REG - Ebiquity PLC - Final Results <Origin Href="QuoteRef">EBQ.L</Origin> - Part 3
30/03/2016 07:06
- Part 3: For the preceding part double click ID:nRSd4663Tb
there is no dilutive effect.
6. Goodwill
£'000
Cost
At 1 May 2014 55,121
Adjustments in respect of a pre-acquisition period 3
Acquisitions 2,787
Foreign exchange differences 185
At 30 April 2015 58,096
Adjustments in respect of a pre-acquisition period (177)
Foreign exchange differences 37
At 31 December 2015 57,956
Accumulated impairment
At 1 May 2014 -
At 30 April 2015 -
Impairment (3,129)
At 31 December 2015 (3,129)
Net book value
At 31 December 2015 54,827
At 30 April 2015 58,096
At 1 May 2014 55,121
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:
8 month period ended 31 December 2015 Year ended 30 April 2015
£'000 £'000
Media Value Measurement 26,886 27,337
Market Intelligence 21,904 24,886
Marketing Performance Optimization 6,037 5,873
54,827 58,096
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.
The goodwill impairment charge of £3,129,000 (30 April 2015: £nil) relates to
the full impairment of the goodwill in relation to the Reputation CGU,
included in the Market Intelligence segment. This business, formerly Echo
Research Group, was acquired in 2011. Over the last four years we have
integrated the business fully into our Market Intelligence Practice; the
technologies and methodologies which were represented by the goodwill have
been replaced, integrated or superseded and the client relationships have in
many cases evolved into more integrated contracts. We are no longer able to
support the original carrying value and believe that full impairment reflects
the evolution of this part of our business in line with our longer-term
corporate strategy.
Under IFRS, an impairment charge is required for goodwill when the carrying
amount exceeds the recoverable amount, defined as the higher of fair value
less costs to sell and value in use.
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 between 8.2% and 9.7% (30 April 2015: 9.5%).
Cash flows beyond the three year period are extrapolated at a rate of 2.25%
(30 April 2015: 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 rates by 5%
• Decrease in future cash flows by 10%
As a result of applying these sensitivities no CGUs have a value in use below
recoverable value.
A specific sensitivity analysis was applied to each of the following CGUs,
which reside in the MI segment, have a combined carrying value of £21.1
million and are the most sensitive 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 +7.4pp -46.0pp
Advertising Germany +8.6pp -59.0pp
The Directors consider that the result of the above sensitivity analysis means
that there is no further 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 2014 1,948 1,696 21,856 25,500
Additions 1,057 615 - 1,672
Acquisitions - 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
Additions 652 175 - 827
Disposals - (13) - (13)
Foreign exchange (11) 27 40 56
At 31 December 2015 3,638 2,383 23,299 29,320
Amortisation and impairment
At 1 May 2014 (855) (1,022) (9,197) (11,074)
Charge for the year (281) (204) (2,030) (2,515)
Disposals - 21 - 21
Foreign exchange - 85 211 296
At 30 April 2015 (1,136) (1,120) (11,016) (13,272)
Charge for the period (194) (190) (1,327) (1,711)
Disposals - 12 - 12
Impairment (214) - (559) (773)
Foreign exchange - (22) (27) (49)
At 31 December 2015 (1,544) (1,320) (12,929) (15,793)
Net book value
At 31 December 2015 2,094 1,063 10,370 13,527
At 30 April 2015 1,861 1,074 12,243 15,178
At 1 May 2014 1,093 674 12,659 14,426
Amortisation is charged within administrative expenses so as to write off the
cost of the intangible assets over their estimated useful lives. The
amortisation of purchased intangible assets is included as a highlighted
administrative expense.
Purchased intangible assets consist principally of customer relationships with
a typical useful life of 10 years.
The capitalised development costs impairment charge of £214,000 and the
purchased intangible assets impairment charge of £559,000 (30 April 2015:
£nil), which relates to the full impairment of the purchased intangibles, is
in relation to the Reputation CGU which is included in the Market Intelligence
segment. This business, formerly Echo Research Group, was acquired in 2011.
Over the last four years we have integrated the business fully into our Market
Intelligence Practice; the technologies and methodologies which were
represented by the purchased intangibles and related capitalised development
costs have been replaced, integrated or superseded and the client
relationships have in many cases evolved into more integrated contracts. We
are no longer able to support the original carrying value and believe that
full impairment reflects the evolution of this part of our business in line
with our longer-term corporate strategy.
Under IFRS, an impairment charge is required for indefinite-lived assets when
the carrying amount exceeds the recoverable amount, defined as the higher of
fair value less costs to sell and value in use.
8. Financial liabilities
31 December 2015 30 April 2015
£'000 £'000
Current
Bank overdraft 2,391 1,411
Bank borrowings 2,410 2,411
Finance lease liabilities 4 4
Contingent deferred consideration 3,422 4,935
8,227 8,761
Non-current
Bank borrowings 32,615 31,880
Finance lease liabilities 9 13
Contingent deferred consideration 1,431 4,064
34,055 35,957
Total financial liabilities 42,282 44,718
Bank overdrafts£'000 Bank borrowings£'000 Finance lease liabilities£'000 Interest rate swaps£'000 Contingent deferred consideration£'000 Total£'000
At 1 May 2014 - 29,178 214 52 8,663 38,107
Recognised on acquisition - - - - 4,773 4,773
Additions 1,411 (360) - - - 1,051
Utilised - - (197) - (5,156) (5,353)
Charged to the Income Statement - 219 - - 279 498
Charged to reserves - - - (52) - (52)
Borrowings - 36,703 - - - 36,703
Repayments - (31,107) - - - (31,107)
Foreign exchange released to the Income Statement - (342) - - 269 (73)
Foreign exchange released to reserves - - - - 171 171
At 30 April 2015 1,411 34,291 17 - 8,999 44,718
Additions 980 - - - - 980
Utilised - - (4) - (4,063) (4,067)
Charged to the Income Statement - 60 - - (82) (22)
Discounting charged to the Income Statement - - - - (148) (148)
Discounting charged to the Statement of Financial Position - - - - (49) (49)
Borrowings - 2,578 - - - 2,578
Repayments - (1,982) - - - (1,982)
Foreign exchange released to the Income Statement - 78 - - 198 276
Foreign exchange released to reserves - - - - (2) (2)
At 31 December 2015 2,391 35,025 13 - 4,853 42,282
A currency analysis for the bank borrowings is shown below:
31 December 2015£'000 30 April 2015£'000
Pounds Sterling 32,096 31,440
Euros 2,929 2,851
Total bank borrowings 35,025 34,291
All bank borrowings are held jointly with Barclays and Royal Bank of Scotland
('RBS'). The committed facility, totalling £40,000,000, comprises a term loan
of £10,000,000 (of which £6,250,000 remains outstanding at 31 December 2015
(April 2015: £8,125,000)), and a revolving credit facility ("RCF") of
£30,000,000, (of which £29,000,000 was drawn down at 31 December 2015 (April
2015: £26,451,000). Both the term loan and the RCF have a maturity date of 2
July 2018. The £10,000,000 term loan is being repaid on a quarterly basis to
maturity, and the drawn RCF and any further drawings under the RCF are
repayable on maturity of the facility. The facility may be used for deferred
consideration payments on past acquisitions, to fund future potential
acquisitions, and for general working capital requirements.
Loan arrangement fees of £225,000 (April 2015: £285,000) are offset against
the term loan, and are being amortised over the period of the loan.
The facility bears variable interest of LIBOR plus a margin of 2.50%. The
margin rate is able to be lowered each quarter end depending on the Group's
net debt to EBITDA ratio.
The undrawn amount of the revolving credit facility is liable to a fee of 40%
of the prevailing margin. The Group may elect to prepay all or part of the
outstanding loan subject to a break fee, by giving 5 business days' notice.
All amounts owing to the bank are guaranteed by way of fixed and floating
charges over the current and future assets of the Group. As such, a composite
guarantee has been given by all significant subsidiary companies in the UK,
USA and Germany.
Contingent deferred consideration represents additional amounts that are
expected to be payable for acquisitions made by the Group and is held at fair
value at the Statement of Financial Position date. All amounts are expected to
be fully paid by August 2017.
All finance lease liabilities fall due within five years. The minimum lease
payments and present value of the finance leases are as follows:
Minimum lease payments
31 December 2015 30 April 2015
£'000 £'000
Amounts due:
Within one year 6 6
Between one and five years 12 18
18 24
Less: finance charges allocated to future periods (5) (7)
Present value of lease obligations 13 17
The minimum lease payments approximate the present value of minimum lease
payments.
9. Dividends
A dividend of £291,000 (0.4p per share) was paid during the current financial
period (30 April 2015: £nil). A dividend of 0.4p per share in respect of the
period ended 31 December 2015 is intended to be paid following completion of a
share capital reduction. These financial statements do not reflect this
intended dividend payable.
Dividends were paid to Non-Controlling Interests as shown in the Consolidated
Statement of Changes in Equity.
10. Cash generated from operations
8 month period ended Year ended
31 December 2015 30 April 2015
£'000 £'000
(Loss)/profit before taxation (7,446) 4,657
Adjustments for:
Depreciation 770 1,249
Amortisation (note 7) 1,711 2,515
Impairment of goodwill 3,129 -
Impairment of intangible assets 773 -
Finance costs - loan fees written off - 131
Interest rate swap closure - 29
Loss/(profit) on disposal 18 (1)
Unrealised foreign exchange loss (95) 208
Share option charges (note 3) 228 1,215
Finance income (13) (8)
Finance expenses 813 1,179
Share of profit of associates (13) (12)
Contingent deferred consideration revaluations (32) 548
(157) 11,710
Decrease/(increase) in trade and other receivables 5,549 (2,270)
Decrease in trade and other payables (333) (1,040)
Movement in provisions (31) (473)
Cash generated from operations 5,028 7,927
11. Acquisitions
TRANSACTIONS WITH NON CONTROLLING INTERESTS
On 15 December 2015, the Group acquired the remaining 35% in its subsidiary
undertaking, Fairbrother Iberica and Partners SL, from the minority
shareholder for cash consideration of E60,000 (£43,000). Subsequently
Fairbrother Iberica and Partners SL was liquidated and its business and assets
were transferred to Media Value SL.
12. Events after the reporting period
On 11 March 2016 the Group acquired the outstanding 50% interest in its Irish
media audit associate, Fairbrother Marsh Company Limited (FMC). The 50%
interest in FMC was acquired for an initial cash consideration of E150,000.
The maximum total consideration is up to E2m, payable in cash, depending on
the performance of the FMC business during the period ending 31 December
2020.
Subsequent to the period end, the Group agreed to increase the total cap on
consideration payable on the Stratigent LLC ('Stratigent') acquisition. The
Group acquired Stratigent on 19 August 2013. Stratigent's management held a 7%
economic interest in Stratigent which was acquired by the Group for a total
consideration to be determined by the financial performance of Stratigent over
the three financial years ending 30 April 2016 and capped at $1.5m.
Stratigent's financial performance over the first two financial years resulted
in consideration of $1.1m being paid to Stratigent's management. In order to
ensure that management remains incentivised to continue to drive and generate
the financial performance achieved over the first two financial years, the
Group agreed to increase the total cap on consideration payable to management.
Accordingly, in March 2016, the cap on consideration was increased by an
amount of $1.5m, with any excess over and above the existing cap on
consideration payable 25% in cash and 75% in new ordinary shares in Ebiquity
plc (capped at 600,000 new shares). This has been treated as a non-adjusting
event since no constructive obligation existed at the period end.
13. Financial Information
The financial information included in this report does not amount to full
financial statements within the meaning of Section 434 of Companies Act 2006.
The financial information has been extracted from the Group's Annual Report
and financial statements for the period ended 31 December 2015, on which an
unqualified report has been made by the Company's auditors,
PricewaterhouseCoopers LLP.
Financial statements for the period ended 31 December 2015 have been delivered
to the Registrar of Companies; the report of the auditors on those accounts
was unqualified and did not contain a statement under Section 498 of the
Companies Act 2006. The 31 December 2015 statutory accounts are expected to be
published on 15 April 2016.
This information is provided by RNS
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