotacan, which manufactures rotary drill bits and drill pipe, which are complementary to our current range of pneumatic down-the-hole (DTH) hammers and bits. Mincon is an engineering company at heart and our focus is always on the quality of our products. We are confident that the company with the best products will emerge from the current downturn in the mining industry in the strongest position."

Board and Management Changes

The Board announces that Kevin Barry who joined the company in 1984, and became Chief Executive Officer in 1990, is retiring from this role. The Board will now commence a selection process for a new Group CEO. Mr. Barry will continue in his role through the transition until a new CEO is in place.

Speaking on behalf of the Board, Padraig McManus, Chairman, said "I would like to personally thank Kevin for his efforts and achievements as CEO of the Group. Over the past 25 years, Kevin has done a tremendous job steering the company from a local manufacturer in Shannon to a global supplier of rock drilling products with a direct presence in eleven countries on five continents and with over 200 employees worldwide. He has worked tirelessly to grow the company and deliver world class products to our customers by focusing on the importance of our people to the success of our business."

Kevin Barry, Chief Executive Officer, commented: "It has been a fantastic privilege to lead Mincon over the past 25 years and to contribute to its development. I am incredibly proud of our achievements and would like to thank all of my colleagues, past and present, for their help, commitment and contribution. Mincon is in excellent shape and I feel that now is the right time to announce my intention to retire. By giving notice of this now, the Board will have ample time to plan and ensure an orderly succession and to select a candidate who will continue to drive this ambitious company forward." 

Financial Performance

Revenue - Mincon Manufactured Products

Demand for Mincon manufactured product has remained relatively stable on a like for like basis. The 3% increase in revenues from Mincon manufactured product was driven by the acquisition of a 65% stake in Rotacan in August 2014, which increases Mincon's product offering with the addition of Rotary drill bits and drill pipe to our product range. Rotary product accounted for €3.3 million of Mincon's manufactured revenue in the five months since acquisition. Offsetting this year-on-year increase in Mincon manufactured product was the €1.6 million impact of currency weakness on our own manufactured revenue and a €0.8m reduction in sales of our exploration focussed Reverse Circulation (RC) product.

Revenue from our conventional down-the-hole (DTH) hammer represented 59% (2013: 60%) of Group turnover with sales of RC, Horizontal Directional Drilling (HDD) and Rotary product representing 18% (2013: 18%) of Group turnover. Demand for our DTH and HDD product was flat year-on-year as growth in market share in Australasia was offset by a loss of some market share in West Africa. The demand for RC product is more cyclical depending largely on the global prices for precious metals and the corresponding demand for exploration product. This market is at an extremely low ebb currently, resulting in a significant reduction in invoiced sales of Mincon RC product

Revenue - Sale of third party products

Sales of non Mincon manufactured product increased overall by 9% year-on-year. This increase was driven by the acquisition of two additional sales entities during 2014 which expanded Mincon's presence into Namibia and the east coast of Australia. These acquisitions added €3.0m of revenue in the 5 months since acquisition. Sales of third party product by existing Mincon sales entities declined by €1.2 million (13%) on a like for like basis due to the loss of market share in West Africa, and currency weakness which accounted for a decline of €0.7 million.

Profit margins

The Group's gross profit declined by €2.2 million to €23.6 million representing a margin of 43% (2013: 49%). The reduction in gross profit is primarily attributable to currency devaluation, along with the impact of a reduction in RC product sales and a pressure on pricing in the second half of 2014 (for both Mincon and non-Mincon manufactured product). Management's primary focus is on the growth in sales of Mincon manufactured product, which generates a significantly higher margin compared to the distributorship margin received on the sale of third party product.

Currency

The Group's worldwide presence creates currency volatility when compared year on year. In 2014, there was a significant devaluation in three of the major currencies in which Mincon trades, namely the South African Rand (ZAR), Australian Dollar (AUD) and Swedish Krona (SEK). On an average basis, these currencies devalued by 12% (ZAR), 7% (AUD) and 5% (SEK) in 2014 compared to 2013.

Almost 50% of Mincon's revenue (approx. €26.0 million) is generated in these currencies, compared to less than 10% of the Group's cost of sales. This had a significant translational impact on revenue (€2.3 million reduction) when sales in local currency are converted into euro with a knock-on impact on the Group's gross margin and net margin. 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.

Currency also has a significant transactional impact on the Group as outstanding balances in foreign currencies are retranslated at closing rates at each period end. In the current year, this has resulted in a gain of €0.6 million (included as part of financing income), which was mainly due to the strength of the US dollar at year-end.

Operating Costs

Operating costs have increased by €2.5 million (23%) to €13.2 million primarily due to the three acquisitions completed in August 2014, which added €1.7 million in operating expenses including acquisition related costs. On a like for like basis, operating costs increased €0.8 million predominantly due to the establishment of two additional distribution companies in Ghana and Peru, increased promotional and marketing efforts and additional public company overhead as compared to 2013.

Profit attributable to shareholders

Profit attributable to shareholders decreased by €1.9 million due to the factors outlined above. The reduction in the effective rate of tax from 19% in 2013 to 18% in 2014 was due to the change in the geographic spread of profits of the Group entities, reflective of (i) the impact on margins of the weakening of currencies in non-euro jurisdictions, and (ii) the reduction in sales of third party product in 2014 as compared to the same period in the prior year.

Balance sheet and cash flows

Mincon's balance sheet remains very strong with attributable net assets of €95.0 million and net cash of approximately €41.6 million at 31 December 2014 (December 2013: €48.5 million) available for investment.

The increase in net working capital in the period of €10.8 million was largely due to two specific investments in the period: (i) acquisitions, which added €3.6 million in receivables and inventory to the Group, and (ii) an additional investment in drill rigs for resale of €3.2 million to €4.2 million.

Excluding these investments, net working capital has increased by €4.0 million. This increase was due to a €1.7 million increase in inventory, a €1.1 million increase in receivables and a €1.2 million impact of currency and other movements. The increase in inventory is primarily due to stocking in Peru and Ghana and an increase in Australia due to demand increases. While receivables have increased by €1.1 million since December 2013, 75% of the outstanding balance at 31 December 2014 is current (less than 60 days) compared to 65% at the end of 2013.

The Group generated €4.8 million cash from operations in 2014 compared to an operating profit of €10.4 million, with the difference being primarily due to the investment in drill rigs for resale and increases in inventory and receivables outlined above. Management continue to focus on working capital management and have an objective of generating consistent free cash flow from operations in future.

Dividend

The Board of Mincon Group plc is recommending the payment of a final dividend for the year ended 31 December 2014 in the amount of €0.01 (1 cent) per ordinary share, which will be subject to approval at the Annual General Meeting of the Company in May 2015. This final dividend, when added to the interim dividend of 1 cent paid on 26 September 2014, makes a total distribution for the year of 2 cent per share. Subject to Shareholder approval at the Company's annual general meeting, the final dividend will be paid on 26 June 2015 to Shareholders on the register at the close of business on 29 May 2015.

Business Outlook

We take a medium to long term outlook of our Company and the markets that we serve. The fundamentals of profits and cash flow are healthy in Mincon. Industry cycles are a fact of life and it is the objective of the management team to ensure the effects of the troughs of these cycles are controlled and minimised. In this context, availing of opportunities in the best long-term interest of the Company and shareholders is the key objective of the Company and the Board.

In Q4 2014, we saw a marginal improvement in invoiced sales compared to Q3 2014 and Q4 2013. However, this improved trading was against a background of increased pressure on prices. We expect the primary factors driving revenue and margins to remain broadly consistent with levels experienced in 2014. The risk posed by the volatility in currency markets and the weakness in metal prices remains a concern.

In the past 12 months we have significantly increased our investment in the Group's operations and people. We have done so in order to be well positioned to take advantage of expected improvements in our key markets. Although we still face challenges in several markets and sectors arising from economic uncertainty and continuing competitive and customer pressures, our strong financial position will provide us with the resources to capitalise on growth opportunities as they arise. The acquisitions announced in August 2014 will be profit enhancing in H1 2015. Management continue to pursue a number of additional acquisitions which offer the opportunity to further extend our existing product range and add new customers and new geographic markets. We continue to increase our international sales network on a selective basis and maintain a strong emphasis on continued and new product development aimed at improving and expanding the existing product range.

ENDS

9 MARCH 2015

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CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2014

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

On behalf of the Board:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the Year Ended 31 December 2014

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

On behalf of the Board:

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December

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

On behalf of the Board:

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended 31 December

The accompanying notes are an integral part of these financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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") and the Group's interest in joint ventures.

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.

Mincon Group plc was incorporated on 16 August 2013 as Manrock plc under the laws of the Republic of Ireland. Manrock plc changed its name to Mincon Group plc (the "Company") on 23 September 2013.

In the period to 30 August 2013, the business of Mincon was conducted through Smithstown Holdings and its subsidiaries. On 30 August 2013, pursuant to a reorganisation Mincon Group plc 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. Following that reorganisation, Mincon Group plc is now the holding company of the Mincon Group.

The Mincon Group comprises Mincon Group plc and its subsidiaries (including Smithstown Holdings) as outlined in Note 22. The consolidated financial statements of Mincon Group plc are prepared on the basis that the Company is a continuation of the Smithstown Holdings Group, reflecting the substance of the arrangement. Mincon Group plc presents its consolidated financial statements as if the reorganisation had occurred before the start of the earliest period presented. Further details on the reorganisation of the Group is provided in Note 18.

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

The consolidated preliminary financial information of the Company for the year ended 31 December 2014 comprises of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in joint ventures.

The financial information included in this preliminary financial results announcement, has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU IFRS) which comprises 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 financial statements for the years ended 31December 2014 and 31 December 2013.

The consolidated preliminary financial information presented herein does not constitute the Company's statutory financial statements for the years ended 31 December 2014, with the meaning of Regulation 40(1) of the European Communities (Companies: Group Accounts) Regulations, 1992 of Ireland, insofar as such Group accounts would have to comply with disclosure and other requirements to those Regulations. The statutory financial statements for the year ended 31 December 2014, together with the independent auditor's report thereon, will be filed with the Irish Registrar of Companies following the Company's Annual General Meeting and will also be available on the Company's website www.mincon.com. The consolidated financial statements were approved by the Board of Directors on 6 March 2015.

The consolidated financial information is presented in Euro, which is the functional currency of the Company and also the presentation currency of the Group's financial reporting. Unless otherwise indicated, the amounts are presented in thousands of euro. The consolidated financial information has been prepared on the historical cost basis. The preparation of the consolidated 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 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 financial statements on a going concern basis.

2.  Basis of Preparation (continued)

New standards and interpretations

The accounting policies applied in the preparation of these consolidated financial statements have been applied consistently during the year and prior year, except as highlighted below in 'Recent accounting pronouncements'.

Recent accounting pronouncements

The IASB have issued the following standards, policies, interpretations and amendments which were effective for the Group for the first time in the year ended 31 December 2014:

· IFRS 10, 'Consolidated Financial Statements'

· IFRS 11, 'Joint Arrangements'

· IFRS 12, 'Disclosure of Interests in Other Entities'

· IAS 27 (2011), 'Separate Financial Statements'

· IAS 28 (2011), 'Investments in Associates'

· IFRIC 21, 'Levies'

The adoption of the above new standards and interpretations did not have a significant impact on the Group's consolidated financial statements.

Amendments to existing standards

During the period, a number of amendments to existing accounting standards became effective. These have been considered by the directors and have not had a significant impact on the Group's consolidated financial statements.

New IFRSs not yet adopted

The following provides a brief outline of the likely impact on future financial statements of relevant IFRSs which are not yet effective and have not been adopted early in these consolidated financial statements.

· IFRS 15, 'Revenue from Contracts with Customers' (effective for the Group's 2017 consolidated financial statements)

· IFRS 9, 'Financial Instruments' (effective for the Group's 2018 consolidated financial statements)

The directors do not believe that either of the above standards will have a significant impact on Group reporting. There are other amendments which have been considered but are not likely to have a significant impact on the Group's accounting policies.

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.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, net of sales taxes, goods returned, and discounts and other similar deductions. Revenue from sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer, which in most cases occurs on delivery. Revenue is recognised when recovery of the consideration is considered probable and the revenue and associated costs can be measured reliably. No revenue is recognised if there are signifi-cant uncertainties regarding the possible return of goods.

Segment reporting

An operating segment is a component of the Group that engages in busi-ness activities from which it may earn revenue and incur expenses, and for which discrete financial information is available. The operating results of all operating segments are reviewed regularly by the Board of Directors, the chief operating decision maker, to make deci-sions about allocation of resources to the segments and also to assess their performance. See note 5 for additional information.

Earnings per share

Basic earnings per share is calculated based on the profit for the year attributable to owners of the Company and the basic weighted average number of shares outstanding. Diluted earnings per share is calcu-lated based on the profit for the year attributable to owners of the Company and the diluted weighted average number of shares outstanding.

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

Income taxes

Income taxes include both current and deferred taxes in the consolidated financial statements. Income taxes are reported in profit or loss unless the underlying transaction is reported in other comprehensive income or in equity. In those cases, the related income tax is also reported in other comprehensive income or in equity.

A current tax liability or asset is recognised for the estimated taxes payable or refundable for the current or prior years.

Deferred tax is recognised using the statement of financial position liability method. The calculation of deferred taxes is based on either the differ-ences between the values reported in the statement of financial position and their respective values for taxation, which are referred to as temporary dif-ferences, or the carry forward of unused tax losses and tax credits. Temporary differences related to the following are not provided for: the initial recognition of goodwill, the initial recognition (other than in business combinations) of assets or liabilities that affect neither accounting nor taxable profit, and differences related to investments in subsidiary companies to the extent that they will not reverse in the foreseeable future.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. A deferred tax asset is recognised only to the extent that it is prob-able that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. In the calculation of deferred taxes, enacted or substantively enacted tax rates are used for the individual tax jurisdictions. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabil-ities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Inventories

Inventories are valued at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in, first-out principle and includes the costs of acquiring inventories and bringing them to their existing location and condition. Inventories manufactured by the Group and work in progress include an appropriate share of produc-tion overheads based on normal operating capacity. Inventories are reported net of deductions for obsolescence.

Foreign currency

Foreign currency transactions

Transactions in foreign currencies (those which are denominated in other than the functional currency) are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the foreign exchange rate at the statement of financial position date. Exchange gains and losses related to trade receivables and payables, other financial assets and payables, and other operating receiv-ables and payables are separately presented on the face of the income statement.

Exchange rate differences on translation to functional currency are reported in profit or loss, except when reported in other compre-hensive income for the translation of intra-group receivables from, or liabilities to, a for-eign operation that in substance is part of the net investment in the foreign operation.

Exchange rates for major currencies used in the various reporting periods are shown in note 20.

Translation of accounts of foreign entities

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

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

Business combinations and consolidation

The consolidated financial statements include the financial statements of the Group and all companies in which Mincon Group plc, directly or indirectly, has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

The consolidated financial statements have been prepared in accor-dance with the acquisition method. According to this method, business combinations are seen as if the Group directly acquires the assets and assumes the liabilities of the entity acquired. At the acquisition date, i.e. the date on which control is obtained, each identifiable asset acquired and liability assumed is recognised at its acquisition-date fair value.

Consideration transferred is measured at its fair value. It includes the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the previous owners of the acquiree, and equity interests issued by the Group. Deferred contingent consideration is initially measured at its acquisition-date fair value. Any subsequent change in such fair value is recognised in profit or loss, unless the deferred contingent consideration is classified as equity. In that case, there is no remeasurement and the subsequent settlement is accounted for within equity.

Transaction costs that the Group incurs in connection with a business combination, such as legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.

Goodwill is measured as the excess of the fair value of the consider-ation transferred, the amount of any non-controlling interest in the acquiree, and the fair value of the Group's previously held equity interest in the acquiree (if any) over the net of acquisition-date fair values of the identifiable assets acquired and liabilities assumed. Goodwill is not amortised but tested for impairment at least annually.

Non-controlling interest is initially measured either at fair value or at the non-controlling interest's proportionate share of the fair value of the acquiree's identifiable net assets. This means that goodwill is either recorded in "full" (on the total acquired net assets) or in "part" (only on the Group's share of net assets). The choice of mea-surement basis is made on an acquisition-by-acquisition basis.

Earnings from the acquirees are reported in the consolidated income statement from the date of control.

Intra-group balances and transactions such as income, expenses and dividends are eliminated in preparing the consolidated financial statements. Profits and losses resulting from intra-group transactions that are recognised in assets, such as inventory, are eliminated in full, but losses are only eliminated to the extent that there is no evidence of impairment.

Property, plant and equipment

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

Depreciation

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

The following useful lives are used for depreciation:

Years

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

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

Leased assets

In the consolidated financial statements, leases are classified as either finance leases or operating leases. A finance lease entails the transfer to the lessee of substantially all of the economic risks and benefits associated with ownership. If this is not the case, the lease is accounted for as an operating lease.

For the lessee, a finance lease requires that the asset leased is recognised as an asset in the balance sheet. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the future minimum lease payments. Initially, a corresponding liability is recorded. Assets under finance leases are depreciated over their estimated useful lives, while the lease pay-ments are reported as interest and amortisation of the lease liability. For operating leases, the lessee does not account for the leased asset in its balance sheet. In profit or loss, the costs of operating leases are recorded on a straight-line basis over the term of the lease.

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

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

Investments in subsidiaries - Company

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

Impairment of financial assets

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

Equity

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

Contingent liabilities

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

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

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

Financial income and expenses

Finance income and expense are included in profit or loss using the effective interest method.

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

Provisions

A provision is recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, it is proba-ble that an outflow of economic benefits will be required to settle the obligation, and the outflow can be estimated reliably. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect of the time value of money is material, the provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan and the restruc-turing has either commenced or been announced publicly. Future operating losses are not provided for.

Exceptional items

The Group has used the term "exceptional" to describe certain items which, in management's view, warrant separate disclosure by virtue of their size or incidence, or due to the fact that certain gains or losses are determined to be non-recurring in nature. Exceptional items may include restructuring, significant impairments, profit or loss on asset disposals, material changes in estimates or once off costs where separate identification is important to gain an understanding of the financial statements.

Defined contribution plans

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

Critical accounting estimates and judgements

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

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

Trade and other receivables

The Group estimates the risk that receivables will not be paid and pro-vides for doubtful accounts based on specific provisions for known cases and collective provisions for losses based on historical profit levels.

Total allowances for estimated losses as of 31 December 2014, were €0.3m for trade and other receivables with a corresponding gross amount of €12.8m.

Inventory

The Group values inventory at the lower of historical cost, based on the first-in, first-out basis, and net realisable value. Historical cost includes the costs of acquiring inventories and the costs of bringing them to their existing location and condition. Inventories manufactured by the Group and work in progress include an appropriate share of produc-tion overheads based on normal operating capacity.

The calculation of net realisable value involves management's judgement as to over-stocked articles, out-dated articles, damaged goods, and handling and other selling costs. If the estimated net realisable value is lower than cost, a valuation allowance is established for inventory obsolescence.

4. Revenue

5. Operating Segments

Operating segments 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.

Having assessed the aggregation criteria contained in IFRS 8 operating segments and considering how the Group manages its business and allocates resources, the Group has determined that it has one reportable segment. In particular 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 2014 of €54.5 million (FY2013: €52.3 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, Western Australia, the United States and Canada and sales offices in eight other locations including Eastern Australia, South Africa, Senegal, Ghana, Namibia, Sweden, Poland and Peru. In presenting information on geography, revenue is based on the geographical location of customers and non-current assets based on the location of these assets.

Revenue by region (by location of customers):

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

Pension and Other Employee Benefit Plans

The Group operates various defined contribution pension plans. During the year ended 31 December 2014, the Group recorded €0.4 million (2013: €0.3 million) of expense in connection with these plans.

8. Acquisitions

A key strategy of the Group is to increase and diversify its product portfolio and to extend its distribution network through acquisitions. In line with this strategy, the principal acquisitions completed by the Group during the year, together with percentages acquired were as follows:

· the acquisition of 65% of Rotacan*, a Canadian based business which specialises in the design, manufacture and sale of rotary blast hole drill bits, drill pipe and other ancillary products used primarily in the open pit mining industry, completed in August 2014;

· the acquisition of 65% of ABC Products*, a sales and distribution company in Rockhampton, Australia, completed in August 2014; and

· the acquisition of 60% of Omina Supplies*, also a sales and distribution company based in Windhoek, Namibia, completed in August 2014.

* Full legal names disclosed in Note 20.

In the five months to December 2014, these acquisitions contributed revenue of €6.54 million and €Nil net profit the Group's results. If the acquisition had occurred on 1 January 2014, management estimates that revenues from these acquisitions would have been €15.7 million (consolidated revenue would have been €9.16 million higher). Consolidated profit for the year would not have changed materially. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2014.

A. Consideration transferred

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

Deferred contingent consideration

Rotacan

Mincon has an option to purchase the remaining 35% of Rotacan in five years (for consideration based on an EBITDA multiple). The 35% shareholder will also have put options beginning in three years' time.

Other entities

There are also similar put and call options in place to purchase 30% of ABC Products and the remaining 40% of Omina which will be exercisable in three to five years.

In accordance with IFRS 3 Business Combinations, the Group has accounted for the put and call option arrangements under the anticipated acquisition method and accordingly the financial liability arising from the arrangement is included in the cost fair value of the consideration transferred as deferred contingent consideration of €6.5m in the table above. No material non-controlling interests are presented for these entities on the basis that the Group has treated the put option as a financial liability that is outside our control. At 31 December 2014, the fair value of the deferred contingent consideration had increased to €6.7 million.

8. Acquisitions (continued)

B. Identifiable assets acquired and liabilities assumed

The following table summarises the recognised amounts of assets acquired 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.

Property, plant and equipment Market comparison technique and cost technique: The valuation model considers quoted market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.

Inventories: Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

There were no adjustments processed during the year to the fair value of business combinations completed during the year ended 31 December 2014 where those fair values were not readily determinable as at 31 December 2014.

If new 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 acquisition, then the accounting for the acquisition will be revised.

8. Acquisitions(continued)

C. Goodwill

Goodwill arising from the acquisition has been recognised as follows.

The goodwill created on acquisition of the above three companies is primarily related to the synergies expected to be achieved from integrating these companies into the Group's existing structure. Manufactured rotary product will be sold through the Group's existing sales & distribution network and the new sales offices will increase Mincon's market share and sale of own manufactured product.

D. Acquisition-related costs

Acquisition related costs amounted to approximately €360,000 and were included in "operating expenses" in the income statement for 2014.

E. Purchase of non-controlling interest

Mincon Rockdrills USA Inc. owns and operates Mincon's manufacturing facility in Benton, Illinois, USA. This facility manufactures Down-the-Hole (DTH) Bits and Horizontal Directional Drilling (HDD) Bits for the Group. The facility is exclusively dedicated to the production of high quality Bits.

On 19 December 2014 Mincon Group plc announced the purchase of the remaining 25% non-controlling interest in Mincon Rockdrills USA Inc. from Jones FT, LLC. Mincon purchased 50% of this business in 2003, and increased its shareholding to 75% in 2004. As a result of this transaction, Mincon Rockdrills USA Inc. will become a wholly-owned subsidiary of the Group.

Consideration payable of US$2.42 million was satisfied by the issue of 3,069,838 new ordinary shares of nominal value €0.01 each ("Ordinary Shares") and share premium of €0.76 per share. The excess of the consideration payable over the book value of the net assets acquired was €1.1 million and has been recorded as a charge to retained earnings. Jones FT, LLC is beneficially owned by the Jones family, which includes Mike Jones the Managing Director of Mincon Rockdrills USA Inc.

For the year ended 31 December 2013 and 2014 Mincon consolidated 100% of Mincon Rockdrills USA Inc. with the 25% non-controlling interest presented as income not attributable to shareholders of the Group. With effect from 19 December 2014, 100% of the income from Mincon Rockdrills USA, Inc. is attributable to shareholders of the Group.

9. Statutory and other required disclosures

(a) KPMG was appointed as Group Auditor during 2013

(b) The 2013 fees were in connection with services provided for the Group's initial public offering

10. Income Tax

Tax recognised in profit or loss:

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:

10. Income Tax (continued)

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

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

10.  Income Tax (continued)

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

11. Goodwill

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 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 a single cash generating unit 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 (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 pre-tax discount rate in 2014 was assumed to amount to 11% (2013: 11%) after tax (approximately 14% 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 discount rate increased substantially or the long-term growth was lowered to zero.

12. Other non-current assets

(1) Mincon Equipment Inc. was incorporated on 13 June 2013. This company is owned 50:50 by Mincon and the Gaudet family. Mincon Group plc has advanced €171,000 to this entity as at 31 December 2014.

(2) 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 2014, an amount of $489,000 was outstanding on this loan.

13. Property, Plant and Equipment

(1) Land and buildings include leasehold improvement assets.

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

Finance leases

The Group leases plant and equipment under a number of finance lease arrangements. The leased equipment secures lease obligations. At 31 December 2014, the net carrying amount of leased plant and equipment was €1.1 million (2013: €1.0 million). During the year, the Group acquired leased assets of €nil through existing operations and €0.8 million through acquisitions.

14. Inventory

There was no material write-down of inventories to net realisable value during the year ended 31 December 2014 (2013: €nil). Write-downs are included in cost of sales. Included in capital equipment inventory are third party rigs held for resale in Southern Africa. At 31 December 2013, the Group had paid deposits on this capital equipment totalling €1.0m, which was included in other current assets.

15. Trade and other receivables

At 31 December 2014, €1.4 million (12%) of trade receivables of our total trade and other receivables balance was past due but not impaired (2013: €1.2 million (14%)).

No customer accounted for more than 10% of trade and other receivables balance at any period end.

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$2,400,000 (circa €1.6million) on a fifteen 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 €2.3million).

In December 2014, Mincon Inc. drew down US$338,000 (circa €0.3m) on a 10 year variable interest loan which is secured on land and buildings of that company with a net book value of approximately USD$528,000 (circa €0.4 million).

17. Share capital and reserves

Share Issuances

On incorporation of Mincon Group plc (single entity) on 16 August 2013, the issued share capital was 38,500 Ordinary Shares of €1.00 each of which 30,800 Ordinary Shares of €1.00 each were held directly and indirectly by Patrick Purcell and 7,700 Ordinary Shares of €1.00 each were held directly by Kevin Barry. The shares were issued and paid up in full. On 30 August 2013, these shares were redesignated as Subscriber Shares (having the rights attaching to those shares as set out in the Articles). On 22 August 2014, the shareholders of Mincon Group plc passed a resolution at the company's AGM authorising the redemption at nominal value and subsequent cancellation of these subscriber shares. These shares were cancelled on 22 December 2014.

On 30 August 2013, as part of a reorganisation of the Group ("the Group reorganisation"), Mincon Group plc acquired the entire issued share capital of Smithstown Holdings in consideration of the issue by the Company of 1,500,000 Ordinary Shares of €1.00 each in the capital of the Company to the shareholders of Smithstown Holdings (subsequently subdivided into 150,000,000 Ordinary Shares of €0.01 each) with a share premium arising in the amount of €98.5 million. There was no change to the ultimate shareholders of the Group at that date.

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. On admission, 57,471,264 new ordinary shares were issued representing the new shares being placed by the Company at the time of admission. These shares had a nominal value of €0.01 per share and placed at €0.87 (GBP£0.73) per ordinary share resulting in gross proceeds of €50.0 million. Share premium of €46.6 million was recorded after deduction of IPO costs of €2.9 million.

On 19 December 2014, Mincon Group plc acquired the remaining 25% non-controlling interest in Mincon Rockdrills USA Inc. satisfied by the issue of 3,069,838 new ordinary shares at nominal value €0.01 each. These shares were admitted to trading on ESM and AIM on 24 December 2014.

17. Share capital and reserves(continued)

Voting rights

The holders of Ordinary Shares have the right to receive notice of and attend and vote at all general meetings of the Company and they are entitled, on a poll or a show of hands, to one vote for every Ordinary Share they hold.

Votes at general meetings may be given either personally or by proxy. Subject to the Companies Acts and any special rights or restrictions as to voting attached to any shares, on a show of hands every member who (being an individual) is present in person and every proxy and every member (being a corporation) who is present by a representative duly authorised, shall have one vote, so, however, that no individual shall have more than one vote for every share carrying voting rights and on a poll every member present in person or by proxy shall have one vote for every share of which he is the holder.

Dividends and other reserve

On 30 August 2013, Smithstown Holdings, the former parent company (and predecessor operations) of the Group, declared a final dividend amounting to €15.0 million to shareholders on the share register of that company as at 30 August 2013, which was paid by year-end.

On 26 September 2014, Mincon Group plc paid an interim dividend in the amount of €0.01 (1 cent) per ordinary share, which was paid to shareholders on the register at the close of business on 29 August 2014. The directors are recommending a final dividend of €0.01 (1 cent) per ordinary share for 2014 which will be subject to approval at the company's AGM on 29 May 2015.

Share premium and other reserve

As part of the Group reorganisation which is described in note 1 of the 2013 Annual Report, 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.

As a consequence of the Company electing to record the investment in Smithstown Holdings at cost a difference of €79.3 million arose between this investment and the amount that company law requires to be included in share capital and share premium. This amount was recorded as an "other reserve" in the Company's Statement of Financial Position.

The members of the Company passed a resolution on 1 November 2013 that, subject to the confirmation of the High Court of Ireland, the Company's share capital be reduced by an amount of €79.3 million and that the reserve so created would be used to cancel the other reserve (or such part thereof as the High Court of Ireland may determine). The application to the High Court was heard on 1 May 2014 and, by order of the High Court, the Company reduced its share premium account by €79.3 million and used the reserve so created to eliminate its "other reserve". As a result, the Company is capable, subject to it having distributable reserves, of declaring dividends.

Capital contribution

In December 2013, Kingbell Company (the largest shareholder in the Company) and Ballybell Limited (the second largest shareholder in the Company) agreed to provide, following consultation with and approval from the Board of Mincon, approximately €953,000, net of a tax benefit of €242,000, from their respective own private funds to be applied in a once off award to employees of the Mincon Group (other than the senior management team).

The award was treated as a short term employee benefit (once committed the employee has no further service to earn the award) of the Mincon Group resulting in a charge (current year employee expense) to the income statement in respect of the year ended 31 December 2013 and a corresponding credit to a capital contribution in equity.

On payment of the employee recognition award in early 2014, the company credited retained earnings with the entire amount of the capital contribution, thereby reflecting the position that this recognition award had no impact on the net assets or retained earnings of the Group

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: