REG - Ebiquity PLC - Final Results <Origin Href="QuoteRef">EBQ.L</Origin> - Part 2
28/07/2015 07:02
- Part 2: For the preceding part double click ID:nRSb2337Ua
which case appropriate provision is made for impairment.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary. Goodwill is initially recognised as
an asset at cost and is subsequently measured at cost less any accumulated
impairment losses. Goodwill is reviewed for impairment at least annually.
Any impairment is recognised immediately in the Income Statement and is not
subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided in the
normal course of business, net of discounts, VAT and other sales related
taxes. Income is recognised evenly over the period of the contract for our
Market Intelligence businesses, and in accordance with the stage of completion
of the contract activity for our Media Value Measurement and Marketing
Performance Optimization businesses. The stage of completion is determined
relative to the total number of hours expected to complete the work or
provision of services. Where recorded revenue exceeds amounts invoiced to
clients, the excess is classified as accrued income and where recorded revenue
is less than amounts invoiced to clients, the difference is classified as
deferred income.
Where services are performed by an indeterminate number of acts over a
specific period, revenue is recognised on a straight-line basis over the
specific period unless there is evidence that some other method better
represents the stage of completion.
If the outcome of a contract cannot be estimated reliably, the contract
revenue is recognised to the extent of contract costs incurred that it is
probable would be recoverable. Costs are recognised as an expense in the
period in which they are incurred.
Finance income and expenses
Finance income and expense represents interest receivable and payable.
Finance income and expense is recognised on an accruals basis, based on the
interest rate applicable to each bank or loan account.
Foreign currencies
For the purposes of the consolidated financial statements, the results and
financial position of each Group company are expressed in pounds sterling,
which is the functional currency of the Company, and the presentation currency
for the consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the
dates of transactions. At each year end date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the rates
prevailing on the year end date.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the year end date. Income and expense items are
translated at the average exchange rate for the period, which approximates to
the rate applicable at the dates of the transactions.
The exchange differences arising from the retranslation of the year end
amounts of foreign subsidiaries and the difference on translation of the
results of those subsidiaries into the presentational currency of the Group
are recognised in the translation reserve. All other exchange differences are
dealt with through the Income Statement.
Highlighted items
Highlighted items comprise non-cash charges and non-recurring items which are
highlighted in the Income Statement as separate disclosure is considered by
the directors to be relevant in understanding the underlying performance of
the business. The non-cash charges include share option charges and
amortisation of purchased intangibles.
The non-recurring items include the costs associated with potential
acquisitions (where formal discussion is undertaken), completed acquisitions
and their subsequent integration into the Group, adjustments to the estimates
of deferred consideration on acquired entities, asset impairment charges and
other significant one off items. Costs associated with ongoing market
landscaping, acquisition identification and early stage discussions with
acquisition targets are reported in underlying administrative expenses.
Taxation
The tax expense included in the Income Statement comprises current and
deferred tax. Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted by the year
end date.
The Group is subject to corporate taxes in a number of different jurisdictions
and judgement is required in determining the appropriate provision for
transactions where the ultimate tax determination is uncertain. In such
circumstances, the Group recognises liabilities for anticipated taxes based on
the best information available and where the anticipated liability is both
probable and estimable. Where the final outcome of such matters differs from
the amount recorded, any differences may impact the income tax and deferred
tax provisions in the period in which the final determination is made.
Tax is recognised in the Consolidated Income Statement except to the extent
that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Using the liability method, deferred tax is provided on all temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases, except for differences
arising on:
· the initial recognition of goodwill;
· the initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
· investments in subsidiaries and jointly controlled entities where the
Group is able to control the timing of the reversal of the difference and it
is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised. The recognition of deferred tax assets is reviewed at each
year end date.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the year end date and are expected to
apply when the deferred tax liabilities/assets are settled/recovered.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
· the same taxable group company; or
· different group entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which significant amounts
of deferred tax assets or liabilities are expected to be settled or
recovered.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets
over their estimated useful lives and is recognised in the Income Statement
within administrative expenses. The rates generally applicable are:
Motor vehicles 25% per annum reducing balance
Fixtures, fittings and equipment 7% to 20% per annum straight line; or25% per annum reducing balance
Computer equipment 25% to 40% straight line
Short leasehold land and buildings improvements Over the shorter of the life or the estimated useful life of the lease
Other intangible assets
Internally-generated intangible assets - development expenditure
Internally generated intangible assets relate to bespoke computer software and
technology developed by the Group's internal software development team.
An internally-generated intangible asset arising from the Group's development
expenditure is recognised only if all of the following conditions are met:
· It is technically feasible to develop the asset so that it will be
available for use or sale;
· Adequate resources are available to complete the development and
to use or sell the asset;
· There is an intention to complete the asset for use or sale;
· The Group is able to use or sell the intangible asset;
· It is probable that the asset created will generate future
economic benefits; and
· The development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis
over their useful lives. Amortisation commences when the asset is available
for use and useful lives range from 1-5 years. The amortisation expense is
included within administrative expenses. Where an internally-generated
intangible asset cannot be recognised, development expenditure is recognised
as an expense in the period in which it is incurred.
Purchased intangible assets
Externally acquired intangible assets are initially recognised at cost and
subsequently amortised on a straight-line basis over their useful economic
lives, which vary from 3 to 10 years. The amortisation expense is included as
a highlighted item within the administrative expenses line in the Income
Statement. Intangible assets are recognised on business combinations if they
are separable from the acquired entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles are arrived at by using
appropriate valuation techniques. The significant intangibles recognised by
the Group are customer relationships.
Computer software
Purchased computer software intangible assets are amortised on a straight-line
basis over their useful lives which vary from 2 to 5 years.
Impairment
Assets that have an indefinite useful life are not subject to amortisation and
are tested annually for impairment. Assets that are subject to amortisation or
depreciation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If any
such condition exists, the recoverable amount of the asset is estimated in
order to determine the extent, if any, of the impairment loss. Where the asset
does not generate cash flows that are independent from other assets, estimates
are made of the cash flows of the cash generating unit to which the asset
belongs.
Recoverable amount is the higher of fair value, less costs to sell, and value
in use. In assessing value in use, estimated future cash flows are discounted
to their present value using a discount rate appropriate to the specific asset
or cash generating unit.
If the recoverable amount of an asset or cash generating unit is estimated to
be less than its carrying amount, the carrying value of the asset or cash
generating unit is reduced to its recoverable amount. Impairment losses are
recognised immediately in highlighted items in the Income Statement.
In respect of assets other than goodwill, an impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if the impairment loss had
been recognised.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets as 'loans and receivables'. Loans
and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of goods and services to customers (trade receivables),
but also incorporate other types of contractual monetary asset. They are
initially recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less provision for
impairment.
Impairment provisions are recognised when there is objective evidence (such as
significant financial difficulties on the part of the counterparty or default
or significant delay in payment) that the Group will be unable to collect all
of the amounts due, the amount of such a provision being the difference
between the net carrying amount and the present value of the future expected
cash flows associated with the impaired receivable. For trade receivables,
which are reported net, such provisions are recorded in a separate allowance
account with the loss being recognised within administrative expenses in the
Income Statement. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off against the
associated provision.
Financial liabilities
Financial liabilities are initially recognised at fair value. Interest bearing
liabilities are subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over the period
to repayment is at a constant rate on the balance of the liability carried in
the statement of financial position. "Finance expense" in this context
includes initial transaction costs as well as any interest or coupon payable
while the liability is outstanding.
Forward currency contracts and interest rate swaps are carried at fair value
with changes in fair value being reflected in the Statement of Comprehensive
Income, and are classified within other financial assets and liabilities as
appropriate.
The convertible loan notes in the prior year possess all the characteristics
of an equity instrument and have therefore been classified as such.
Bank borrowings
Interest bearing borrowings are initially recognised at fair value net of
transaction costs incurred and subsequently measured at amortised cost.
Finance charges are recognised in the Income Statement over the period of the
borrowings using the effective interest method.
Loan fees relating to the bank borrowings are capitalised against the loan and
amortised over the period of the borrowings to which they relate.
The revolving credit facility is considered to be a long term loan.
Derivative financial instruments
The Group uses derivative financial instruments to reduce its exposure to
foreign exchange and interest rate movements. The Group does not hold or issue
derivative financial instruments for financial trading purposes but
derivatives that do not qualify for hedge accounting are accounted for at fair
value through the Income Statement. Derivative financial instruments are
initially recognised at fair value at the contract date and continue to be
stated at fair value at the balance sheet date with gains and losses on
revaluation being recognised immediately in the Income Statement.
Cash flow hedges are used to hedge against fluctuations in future cash flows
on the Group's debt funding due to movements in interest rates, and on certain
foreign currency trade receivable balances. When a cash flow hedge is
employed and hedge accounting applied, the effective portion of the change in
the fair value of the hedging instrument is recognised directly in equity
(hedging reserve) until the gain or loss on the hedged item is realised. Any
ineffective portion is always recognised in the Income Statement.
The fair value of derivatives is determined by reference to market values for
similar instruments.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and short term deposits. Bank
overdrafts are an integral part of the Group's cash management and are
included as a component of cash and cash equivalents for the purpose of the
Cash Flow Statement. Cash and cash equivalents and bank overdrafts are offset
when there is a legally enforceable right to offset.
Share capital
Ordinary shares are classified as equity.
Provisions
Provisions, including provisions for onerous lease costs, are recognised when
the Group has a present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources will be required to settle
that obligation and the amount can be reliably estimated. Provisions are not
recognised for future operating losses.
Provisions are measured at the Directors' best estimate of the expenditure
required to settle the obligation at the year end date. If the effect of the
time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate which reflects current market
assessments of the time value of money and, where appropriate, the risks
specific to the obligations.
Employee Share Ownership Plan (ESOP)
As the Company is deemed to have control of its ESOP trust, it is treated as a
subsidiary and consolidated for the purposes of the Group financial
statements. The ESOP's assets (other than investments in the company's
shares), liabilities, income and expenses are included on a line-by-line basis
in the Group financial statements. The ESOP's investment in the Company's
shares is deducted from shareholders' equity in the Group statement of
financial position as if they were treasury shares, except that profits on the
sale of ESOP shares are not credited to the share premium account.
Share-based payments
Where equity settled share options are awarded to employees, the fair value of
the options at the date of grant is charged to the Income Statement over the
vesting period. Non-market vesting conditions are taken into account by
adjusting the number of equity investments expected to vest at each year end
date so that, ultimately, the cumulative amount recognised over the vesting
period is based on the number of options that eventually vest. A charge is
made irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where there are modifications to share based payments that are beneficial to
the employee then as well as continuing to recognise the original share based
payment charge, the incremental fair value of the modified share options as
identified at the date of the modification is also charged to the Income
Statement over the remaining vesting period. Where the Group cancels share
options and identifies replacement options this arrangement is also accounted
for as a modification.
The grant by the Company of options over its equity instruments to the
employees of subsidiary undertakings in the Group is treated as a capital
contribution. The fair value of employee services received, measured by
reference to the grant date fair value, is recognised over the vesting period
as an increase to investment in subsidiary undertakings, with a corresponding
credit to equity in the parent entity financial statements.
Retirement benefits
For defined contribution pension schemes, the Group pays contributions to
privately administered pension plans on a voluntary basis. The Group has no
further payment obligations once the contributions have been paid.
Contributions are charged to the Income Statement in the year to which they
relate.
Leases
Where substantially all of the risks and rewards incidental to ownership of a
leased asset have been transferred to the Group (a "finance lease"), the asset
is treated as if it had been purchased outright. The amount initially
recognised as an asset is the lower of the fair value of the leased property
and the present value of the minimum lease payments payable over the term of
the lease. The corresponding lease commitment is shown as a liability. Lease
payments are analysed between capital and interest. The interest element is
charged to the Income Statement over the period of the lease and is calculated
so that it represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to ownership are
retained by the lessor (an "operating lease"), the total rentals payable under
the lease are charged to the Income Statement on a straight-line basis over
the lease term. The aggregate benefit of lease incentives is recognised as a
reduction of the rental expense over the lease term on a straight-line basis.
The land and buildings elements of property leases are considered separately
for the purposes of lease classification.
Government grants
Government grants are recognised at their fair value where there is a
reasonable assurance that the grant will be received and the Group will comply
with all attached conditions.
Government grants relating to costs are deferred and recognised in the Income
Statement over the period necessary to match them with the costs that they are
intended to compensate.
Government grants relating to property, plant and equipment are deducted from
the carrying value of the assets that they are intended to compensate and are
credited to the Income Statement on a straight-line basis over the expected
lives of the related assets.
Dividend distribution
Dividend distribution to the Company's shareholders is recognised as a
liability in the Group's financial statements in the period in which the
dividends are approved by the Company's shareholders.
Critical accounting estimates and judgements
The Group makes estimates and judgements concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and judgements that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Revenue recognition
The Group is required to make an estimate of the project completion levels in
respect of contracts which straddle the year end for revenue recognition
purposes. Estimates are based on expected total costs and revenues from each
contract. This involves a level of judgement and therefore differences may
arise between the actual and estimated result.
Carrying value of goodwill and other intangible assets
Determining whether goodwill and other intangibles should be capitalised, the
amortisation period appropriate to intangible assets and whether or not these
assets are impaired requires estimation of the value in use of the
cash-generating units to which the goodwill and other intangible assets has
been allocated. The value in use calculation requires the entity to estimate
future cash flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate present value. Details regarding
the goodwill and other intangible assets carrying value and assumptions used
in carrying out the impairment reviews are provided in notes 9 and 10.
Income taxes
The Group is subject to income taxes in all the territories in which it
operates, and judgement and estimates of future profitability are required to
determine the Group's deferred tax position. If the final tax outcome is
different to that assumed, resulting changes will be reflected in the Income
Statement, unless the tax relates to an item charged to equity in which case
the changes in the tax estimates will also be reflected in equity. The Group
believes that its accruals for tax liabilities are adequate for all open audit
years based on its assessment of many factors including past experience and
interpretations of tax law. This assessment relies on estimates and
assumptions and may involve a series of complex judgements about future
events. To the extent that the final tax outcome of these matters is
different than the amounts recorded, such differences will impact income tax
expense in the period in which such determination is made.
Contingent deferred consideration
The Group has recorded liabilities for deferred consideration on acquisitions
made in the current and prior periods. The calculation of the deferred
consideration liability requires judgements to be made regarding the forecast
future performance of these businesses for the earn out period. Any changes to
the fair value of the contingent deferred consideration after the measurement
period are recognised in the Income Statement within administrative expenses
as a highlighted item.
Provisions
The Group provides for certain costs of reorganisation that has occurred due
to the Group's acquisition and disposal activity. When the final amount
payable is uncertain, these are classified as provisions. These provisions are
based on the best estimates of management.
Adoption of new standards and interpretations
The following new standards and changes came into effect during the year
beginning 1 May 2014 and were adopted by the Group:
Amendment to IAS 32, 'Financial instruments: Presentation'. This amendment
provides guidance on offsetting financial assets and financial liabilities.
Amendments to IFRS 10 'Consolidated financial statements'; IFRS 12 'Disclosure
of interests in other entities' and IAS 27 'Consolidated and separate
financial statements'. These amendments provide guidance around investment
entities.
Amendment to IAS 36, 'Impairment of assets. This amendment provides guidance
on recoverable amount disclosures for non-financial assets.
Amendment to IAS 39, 'Financial instruments: Recognition and measurement'.
This amendment provides guidance on novation of derivatives and continuation
of hedge accounting.
These did not have a material impact on the Group's financial statements.
Certain new standards, amendments to new standards and interpretations have
been published that are mandatory to the Group's future accounting periods but
have not been adopted early in these financial statements. These are set out
below:
Amendments to IAS 16 'Property, plant and equipment' and IAS 38 'Intangible
assets' (effective on or after 1 January 2016). This amendment provides
clarification of acceptable methods of depreciation and amortisation. The
Group will apply these amendments from 1 May 2016.
IFRS 15, 'Revenue from Contracts with Customers' (effective on or after 1
January 2017). This standard establishes a single comprehensive framework for
revenue recognition to determine when to recognise revenue and how much
revenue to recognise. This standard replaces the previous revenue standards
IAS18 'Revenue' and IAS 11 'Construction Contracts'. There is the potential
for the adoption of this standard to be deferred depending on the results of
the current consultation. The Group will apply IFRS 15 from 1 May 2017.
IFRS 9, 'Financial Instruments: Classification and Measurement' (effective on
or after 1 January 2018). This standard introduces new requirements for the
classification and measurement of financial assets and financial liabilities
and for derecognition. The Group will apply IFRS 9 from 1 May 2018.
The Directors do not expect that the adoption of the Standards and amendments
listed above will have a material impact on the financial statements of the
Group in future periods, although the detailed impact has not yet been
quantified.
2. Segmental reporting
In accordance with IFRS 8 the Group's operating segments are based on the
reports reviewed by the Executive Directors that are used to make strategic
decisions.
Certain operating segments have been aggregated to form three reportable
segments, Media Value Measurement, Market Intelligence and Marketing
Performance Optimization:
· Media Value Measurement includes our media benchmarking, financial
compliance and associated services.
· Market Intelligence includes our advertising monitoring, reputation
management and research/insight services.
· Marketing Performance Optimization consists of our marketing
effectiveness and multi-channel analytics services.
The Executive Directors are the Group's chief operating decision-maker. They
assess the performance of the operating segments based on operating profit
before highlighted items. This measurement basis excludes the effects of
non-recurring expenditure from the operating segments such as restructuring
costs and purchased intangible amortisation. The measure also excludes the
effects of equity-settled share-based payments. Interest income and
expenditure are not allocated to segments, as this type of activity is driven
by the central treasury function, which manages the cash position of the
Group.
The segment information provided to the Executive Directors for the reportable
segments for the year ended 30 April 2015 is as follows:
Year ended 30 April 2015
Media Value Measurement Market Intelligence Marketing Performance Optimization Reportable Segments Unallocated Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 40,046 25,768 8,060 73,874 - 73,874
Operating profit before highlighted items 11,224 3,447 2,905 17,576 (5,847) 11,729
Total assets 59,432 40,104 9,580 109,116 7,966 117,082
Other segment information
Capital expenditure - property, plant and equipment 743 146 20 909 585 1,494
Capital expenditure - intangible assets 1,936 757 - 2,693 539 3,232
Capital expenditure - goodwill 2,790 - - 2,790 - 2,790
Total 5,469 903 20 6,392 1,124 7,516
Year ended 30 April 2014
Media Value Measurement Market Intelligence Marketing Performance Optimization Reportable Segments Unallocated Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 36,477 27,162 4,813 68,452 - 68,452
Operating profit before highlighted items 10,289 4,801 1,523 16,613 (5,274) 11,339
Total assets 51,685 40,878 7,955 100,518 7,041 107,559
Other segment information
Capital expenditure - property, plant and equipment 170 332 1 503 1,242 1,745
Capital expenditure - intangible assets 1,863 559 1,192 3,614 267 3,881
Capital expenditure - goodwill 4,291 - 4,131 8,422 - 8,422
Total 6,324 891 5,324 12,539 1,509 14,048
A reconciliation of segment operating profit before highlighted items to total
profit before tax is provided below:
Year ended 30 April 2015 Year ended30 April 2014
£'000 £'000
Reportable segment operating profit before highlighted items 17,576 16,613
Unallocated costs:
Staff costs (4,773) (4,685)
Property costs (404) (329)
Exchange rate movements (179) (51)
Other administrative expenses (491) (209)
Operating profit before highlighted items 11,729 11,339
Highlighted items (note 3) (5,913) (6,727)
Operating profit 5,816 4,612
Net finance costs (1,171) (1,191)
Share of profit of associates 12 19
Profit before tax 4,657 3,440
Unallocated costs comprise central costs that are not considered attributable
to the segments.
A reconciliation of segment total assets to total consolidated assets is
provided below:
2015 2014
£'000 £'000
Total assets for reportable segments 109,116 100,518
Unallocated amounts:
Property, plant and equipment 1,450 2,990
Other intangible assets 954 -
Other receivables 985 1,427
Cash and cash equivalents 3,309 1,453
Deferred tax asset 1,236 1,084
Investments in associates 32 87
Total assets 117,082 107,559
The table below presents revenue and non-current assets by geographical
location:
Year ended 30 April 2015 Year ended 30 April 2014
Revenue by location of customers Non-current assets Revenue by location of customers Non-current assets
£'000 £'000 £'000 £'000
United Kingdom 23,864 51,152 21,587 52,043
Rest of Europe 23,726 8,356 24,880 4,800
North America 17,227 6,185 14,630 5,746
Rest of world 9,057 10,807 7,355 10,207
73,874 76,500 68,452 72,796
Deferred tax assets - 1,408 - 1,377
Total 73,874 77,908 68,452 74,173
No single customer (or group of related customers) contributes 10% or more of
revenue.
3. Highlighted items
Highlighted items comprise non-cash charges and non-recurring items which are
highlighted in the Income Statement because separate disclosure is considered
relevant in understanding the underlying performance of the business.
Year ended 30 April 2015 Year ended 30 April 2014
Cash Non-cash Total Cash Non-cash Total
£'000 £'000 £'000 £'000 £'000 £'000
Administrative Expenses
Recurring:
Share option charge 140 1,215 1,355 - 337 337
Amortisation of purchased intangibles - 2,030 2,030 - 1,873 1,873
140 3,245 3,385 - 2,210 2,210
Non-recurring:
Acquisition and integration costs 1,730 - 1,730 3,355 - 3,355
Refinancing costs 404 - 404 - - -
Facility amendment costs - - - 103 - 103
Property costs 394 - 394 1,059 - 1,059
2,528 - 2,528 4,517 - 4,517
Total highlighted items before tax 2,668 3,245 5,913 4,517 2,210 6,727
Deferred tax on tax losses - - - (80) - (80)
Taxation credit (309) (846) (1,155) (947) (1,019) (1,966)
Total highlighted items after tax 2,359 2,399 4,758 3,490 1,191 4,681
Amortisation of purchased intangibles relates to acquisitions made in the
current financial year of £28,000 and to acquisitions made in prior years of
£2,002,000.
Acquisition costs represent professional fees incurred in relation to
acquisitions (£393,000) and adjustments to the fair value of deferred
consideration (£548,000) resulting primarily from the strong performance of
our recent acquisition in China (£608,000) offset by the net impact of a
downward revision of deferred consideration combined with the foreign exchange
impact (£60,000). Integration costs include certain one-off costs incurred
whilst integrating the acquisitions made in the current and prior financial
years into the Group's existing operations (£305,000). Also included are
severance costs relating to rationalisation and restructure of senior
management following these acquisitions (£225,000) as well as costs incurred
in relation to the Market Intelligence strategic review which was undertaken
by the Company (£160,000).
Refinancing costs represent professional fees incurred in relation to the
refinancing initiative undertaken in July 2014.
Property costs represent the write-off of tangible fixed assets (£70,000) on a
vacated property and costs associated with property moves in the UK and
Australia (£324,000).
Current tax arising on the highlighted items is included as a cash item, while
deferred tax on highlighted items is included as a non-cash item. Refer to
note 7 for more detail.
Deferred consideration adjustments, within acquisition and integration costs,
are included as a cash item.
As at 30 April 2015, £1,732,000 of the £2,668,000 cash highlighted items had
been settled.
4. Taxation
Year ended 30 April 2015 Year ended 30 April 2014
Before highlighted items Highlighted items Total Before highlighted items Highlighted items Total
£'000 £'000 £'000 £'000 £'000 £'000
UK tax
Current year 570 (298) 272 1,007 (860) 147
Adjustment in respect of prior year (798) - (798) (2) - (2)
(228) (298) (526) 1,005 (860) 145
Foreign tax
Current year 2,079 (11) 2,068 1,299 (87) 1,212
Adjustment in respect of prior year (399) - (399) (451) - (451)
1,680 (11) 1,669 848 (87) 761
Total current tax 1,452 (309) 1,143 1,853 (947) 906
Deferred tax
Origination and reversal of temporary differences (note 20) 241 (846) (605) 188 (1,099) (911)
Total tax charge/(credit) 1,693 (1,155) 538 2,041 (2,046) (5)
The difference between tax as charged/(credited) in the financial statements
and tax at the nominal rate is explained below:
Year ended30 April 2015 Year ended30 April 2014
£'000 £'000
Profit before tax 4,657 3,440
Corporation tax at 20.9% (2014: 22.8%) 974 785
Non-deductible taxable expenses/income 460 562
Overseas tax rate differential 617 409
Losses not relieved against other Group entities 38 43
Utilisation of previously unrecognised tax losses (115) (357)
Adjustment in respect of prior years (1,197) (453)
Other (239) (994)
Total tax charge 538 (5)
The applicable tax rate has decreased from 22.8% to 20.9% due to the reduction
of the UK Corporation Tax rate to 20% in April 2015.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Year ended 30 April 2015 Year ended 30 April 2014
£'000 £'000
Earnings for the purpose of basic earnings per share being net profit attributable to equity holders of the parent 3,623 3,024
Adjustments:
Impact of highlighted items (net of tax) 1 4,723 4,637
Earnings for the purpose of underlying earnings per share 8,346 7,661
Number of shares:
Weighted average number of shares during the period
- Basic 75,820,669 74,419,656
- Dilutive effect of share options 2,084,430 1,325,108
- Diluted 77,905,099 75,744,764
Basic earnings per share 4.78p 4.06p
Diluted earnings per share 4.65p 3.99p
Underlying basic earnings per share 11.01p 10.29p
Underlying diluted earnings per share 10.71p 10.11p
1. Highlighted items (see note 3), stated net of their total tax impact.
2. It is assumed that all contingent deferred consideration will be settled
in cash, therefore there is no dilutive effect.
6. Goodwill
£'000
Cost and net book value
At 1 May 2013 47,864
Adjustments in respect of a pre-acquisition period 34
Acquisitions 8,388
Foreign exchange differences (1,165)
At 30 April 2014 55,121
Adjustments in respect of a pre-acquisition period 3
Acquisitions 28 2,787
Foreign exchange differences 185
At 30 April 2015 58,096
The Group tests goodwill annually for impairment or more frequently if there
are indications that goodwill may be potentially impaired. Goodwill is
allocated to the Group's cash-generating units (CGUs) in order to carry out
impairment tests.
Goodwill has been allocated to the following segments:
Year ended 30 April 2015 Year ended 30 April 2014
£'000 £'000
Media Value Measurement 27,337 24,249
Market Intelligence 24,886 25,358
Marketing Performance Optimization 5,873 5,514
58,096 55,121
The impairment test involves comparing the carrying value of the CGU to which
the goodwill has been allocated to the recoverable amount. The recoverable
amount of all CGU's has determined based on value in use calculations.
No impairment of goodwill was recognised in 2015 (2014: £nil).
Value in use calculations
The value in use calculations are based on assumptions regarding the discount
rates, and revenue and cost growth rates. The Directors prepare a three year
pre-tax cash flow forecast based on the following financial year's budget as
approved by the Board, with revenue and cost forecasts for the following 2
years adjusted by segment and geography. The forecast takes account of actual
results from previous years combined with management expectations of market
developments.
The Directors estimate discount rates using rates that reflect current market
assessments of the time value of money and risk specific to the
cash-generating units. The three-year pre-tax cash flow forecasts have been
discounted at 9.5% (2014: 9.15%).
Cash flows beyond the three year period are extrapolated at a rate of 2.0%
(2014: 2.0%), which does not exceed the long-term average growth rate in any
of the markets in which the Group operates.
The excess of the value in use to the goodwill carrying values for each CGU
gives the level of headroom in each CGU.
Sensitivity analysis
Sensitivity analysis has been performed on the value in use calculation by
changing the key assumptions applicable to each CGU.
The following sensitivities have been applied to the value in use
assumptions:-
• Increase in pre-tax discount rate to 10.5%
• Decrease in future cash flows by 10%
As a result of applying these sensitivities the following CGUs, which reside
in the MI segment and have a combined carrying value of £24.2million, have a
value in use below recoverable value as set out below:
Increase in discount rate Decrease in future cash flows
£'000 £'000
Advertising UK, US and International 393 95
Reputation 124 61
Advertising Germany 327 300
A specific sensitivity analysis was applied to each of these CGUs to identify
the size of any change in assumption required to indicate an impairment of
goodwill:
Adjustment to discount rate Adjustment to future cash flows
Advertising UK, US and International +0.7pp -9.5pp
Reputation +0.6pp -8.5pp
Advertising Germany +0.1pp -1.8pp
The Directors consider that the results of the above sensitivity analysis
combined with the actions management is taking to invest and improve the
delivery platform within the MI segment, (as detailed in the strategic
report), means that there is no impairment of goodwill.
7. Other intangible assets
Capitaliseddevelopment costs Computer software Purchased intangible assets Total intangible assets
£'000 £'000 £'000 £'000
Cost
At 1 May 2013 1,345 1,421 19,423 22,189
Additions 603 304 - 907
Acquisitions - 1 2,973 2,974
Foreign exchange - (30) (540) (570)
At 30 April 2014 1,948 1,696 21,856 25,500
Additions 1,057 615 - 1,672
Acquisitions (note 28) - 1 1,559 1,560
Disposals - (21) - (21)
Foreign exchange (8) (97) (156) (261)
At 30 April 2015 2,997 2,194 23,259 28,450
Amortisation
At 1 May 2013 (673) (904) (7,453) (9,030)
Charge for the year (182) (145) (1,873) (2,200)
Foreign exchange - 27 129 156
At 30 April 2014 (855) (1,022) (9,197) (11,074)
Charge for the year (281) (204) (2,030) (2,515)
Disposals - 21 - 21
Foreign exchange - 85 211
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