REG - Connect Group Plc - Preliminary Results Annoucement y/e 31 August 14 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 2
29/10/2014 12:03
- Part 2: For the preceding part double click ID:nRSO3218Ua
taken out to cover the Group from major risks.
Increasing reliance on centralised system solutions and complex operations are not supported by robust enough Business Continuity Planning & Disaster Recovery solutions to prevent disruption outside of expected tolerances. Trading capability, customer experience and sales/margin performance impacted through inability to operate due to systems outages. Significant investment undertaken by the organisation to provide Disaster Recovery capability across the group for all essential systems. External expertise used to
provide guidance and a Disaster Recovery facility. In addition a programme led centrally by the Group ensures Business Continuity Planning procedures and standards are
embedded across the Divisions.
Loss of key executives and subsequent loss of knowledge and skills impacts current and future business performance. Loss of key skills and leadership impacts the capability of the business to deliver its strategic goals. Performance and capability management processes in place, reviewed by the Remuneration Committee and Group Executive. Succession planning for critical roles and
development plans for key individuals reviewed by the Nominations Committee.
Group Income Statement for the year ended 31 August 2014
£m 2014 2013Restated1
Note Underlying* Non-recurring and other items Total Underlying* Non-recurring and other items Total
Continuing operations
Revenue 2 1,808.5 - 1,808.5 1,806.9 3.9 1,810.8
Operating profit 2,3 55.5 (6.9) 48.6 56.4 (10.8) 45.6
Investment revenue 7 0.4 - 0.4 0.3 - 0.3
Finance costs 7 (5.9) - (5.9) (6.8) (0.2) (7.0)
Profit before tax 50.0 (6.9) 43.1 49.9 (11.0) 38.9
Income tax expense 8 (9.3) 1.0 (8.3) (11.5) 1.3 (10.2)
Profit for the year 40.7 (5.9) 34.8 38.4 (9.7) 28.7
Profit attributable to equity shareholders 40.5 (5.9) 34.6 38.4 (9.7) 28.7
Profit attributable to non-controlling interest 0.2 - 0.2 - - -
40.7 (5.9) 34.8 38.4 (9.7) 28.7
Earnings per share
Basic 10 21.7p 18.6p 21.1p 15.7p
Diluted 10 21.0p 18.0p 19.8p 14.8p
Equity dividends per share (paid and proposed) 9 9.7p 9.3p
* Before non-recurring and other items. Non-recurring and other items are set out in Note 4 to the accounts.
These measures are described in Note 1d of the accounting policies.
1 -Restatement in respect of retirement benefit obligations and disposal of MMC business, see Note 34.
Group Statement of Comprehensive Income for the year ended 31 August 2014
£m Note 2014 2013Restated1
Items that will not be reclassified to the Group Income Statement
Actuarial gain on defined benefit pension scheme 6 14.8 4.3
Impact of IFRIC 14 on defined benefit pension scheme 6 (16.2) 3.4
Tax relating to components of other comprehensive income that will not be reclassified 8 0.1 (2.7)
(1.3) 5.0
Items that may be reclassified to the Group Income Statement
Gain on cash flow hedges 29 0.6 1.7
Currency translation differences (0.2) -
Tax relating to components of other comprehensive income that may be reclassified 8 (0.1) 0.2
0.3 1.9
Other comprehensive income for the year (1.0) 6.9
Profit for the year 34.8 28.7
Total comprehensive income for the year 33.8 35.6
Total comprehensive income attributable to equity shareholders 33.6 35.6
Total comprehensive income attributable to non controlling interest 0.2 -
1 -Restatement in respect of retirement benefit obligations and disposal of MMC business, see Note 34.
Group Balance Sheet at 31 August 2014
£m Note 2014 2013
Non-current assets
Intangible assets 11a 65.7 68.2
Property, plant and equipment 14 29.0 26.6
Interest in jointly controlled entities and associates 15 4.3 4.1
Derivative financial instruments 20 0.6 0.4
Retirement benefit assets 6 0.3 0.2
Deferred tax assets 23 7.2 8.1
107.1 107.6
Current assets
Inventories 16 45.3 44.2
Trade and other receivables 17 128.1 127.1
Cash and cash equivalents 19 20.4 10.1
193.8 181.4
Total assets 300.9 289.0
Current liabilities
Trade and other payables 18 (192.3) (188.7)
Current tax liabilities (6.1) (8.1)
Bank loans and other borrowings 19 (60.9) (72.8)
Obligations under finance leases 21 (0.9) (1.0)
Derivative financial instruments 20 - (0.8)
Retirement benefit obligations 6 (4.1) (4.1)
Provisions 24 (3.4) (7.5)
(267.7) (283.0)
Non-current liabilities
Retirement benefit obligations 6 (17.2) (19.2)
Bank loans and other borrowings 19 (48.4) (34.0)
Obligations under finance leases 21 (3.2) (0.8)
Other non-current liabilities 22 (1.4) (1.6)
Deferred tax liabilities 23 (3.2) (4.5)
Non-current provisions 24 (1.9) (2.8)
(75.3) (62.9)
Total liabilities (343.0) (345.9)
Total net liabilities (42.1) (56.9)
£m Note 2014 2013
Equity
Called up share capital 28(a) 9.5 9.2
Share premium account 28(c) 5.3 1.2
Demerger reserve 29(a) (280.1) (280.1)
ESOP reserve 29(b) (5.2) (1.5)
Hedging & translation reserve 29(c) (0.3) (0.6)
Retained earnings 30 228.5 214.9
Total shareholders equity (42.3) (56.9)
Non- controlling interests in equity 0.2 -
Total equity (42.1) (56.9)
The accounts were approved by the Board of Directors and authorised for issue on 15 October 2014 and were signed on its
behalf by:
Registered number - 05195191
Mark Cashmore Nick Gresham
Group Chief Executive Chief Financial Officer
Group Statement of Changes in Equity for the year ended 31 August 2014
£m Share capital Share Premium account Demerger reserve ESOP reserve Hedging & translation reserve Retained earnings Non- controlling interests in equity Total
Balance at 31 August 2012- reported 9.2 0.6 (280.1) (1.7) (2.3) 196.7 - (77.6)
Profit for the year - - - - - 28.7 - 28.7
Gain on cash flow hedges - - - - 1.7 - - 1.7
Actuarial gain on defined benefit pension scheme - - - - - 4.3 - 4.3
Impact of IFRIC 14 on defined benefit pension scheme - - - - - 3.4 - 3.4
Tax relating to components of other comprehensive income - - - - - (2.5) - (2.5)
Total comprehensive income for the year - Restated1 - - - - 1.7 33.9 - 35.6
Issue of share capital - 0.6 - - - - - 0.6
Dividends paid - - - - - (16.0) - (16.0)
Employee share schemes - - - 0.2 - (0.2) - -
Recognition of share based payments - - - - - 0.5 - 0.5
Balance at 31 August 2013 - Restated1 9.2 1.2 (280.1) (1.5) (0.6) 214.9 - (56.9)
Profit for the year - - - - - 34.6 0.2 34.8
Gain on cash flow hedges - - - - 0.6 - - 0.6
Actuarial gain on defined benefit pension scheme - - - - - 14.8 - 14.8
Impact of IFRIC 14 on defined benefit pension scheme - - - - - (16.2) - (16.2)
Currency translation differences - - - - (0.2) - - (0.2)
Tax relating to components of other comprehensive income - - - - (0.1) 0.1 - -
Total comprehensive income for the year - - - - 0.3 33.3 0.2 33.8
Issue of share capital 0.3 4.1 - - - - - 4.4
Purchase of own shares - - - (6.3) - - (6.3)
Dividends paid - - - - - (17.7) - (17.7)
Employee share schemes - - - 2.6 - (2.6) - -
Recognition of share based payments net of tax - - - - - 0.6 - 0.6
Balance at 31 August 2014 9.5 5.3 (280.1) (5.2) (0.3) 228.5 0.2 (42.1)
1 - Restatement in respect of retirement benefit obligations, see Note 34.
Group Cash Flow Statement for the year ended 31 August 2014
£m Note 2014 2013
Net cash inflow from operating activities 27 47.4 37.9
Investing activities
Dividends received from associates 0.2 -
Acquisitions 12 (0.3) (5.1)
Purchase of property, plant and equipment (6.8) (5.0)
Purchase of intangible assets (3.5) (2.8)
Net cash used in investing activities (10.4) (12.9)
Financing activities
Interest paid (6.1) (4.0)
Dividend paid (17.7) (16.0)
Repayments of obligations under finance leases (1.3) (2.0)
Proceeds on issue of shares 0.7 0.7
Purchase of shares for Employee Benefit Trust (6.3) (2.3)
Repayments of borrowings (34.0) -
New bank loans raised 50.0 -
Increase / (decrease) in borrowings (11.9) 3.7
Net cash (used in)/ from financing activities (26.6) (19.9)
Net increase in cash and cash equivalents 10.4 5.1
Effect of foreign exchange rate changes (0.1) (0.1)
10.3 5.0
Opening net cash and cash equivalents 10.1 5.1
Closing net cash and cash equivalents 19 20.4 10.1
Analysis of net debt
£m Note 2014 2013
Cash and cash equivalents 19 20.4 10.1
Current borrowings 19 (60.9) (72.8)
Non-current borrowings 19 (48.4) (34.0)
Net borrowings (88.9) (96.7)
Finance lease liabilities 21 (4.1) (1.8)
Net debt (93.0) (98.5)
Notes to the accounts
1. Accounting policies (a) Basis of consolidation Connect Group PLC ('the Company') is a company incorporated in the UK under Companies Act 2006. The Business combinations and goodwill The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued, liabilities incurred or assumed at the date of exchange. Acquisition related costs are recognised in profit or loss as incurred. Any deferred or contingent purchase consideration is recognised at fair value over the period of entitlement. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for in equity. Any deferred or contingent payment deemed to be remuneration as opposed to purchase consideration in nature is recognised in profit or loss as incurred, and excluded from the acquisition method of accounting for business combinations. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured, initially, at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The non-controlling interest is measured, initially, at the non-controlling interest's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.Goodwill arising on all acquisitions is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The carrying value is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets arising under a business combination (acquired intangibles) are capitalised at fair value as determined at the date of exchange and are stated at fair value less accumulated amortisation and impairment losses. Amortisation of acquired intangibles is charged to the income statement on a straight-line basis over the estimated useful lives as follows: Customer relationships - 2.5 to 7.5 years Trade name - 5 to 7.5 years Software and development costs - 3 to 7 years In the current year the estimated useful lives for customer relationships and trade names have been reduced from a maximum of 10 years to a maximum of 7.5 years based upon an assessment of future contractual renewal rates. Computer software and internally generated development costs which are not integral to the related hardware are capitalised separately as an intangible asset and stated at cost less accumulated amortisation and impairment losses. Assets held under finance leases are amortised over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. All intangible assets are reviewed for impairment in accordance with IAS 36 'Impairment of Assets' when there are indications that the carrying value may not be recoverable. Restatement of IAS 19 Revised - retirement benefit obligation IAS 19 (as revised in June 2011) 'Employee Benefits' has been adopted by the Group for the financial year commencing 1 September 2013. The interest cost and expected return on defined-benefit pension scheme assets used in the previous version of IAS 19 are replaced with a 'net interest' amount, which is calculated by applying a discount rate to the net defined benefit liability or asset. Furthermore, IAS 19 (revised) also introduces more extensive disclosures in the presentation of the defined benefit cost, including the separate disclosure of the scheme's administrative expenses. IAS 19 (revised) has been applied retrospectively in accordance with IAS 8. The comparative income statement has been restated, the impact being to reduce profits by £2.4m for the year ended 31 August 2013, as shown in Note 34. The impact to underlying earnings per share of the above changes for the year ended 31 August 2013 is a reduction of 1.3p. The impact on underlying diluted earnings per share for the year ended 31 August 2013 is a reduction of 1.3p. As the Company has always recognised actuarial gains and losses immediately, there is no effect on the prior year defined benefit obligation and balance sheet disclosure. Additionally, there is no impact on the pension liability or net assets, cash flows (including tax payments) or covenants as a result of this change. (c) Estimates and judgements The preparation of accounts requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made in the accounts for the year ended 31 August 2014 are: (d) Adjusted measures The Group uses certain measures for internal reporting purposes and employee incentive arrangements. The terms 'net debt', 'free cash flow', 'underlying profit', 'Adjusted EBITDA' and 'non-recurring and other items' are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies. The following are the key non-IFRS measures identified by the Group: Underlying profit Profit before non-recurring and other items. Non-recurring and other items Non-recurring and other items are material items of income or expense and include certain Mergers & Acquisitions related costs, business restructuring costs and network re-organisation costs including those relating to strategy changes which are not normal operating costs of the underlying business. They are disclosed and described separately in the accounts where it is necessary to do so to provide further understanding of the financial performance of the Group. Free cash flow Free cash flow is calculated as group underlying operating profit adjusted for depreciation, amortisation, movements in working capital, capital expenditure, net interest, tax and cash pension funding and excludes non-recurring items, dividends, new finance lease, share purchases and any acquisition related costs. Adjusted EBITDA Adjusted EBITDA is calculated as operating profit before depreciation, amortisation and non-recurring items. In line with loan agreements adjusted EBITDA used for covenant calculations is calculated as operating profit before depreciation, amortisation, non-recurring items and share based payments charge but after adjusting for the last 12 months of profits for any acquisitions or disposals made in the year. Net debt Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases. (e) Revenue Revenue from the sale of goods is recognised when goods are delivered and title has passed. Revenue represents the amounts receivable for goods and services provided in the normal course of business, net of discounts, returns, VAT and other sales related taxes. (f) Operating profit Operating profit is stated after charging non recurring and other items of an exceptional nature and after the share of results of associates but before investment income and finance costs. (g) Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable based on the taxable profit for the year, using tax rates enacted, or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years. Deferred tax is provided on the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is calculated using tax rates enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary differences can be utilised. (h) Dividends Interim and final dividends are recorded in the financial statements in the period in which they are paid. (o) Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. (p) Treasury Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued are recorded at the proceeds received, net of direct issue costs. Bank borrowings Interest bearing bank loans and overdrafts are initially measured at fair value (being proceeds received, net of direct issue costs), and are subsequently measured at amortised cost, using the effective interest rate method. Finance charges, including premiums payable on settlement or redemptions and direct issue costs are accounted for on an accruals basis and taken to the income statement using the effective interest rate method and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise. Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to reduce exposure to interest rate movements. The Group does not hold derivative financial instruments for speculative purposes. Derivative financial instruments are initially recognised at fair value on the date a derivative is entered into and are subsequently re-measured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. Where a derivative financial instrument is designated as a cash flow hedging instrument, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. The ineffective part of any gain or loss is recognised immediately in the income statement. When the forecast transaction subsequently results in the recognition of a non-financial asset or liability the associated cumulative gain or loss is removed from equity and included in the initial cost of the non-financial asset or liability. When the forecast transaction subsequently results in the recognition of a financial asset or liability, the associated cumulative gain or loss that was recognised directly in equity is reclassified into the income statement in the same period during which the asset acquired or liability assumed affects the income statement. Changes in the fair value of derivative financial instruments, where they are not designated as hedging instruments, are recognised in the income statement as operating costs. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the net income or expense for the year. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not clearly and closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the income statement. Foreign currencies Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. (u) Changes in accounting policies New Standards and Interpretations not yet applied At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group and which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): − IFRS 9 'Financial Instruments: Classification and measurement' - effective for accounting periods beginning on or after 1 January 2018.− IFRS 10 'Consolidated Financial Statements'− IFRS 10, IFRS 12 and IAS 27 (amended) 'Investment Entities'− IFRS 11 'Joint Arrangements'− IFRS 12 "Disclosure of Interest in Other Entities"− IAS 19 (amended) 'Defined Benefit Plans: Employee Contributions'− IAS 27 (revised) 'Separate Financial Statements'− IAS 28 (revised) 'Investments in Associates and Joint Ventures'− IAS 32 (amended) 'Offsetting Financial Assets and Financial Liabilities'− IAS 32 (amended) 'Offsetting Financial Assets and Financial Liabilities'− IAS 39 (amended) 'Novation of Derivatives and Continuation of Hedge Accounting' The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group, except for IFRS 9 'Financial Instruments', which will introduce a number of changes in the presentation of financial instruments. New Standards and Interpretations applied for the first time. IAS 1 (revised) requires that items of Other comprehensive income that may in future be recycled to the Consolidated Income Statement are presented separately from those which will not. This presentational change has been made to the Consolidated Statement of Comprehensive Income in the current year. The following Standards with an effective date of 1 January 2013 have been adopted without any significant impact on the amounts reported in these financial statements: − IFRS 7 (amended) 'Disclosures - Offsetting Financial Assets and Financial Liabilities'− IFRS 13 'Fair Value Measurement'− IAS 12 (amended) 'Deferred Tax: Recovery of Underlying Assets'
Group accounts for the year ended 31 August 2014 comprise the Company and, its subsidiaries (together referred to as the 'Group') and the Group's interests in jointly
controlled entities and associates. Subsidiary undertakings acquired during the period are included in the Group Accounts from the date of acquisition. All significant
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