Opinions and conclusions arising from our audit

1 Our opinion on the financial statements is unmodified

We have audited the financial statements of Trifast plc for the year ended 31 March 2016. In our opinion:

  • the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 March 2016 and of the group's profit for the year then ended;
  • the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
  • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
  • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

2 Our assessment of risks of material misstatement

In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit in decreasing order of audit significance, were as follows (acquisition accounting for Kuhmann is a new risk in the year):

Carrying amount of inventory £39.4m (2015: £37.4m) Risk level unchanged from 2015

Refer to Audit Committee Report, accounting policy and financial disclosures.

The risk — There is a risk over the recoverability of inventory due to changes in levels of demand and stock holdings. A significant proportion of the group's inventory is manufactured to meet specific customer requirements. There is a risk over the recoverability of these balances if a customer experiences financial stress or there is a demand issue with a customer's product that includes a part manufactured by Trifast. Our audit focused on this customer-specific inventory.

Our response — In relation to customer-specific inventory, our procedures included the following:

  • we analysed customer-specific inventory balances by age and challenged the group's assumptions of the expected usage based on our knowledge and experience of the industry in which the group operates; and
  • we assessed whether old and slow moving inventory is provided against in accordance with the group accounting policy, and we considered the reasonableness of the provision policy through historic trend analysis; and
  • we inspected a sample of service level agreements to compare customers' minimum purchase commitments to year-end inventory levels and considered any residual risk of recoverability if the agreements were to be terminated; and
  • we analysed gross profit margins by site to identify any inventory which was sold at low or negative margins pre-year end to give an indication of any items in the year-end balance that might be impaired; and
  • we considered the adequacy of the group's disclosures about the degree of estimation involved in arriving at the inventory provision.

Recoverability of goodwill £27.4m (2015: £24.8m)

Risk level unchanged from 2015

Refer to Audit Committee Report, accounting policynotes 12 and 13.

The risk — Volatility in certain markets has meant that recoverability of the group's goodwill presented a risk. Although overall the year has started to see an improved demand, certain entities have seen a decrease. As such we considered this still to be a potentially significant risk. In addition, as assessment of recoverability was dependent on inherently uncertain forecasting, it was a key judgemental area that our audit concentrated on.

Our response — In this area our audit procedures included:

  • we tested the group's budgeting procedures upon which the forecasts are based and the principles and integrity of the group's discounted cash flow model;
  • we compared the group's assumptions to externally derived data as well as our own assessments based on our knowledge of the client and experience of the industry in which it operates. Specifically we compared their assumptions with industry norms and external data sources in relation to key inputs such as projected economic growth, profitability and discount rates;
  • we performed sensitivity analyses for these key inputs and assumptions, and identified whether any cash generating units were particularly sensitive to impairment; and
  • we assessed whether the group's disclosures related to the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of intangible assets and goodwill.

Acquisition accounting for Kuhlmann

New event driven risk

Refer to Audit Committee Report, accounting policy and note 30.

The risk — During the year the group acquired Kuhlmann for a total consideration of €8.5 million (£6.2 million). There is inherent uncertainty in assessing fair value of the assets and liabilities acquired, therefore this requires a high level of judgement. In particular, we considered the valuation of intangible assets, including the identification of all relevant contracts and consideration of other possible assets that could meet the definition of intangible assets for recognition under applicable accounting standards. Intangible assets with definite useful lives will also impact future financial statements through amortisation.

Our response – Our audit procedures in relation to the acquisition of Kuhlmann included:

  • we used our own valuation specialists to support us in challenging the valuations produced by the group.
  • we used our own valuation specialists to support us critically challenging the methodology used to identify both, the assets and liabilities acquired and we used externally derived data to examine the key assumptions and methodologies in determining their fair values.
  • In particular, we assessed the completeness of the intangibles identified by considering the underlying current and prospective revenue streams in Kuhlmann;
  • for the valuation of intangibles, we corroborated the assumptions provided by the Group by comparing these assumptions to market data, our past experience of similar transactions, and, where available, supporting external documentation;
  • we considered the appropriateness of the presentation, including the description, of the recognised fair values compared to the provisional amounts disclosed in the Half-year report for the six months ended 30 September 2015; and
  • we have considered the adequacy of the disclosure of the acquisition in the accounts.

3 Our application of materiality and an overview of the scopeof our audit

Materiality for the group financial statements as a whole was set at £0.7 million, determined with reference to a benchmark of group profit before tax, normalised to exclude this year's accelerated share based payment and acquisition costs, of £14.2 million, of which it represents 5%, reflecting industry consensus levels (2015: £0.8 million, determined with reference to a benchmark of group profit before tax, of which it represents 7%).

We report to the audit committee any corrected or uncorrected misstatements exceeding £35,000 (2015: £40,000), in addition to other identified misstatements that warranted reporting on qualitative grounds.

Of the group's 21 (2015: 20) reporting components, we subjected 12 (2015: 10) to audits for group reporting purposes which were performed by component auditors and the group audit team including UK, Germany, Italy, Singapore, Taiwan, Malaysia, Shanghai, Sweden and Holland. We conducted reviews of financial information (including enquiry) at a further 6 non-significant components. These components were not individually significant enough to require an audit for group reporting purposes but a review was performed due to the size and risk profile of these components. The group audit team approved the component materialities, which ranged from £77,000 to £650,000 (2015: £48,000 to £830,000) having regard for the size and risk profile of the group across the components. The work on 8 of the 18 components (2015: 7 of the 17 components) was performed by component auditors and the rest by the Group team. The group team performed procedures on the items excluded from normalised group profit before tax.

The components within the scope of our work accounted for the following percentages of the group's results:

Number of componentsGroup revenueGroup profit before taxGroup total assets
Audits for group reporting purposes1290%78%83%
Reviews of financial information (including enquiry)69%14%14%
Total 20151790%87%93%

For the remaining 3 components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these.

The group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The group audit team held telephone conference meetings with component auditors to discuss in more detail the findings reported to the group audit team, and any further work required by the group audit team was then performed by the component auditor.

4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified

In our opinion:

  • the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
  • the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

5 We have nothing to report on the disclosures of principal risks

Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:

  • the directors' viability statement concerning the principal risks, their management, and, based on that, the directors' assessment and expectations of the Group continuing in operation over the three years to 2019.
  • the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.

6 We have nothing to report in respect of the matters on which we are required to report by exception

Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

  • we have identified material inconsistencies between the knowledge we acquired during our audit and the directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group's position and performance, business model and strategy; or
  • the Audit Committee Report does not appropriately address matters communicated by us to the audit committee.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

  • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
  • the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
  • certain disclosures of directors' remuneration specified by law are not made; or
  • we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

  • the directors' statements in relation to going concern and longer-term viability; and
  • the part of the Corporate Governance Statement relating to the company's compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope and responsibilities

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company's members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.

Derek McAllan (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Forest Gate
RH11 9PT
13 June 2016