- Part 2: For the preceding part double click ID:nRSa2782Ca
* - Net cash and cash equivalents (grossed up above in accordance with IAS 32) 10,836 8,701
** - restated for gross up of cash and bank overdraft position in accordance
with IAS 32
Consolidated statement of changes in equity
for the year ended 31 March 2016
Share capital Share premium account £'000 Capital redemption reserve £'000 Merger reserve £'000 Translation reserve £'000 Other reserves £'000 Profit and loss reserve £'000 Total equity £'000
£'000
At 31 March 2014 646 75,879 4,786 454 (212) (307) (31,352) 49,894
Loss for the year - - - - - - (17,912) (17,912)
Other comprehensive loss - - - - (656) - - (656)
Total comprehensive loss - - - - (656) - (17,912) (18,568)
Share placement 199 7,151 - - - - - 7,350
Share issue costs - (273) - - - - - (273)
Share based payment credit - - - - - - 438 438
At 31 March 2015 845 82,757 4,786 454 (868) (307) (48,826) 38,841
Loss for the year - - - - - (12,622) (12,622)
Other comprehensive income - - - - 123 - - 123
Total comprehensive loss - - - - 123 - (12,622) (12,499)
Share placement 806 27,394 - - - - - 28,200
Share issue costs - (1,073) - - - - - (1,073)
Incentive share conversion 109 - - - - - - 109
Share based payment credit - - - - - - 792 792
At 31 March 2016 1,760 109,078 4,786 454 (745) (307) (60,656) 54,370
Consolidated statement of cash flows
for the year ended 31 March 2016
Note Year ended 31 March 2016 Year ended 31 March 2015
£'000 £'000
Operating activities
Loss before tax (13,338) (18,697)
Non-cash adjustment to reconcile loss before tax to net cash flows
Depreciation of property, plant and equipment 415 630
Amortisation of intangible assets 1,530 1,971
Impairment of goodwill 3,582 6,250
Impairment of intangible assets 37 -
Share-based payment transaction expense 792 438
Unrealised loss / (gains) on foreign exchange 42 (95)
Disposal of fixed assets 15 56
Finance income (227) (45)
Finance costs 32 -
Working capital adjustments:
Increase in trade and other receivables (2,452) (1,262)
Decrease / (increase) in inventories 2,088 (604)
Decrease in trade and other payables (1,047) (62)
Increase / (decrease) in deferred revenue 300 (285)
Decrease in provisions (8) (419)
Cash utilised in operations (8,239) (12,124)
Interest paid (32) -
Tax received 1,146 3
Net cash flow from operating activities (7,125) (12,121)
Investing activities
Purchase of property, plant and equipment (375) (532)
Expenditure on intangible assets (12) (3)
Payment of deferred consideration - -
Interest received 27 45
Acquisition of subsidiary, net of debt acquired 9 (17,511) -
Net cash flow utilised in investing activities (17,871) (490)
Financing activities
Proceeds from issue of shares 28,200 7,350
Share issue costs (1,073) (273)
Net cash flow from financing activities 27,127 7,077
Net increase / (decrease) in cash and cash equivalents 2,131 (5,534)
Net cash and cash equivalents at beginning of year 8,701 14,246
Effect of foreign exchange rate changes on cash and cash equivalents 4 (11)
Net cash and cash equivalents at end of year 10,836 8,701
Reconciliation of net cash and cash equivalents
Cash and cash equivalents (disclosed within current assets) 25,599 17,407
Bank overdraft (disclosed within current liabilities) (14,763) (8,706)
Net cash and cash equivalents at end of year 10,836 8,701
Notes to the financial information
1. Accounting policies
Basis of preparation
The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRSs') as adopted by the
European Union as they apply to the financial statements of the Group for the
year ended 31 March 2016 and applied in accordance with the Companies Act
2006.
The Financial Statements were authorised for issue by the Board of Directors
on 26 June 2016 and the Statement of Financial Position was signed on the
Board's behalf by Zak Doffman and Sharon Cooper.
All values are rounded to £'000 except where otherwise stated.
The Company is a public limited company incorporated and domiciled in England
and Wales and whose shares are quoted on AIM, a market operated by the London
Stock Exchange.
Accounting policies
The accounting policies which apply in preparing the financial statements for
the period are set out below. These policies have been consistently applied to
all periods presented in these consolidated financial statements. The
comparative statement of comprehensive income has been re-presented as if an
operation discontinued during the current year had been discontinued from the
start of the comparative year (see note 10). The comparative statement of
financial position has been restated to gross up cash and cash equivalent
balances and bank overdraft positions (all held within a pooling arrangement
within the Group) in accordance with IAS 32.
Basis of measurement
Going concern
The Group's loss before tax for continuing operations for the year was £8.5
million (2015: £18.8 million). As at 31 March 2016 the Group had net current
assets of £19.9 million (2015: £18.1 million) and net cash reserves of £10.8
million (2015: £8.7 million).
In April 2015 the Group entered into an agreement with HSBC Bank plc for a
£5.0 million secured working capital facility to provide pre and post-shipment
finance in relation to export activities across the Group. The facility is
partially guaranteed by the UK Export Finance Guarantees Department. The
interest rate for any borrowings under this facility is 3% over the bank's
sterling base rate. The facility was reviewed and renewed in September 2015 as
part of the annual review of our wider banking facilities with HSBC Bank Plc.
There are no indications that the facility (along with our wider banking
facilities) will not be renewed again in September and as a result this
facility has been factored in to cash flow projections for the Group. Should
the facility not be renewed in September, mitigating actions can be taken to
manage our cash flows.
The Board has reviewed these cash flow forecasts for the period up to and
including 30 September 2017. These forecasts and projections take into account
reasonably possible changes in trading performance and show that the Group
will be able to operate within the level of current funding resources. The
Directors therefore believe there is sufficient cash available to the Group to
manage through these requirements.
As with all businesses, there are particular times of the year where the
Group's working capital requirements are at their peak. However, the Group is
well placed to manage business risk effectively and the Board reviews the
Group's performance against budgets and forecasts on a regular basis to ensure
action is taken where needed.
The Directors therefore are satisfied that the Group has adequate resources to
continue operating for a period of at least 12 months from the approval of
these accounts. For this reason they have adopted the going concern basis in
preparing the financial statements.
2. Segmental information
During the year the Group has been organised into 'Services' and 'Solutions'
(previously known as 'Products') Divisions for internal management, reporting
and decision-making, based on the nature of the products and services of the
Group's businesses. Managers have been appointed within Services and
Solutions, who report to members of the Board. These are the reportable
operating segments in accordance with IFRS 8 'Operating Segments'.
The Group's Services Division is predominantly focused on the UK market and
integrates third party technology and own product into UK Services customers.
The Services Division is established with a number of key UK Government
organisations in the secure government, law enforcement and transportation
sectors. As announced on 1 April 2016, the Board believes that the Services
Division is no longer strategic to the Group, and has signed an agreement for
the disposal of the business. The sale completed on 19 May 2016. Full details
are provided in note 10.
The Group's Solutions Division is focused on the advanced surveillance market.
This covers image and data capture (for example, stand-off passive body
scanning and unattended ground sensors), a range of processing and enhancement
techniques (for example, thermal image processing, image stabilisation, and
enhancing low light performance), image transmission (both wired and wireless
technologies) and a range of analytics algorithms.
In accordance with IFRS 8, the Group has derived the information for its
operating segments using the information used by the Chief Operating Decision
Maker. The Group has identified the Board of Directors as the Chief Operating
Decision Maker as it is responsible for the allocation of resources to
operating segments and assessing their performance.
Central overheads, which primarily relate to operations of the Group function,
are not allocated to the business units. Group financing (including finance
costs and finance revenue) and income taxes are managed centrally and are not
allocated to an operating segment. No operating segments have been aggregated
to form the above reportable segments.
Services (discontinued) Solutions (continuing) Central (continuing) Total
2016 2016 2016 2016
£'000 £'000 £'000 £'000
Total segment revenue 3,777 21,427 - 25,204
Inter-segment revenue - (291) - (291)
Revenue 3,777 21,136 - 24,913
Depreciation 66 349 - 415
Segment adjusted operating loss (565) (1,277) (3,594) (5,436)
Amortisation of intangibles initially recognised on acquisition (120) (1,320) - (1,440)
Share based payment charge - - (792) (792)
Acquisition related costs and exceptional write off of bad debt - - (1,718) (1,718)
Exit costs attributable to discontinued operations (528) - - (528)
Impairment of goodwill and intangibles (3,619) - - (3,619)
Segment operating loss (4,832) (2,597) (6,104) (13,533)
Loss attributable to discontinued operations 4,832
Segment operating loss from continuing operations (8,701)
Finance income 227
Finance costs (32)
Loss before tax from continuing operations (8,506)
Income tax credit 716
Loss for the year from continuing operations (7,790)
Services (discontinued) Solutions (continuing) Central (continuing) Total
2015 2015 2015 2015
£'000 £'000 £'000 £'000
Total segment revenue 7,460 12,272 - 19,732
Inter-segment revenue - (330) - (330)
Revenue 7,460 11,942 - 19,402
Depreciation 55 575 - 630
Segment adjusted operating profit/(loss) 538 (7,046) (3,578) (10,086)
Amortisation of intangibles initially recognised on acquisition (430) (1,435) - (1,865)
Share based payment charge - - (438) (438)
Loss on disposal of businesses - (103) - (103)
Impairment of goodwill - (6,250) - (6,250)
Segment operating profit/(loss) 108 (14,834) (4,016) (18,742)
Profit attributable to discontinued operations (108)
Operating loss attributable to continuing operations (18,850)
Finance income 45
Loss before tax from continuing operations (18,805)
Income tax credit 785
Loss for the year from continuing operations (18,020)
Analysis of revenue by customer
There have been three (2015: none) individually material customers in the
Solutions operating segment during the year. These customers individually
represented £2,763,000, £2,628,000 and £2,200,000 of Group turnover for the
year.
There have been no (2015: one) material customers in the Services operating
segment during the year. In the prior year the customer represented £3,062,000
of Group turnover for the year.
Other segment information
The following table provides disclosure of the Group's continuing revenue
analysed by geographical market based on the location of the customer
2016 2015
£'000 £'000
United Kingdom 3,108 4,849
United States of America 5,340 1,536
Indonesia 3,996 333
Malaysia 2,962 43
Rest of World 5,730 5,181
21,136 11,942
The Group's non-current assets by geography are detailed below:
2016 2015
£'000 £'000
United Kingdom 16,545 20,961
United States of America 19,003 -
35,548 20,961
3. Adjusted loss before tax
An adjusted loss before tax measure has been presented as the Directors
believe that this is a more relevant measure of the Group's underlying
performance. Adjusted loss is not defined under IFRS and has been shown as the
Directors consider this to be helpful for a better understanding of the
performance of the Group's underlying business. It may not be comparable with
similarly titled measurements reported by other companies and is not intended
to be a substitute for, or superior to, IFRS measures of profit. The net
adjustments to loss before tax are summarised below:
2016 2015
£'000 £'000
Amortisation of intangibles initially recognised on acquisition 1,320 1,435
Share based payment (i) 792 438
Acquisition related costs and exceptional write off of bad debt (ii) 1,718 -
Loss on disposal of businesses (iii) - 103
Impairment of goodwill and intangibles (iv) - 6,250
Total adjustments 3,830 8,226
(i) The basis of calculation has been updated to adjust for share based
payment charges. The Directors consider this to be a more helpful measure in
understanding the true underlying costs of the business. The performance
condition associated with LTIP awards made in July 2015 are subject to a
non-market based performance measure. Accordingly, should these LTIP awards
fail to vest, the share based payment charge will be added back to the income
statement. Historic LTIP awards have been made with a market based performance
measure which in the event that LTIPs fail to vest the share based payment
charge is not added back to the income statement. To date the majority of
historic LTIP awards have failed to vest. The revised calculation provides
consistency over time allowing a better understanding of the financial
position of the Group.
(ii) During the year ended 31 March 2016 the Group acquired 100% of the
share capital of Brimtek Inc. Costs in relation to the acquisition totalled
£1.7 million. Included within these costs is £0.5 million in relation to an
amount due from Brimtek to Digital Barriers which was fully provided for
immediately prior to the acquisition of Brimtek. Acquisition costs remained
largely unpaid as at 31 March 2016.
(iii) During the year ended 31 March 2015 Margaux Matrix Limited and
Visimetrics (UK) Limited, two wholly owned subsidiaries, were each disposed of
for £1 consideration.
(iv) During the year ended 31 March 2015 a £6.25 million non-cash impairment
charge has been recorded against the carrying value of goodwill within the
Solutions division and has been separately disclosed within Other Costs in the
Consolidated Income Statement. This impairment reflects a period of product
development, which has delayed the Group's ability to leverage value from the
integrated businesses in the expected timeframes, along with delays in sales
cycles as reported to the market by the Group on 11 August 2014.
4. Loss per share
Unadjusted loss per share
Loss after taxation 2016 Weighted average number of shares 2016 No. Loss per share 2016 Pence Loss after taxation 2015 Weighted average number of shares 2015 No. Loss per share 2015 Pence
£'000 £'000
Basic loss per share - continuing operations (7,790) 105,052,916 (7.42) (18,020) 69,305,105 (26.0)
Diluted loss per share - continuing operations (7,790) 105,052,916 (7.42) (18,020) 69,305,105 (26.0)
Basic loss per share - continuing and discontinued operations (12,622) 105,052,916 (12.01) (17,912) 69,305,105 (25.85)
Diluted loss per share - continuing and discontinued operations (12,622) 105,052,916 (12.01) (17,912) 69,305,105 (25.85)
Adjusted loss per share
Loss after taxation 2016 Weighted average number of shares 2016 Loss per share 2016 Pence Loss after taxation 2015 Weighted average number of shares 2015 Loss per share 2015 Pence
£'000 No. £'000 No.
Loss from continuing operations attributable to ordinary shareholders (7,790) 105,052,916 (7.42) (18,020) 69,305,105 (26.0)
Add back:
Amortisation of acquired intangible assets, net of tax 1,264 - 1.20 1,341 - 1.93
Share based payment charge* 792 - 0.75 438 - 0.63
Acquisition related costs and exceptional write off of bad debt 1,718 - 1.64 - - -
Disposal of businesses - - - 103 - 0.15
Impairment of goodwill - - - 6,250 - 9.02
Basic adjusted loss per share (4,016) 105,052,916 (3.82) (9,888) 69,305,105 (14.27)
Diluted adjusted loss per share (4,016) 105,052,916 (3.82) (9,888) 69,305,105 (14.27)
*The basis of calculation has been adjusted to include share based payments
charges. Comparative figures have been updated to incorporate this change. The
impact of this change is to increase the adjusted loss per share by 0.75 pence
in the current year (2015: 0.63 pence)
The Directors consider that adjusted loss per share better reflects the
underlying performance of the Group.
The inclusion of potential Ordinary Shares arising from LTIPs and Incentive
Shares would be anti-dilutive. Basic and diluted loss per share has therefore
been calculated using the same weighted number of shares. If the Incentive
Shares had become convertible on 31 March 2016 and based on the share price of
£0.475 (2015: £0.385) on that day, no (2015: no) Ordinary Shares would have
been issued in respect of the Incentive Share conversion. Full details of the
basis of calculation is given in the Admission Document available on the
Company's website. The Incentive Shares will immediately vest on change of
control of the Company.
5. Goodwill
Goodwill
£'000
At 31 March 2014 24,802
Impairment of goodwill (6,250)
Exchange movements (366)
At 31 March 2015 18,186
Acquisition of Brimtek 8,309
Impairment of goodwill associated with Services division (3,582)
Exchange movements 410
At 31 March 2016 23,323
Carrying amount of goodwill allocated to operating segments
2016 2015
£'000 £'000
Services - 3,582
Solutions 23,323 14,604
23,323 18,186
Goodwill acquired through business combinations has been allocated for
impairment testing purposes to two groups of cash-generating Units ('CGUs').
These groups of CGUs are its two operating segments 'Services' and 'Solutions'
(previously known as 'Products') as the goodwill relates to synergies at this
level. The Group conducts annual impairment tests on the carrying value of the
CGUs in the statement of financial position. Although required to perform
annual impairment tests, these do not have to take place at 31 March but the
test should be consistently carried out at the same time annually.
As indicated in the interim results announcement on 11 December 2015, the
Board believed that the Services division was no longer strategic to the
Group. As a consequence the Board initiated a plan for the potential disposal
of the business, and on 1 April the Board signed an agreement for the proposed
disposal of the business for nominal consideration. Consequently the
recoverable amount of the Services CGU is based on fair value less costs of
disposal, being the sales price of £1. As a result the carrying value of the
goodwill attributable to the Services segment was reduced to £nil in the year
ended 31 March 2016. A charge of £3,582,000 has been included in the loss
attributable to discontinued operations.
The Group carries out its annual impairment testing for the Solutions (and
historically for the Services) division as at 28 February each year.
Impairment testing is only re-performed if an impairment triggering event
occurs in the intervening period.
Value in use calculations are used to determine the recoverable amount of the
cash-generating units. The key assumptions for the value in use calculations
include the forecast revenue growth of the CGU, cost allocations, the discount
rate applied and the long-term growth rate of the net operating cash flows,
along with the gross margin for Solutions. In determining the key assumptions,
management have taken into consideration the nature of the markets in which it
operates, expected growth of the markets in which it operates, the ability of
the CGU to exploit those opportunities and the current economic climate, the
resulting impact on expected growth and pre-tax discount rates, and the
pressure this places on impairment calculations.
The Group prepares cash flow forecasts for the cash-generating unit based on
the most recent three-year detailed financial forecasts. The table below sets
out the key assumptions included in these forecasts:
Solutions Services
2016 2015 2015
Revenue growth compound from FY16 to FY19 (years one to three) (1) 40% 46% 0%
Revenue growth from FY20 onwards (year four onwards) (2) 2.5% 2.5% 2.5%
Gross margin improvement compound from FY16 to FY19 (years one to three) (3) 1% 8% 0%
Discount rate (4) 10.6% 10.6% 10.0%
(1) Forecasts are based on an internal assessment of the strength of the CGU
in the markets in which it operates with the expected growth reflecting the
opportunities in its core strategic markets, sales pipeline and relationships
being developed.
(2) Revenue growth of 2.5% is an external estimate of the UK's long-term
growth rate.
(3) Gross margin is forecast to improve marginally against FY16 as the product
mix continues to evolve through the next three years to include a greater
proportion of software sales.
(4) Discount rate is based on the weighted cost of capital applying to
businesses in the same sector, and reflects the current market assessments of
the time value of money and of the risks specific to the cash generating
units.
No impairment loss arises in the year ended 31 March 2016 for Solutions based
on these base assumptions. In the year ended 31 March 2015 an impairment test
was performed on the carrying value of Solutions division as at 30 September
2014 in addition to the annual impairment testing date. The 30 September
impairment review was based on revenue growth in years two and three forecast
at 40% and 20% per annum respectively, with revenue growth of 2.5% assumed
from year four onwards, being an external estimate of the UK's long-term
growth rate. A discount rate of 11.6% was applied. Based on these assumptions
the recoverable amount was determined to be £24.5 million and an impairment
charge of £6.25 million arose.
No further impairment loss arose for Solutions based on the assumptions
detailed in the tables above for the 28 February impairment review.
The Directors consider that an absolute change in the key assumptions set out
below is reasonably possible.
Solutions
2016 2015
Reduction in forecast revenue growth compound from FY16 to FY19 (years one to three) -9% -5%
Reduction in forecast revenue growth FY20 onwards (year four onwards) -2.5% -2.5%
Increase in discount rate (4) 2.5% 2.5%
If these assumptions were to change in isolation, they would not result in an
impairment charge of goodwill. The same applied to the prior year assumptions.
The value in use calculations are most sensitive to changes in assumptions
around forecast revenue growth and gross margin improvement. An absolute
reduction in the forecast revenue growth of 10% (compound over years one to
three) would result in the recoverable amount of Solutions goodwill being
equal to the carrying amount (a reduction in the headroom from £17.5 million
to £nil). In the prior year an absolute reduction in the forecast revenue
growth of 7% (compound over years one to three) would have resulted in the
recoverable amount of Solutions goodwill being equal to the carrying amount (a
reduction in the headroom from £14.4 million to £nil).
If all key assumptions were to change in combination, a further impairment
charge would be recognised for the current carrying value of goodwill in
relation to the Solutions segment.
Following the completion of the fair value exercise ('the acquisition
accounting'), goodwill of £8.3 million was recognised on acquisition of
Brimtek Inc. The acquisition completed on 1 March 2016 and the acquisition
accounting was performed subsequent to the annual impairment testing date. A
further impairment review was not performed as there were no indicators of
impairment on the goodwill attributable to Brimtek Inc. The acquisition
accounting will be further reviewed in the coming year.
6. Trade and other receivables
Gross carrying amounts Provision for impairment Net carrying amounts Gross carrying amounts Provision for impairment Net carrying amounts
2016 2016 2016 2015 2015 2015
£'000 £'000 £'000 £'000 £'000 £'000
Trade receivables 11,814 (431) 11,383 9,112 (1,208) 7,904
Prepayments 780 - 780 439 - 439
Accrued income 339 - 339 350 - 350
Social security and other taxes 581 - 581 - - -
Other receivables 156 - 156 176 - 176
13,670 (431) 13,239 10,077 (1,208) 8,869
The Group experiences credit risk which reflects its early stage of
development into international markets, as reflected in the provision for
doubtful debts and ageing analysis. As the Group further establishes itself
and its products into new and existing geographies, so its exposure to credit
risk is expected to reduce.
7. Trade and other payables
2016 2015
£'000 £'000
Current
Trade payables 4,833 3,100
Accruals 2,737 1,296
Deferred income 774 419
Social security and other taxes 441 279
Other payables 341 167
9,126 5,261
In April 2015 the Group entered into an agreement with HSBC Bank plc for a
£5.0 million secured working capital facility to provide pre and post-shipment
finance in relation to export activities across the Group. The facility is
partially guaranteed by the UK Export Finance Guarantees Department. The
interest rate for any borrowings under this facility is 3% over the bank's
sterling base rate. The facility was reviewed and renewed as part of our wider
annual banking facility review with HSBC Bank plc in September. The facility
was not being utilised at 31 March 2016, but at time of approval of the
financial statements is £600,000 (2015: £nil).
8. Share capital
Number £'000
Authorised, allotted, called-up and fully paid
Ordinary Shares of 1 pence each
At 31 March 2014 64,624,616 646
Shares issued in the year 19,864,865 199
At 31 March 2015 84,489,481 845
Shares issued in the year 80,616,758 806
At 31 March 2016 165,106,239 1,651
Number £'000
Authorised, allotted, called-up and fully paid
Incentive Shares of £1 each
At 31 March 2015 163,124 163
At 31 March 2016 54,375 54
Authorised, allotted, called-up and fully paid
Deferred Shares of £1 each
At 31 March 2015 - -
At 31 March 2016 108,749 109
On 5 January 2015 19,864,865 Ordinary Shares were issued at 37 pence per share
for a total cash consideration of £7,350,000. On 30 December 2015 80,571,429
Ordinary Shares were issued at 35 pence per share for a total consideration of
£28,200,000, primarily funds to be used by the group to purchase the share
capital of Brimtek Inc.
In June 2015, share options were exercised resulting in the issue of 45,329
Ordinary Shares.
9. Business combinations
Business combinations in the year ended 31 March 2015 and 2016
On 1 March 2016, the Group acquired 100% of the issued share capital of
Brimtek Inc., a provider of state-of-the-art technical surveillance solutions
to the US defence, homeland security, federal law enforcement and intelligence
communities. Brimtek offers an end-to-end capability for its clients, from
concept design to engineering, manufacturing, integration, delivery, training
and ongoing solution support. These capabilities, together with Brimtek's
substantial US presence and breadth of product offerings, provide the Group
with a consolidated, US-focused platform for growth in this critical market,
together with the opportunity for significant sales synergies with Digital
Barriers in the US market.
Purchase consideration
The purchase consideration for the acquisition was as follows:
Brimtek
£'000
Cash consideration 17,443
Discounted fair value of deferred consideration 2,080
Total consideration 19,523
Pre-tax cost of debt 5.05%
Undiscounted fair value of deferred consideration 2,438
In accordance with IFRS 3R the Directors have assessed the undiscounted fair
value of deferred consideration payable for the acquisition based on a
probability weighted average of expected cash flows. The discounted fair value
of deferred consideration payable has been calculated from the undiscounted
amounts using a pre-tax cost of debt as stated above.
The initial cash consideration paid on completion was £17.4 million. Deferred
consideration of up to $20 million is payable over the period to 31 December
2017, subject to revenue and gross margin targets. The deferred consideration
can be settled in cash, or a mixture of cash and shares, with up to 95% of the
deferred consideration capable of being settled in shares at the discretion of
Digital Barriers. Up to $10 million of the deferred consideration is based on
revenue and gross margin targets for the year ended 31 December 2016 and a
further $10 million on the year ended 31 December 2017. Both revenue and gross
margin targets have a threshold at which the deferred consideration starts to
accrue, and targets at which the full deferred consideration is earned. If the
deferred consideration for the year ended 31 December 2016 is not earned in
full, then up to $5 million can be carried forward to the following period and
payable based on overachievement of the revenue and gross margin targets for
that period.
The fair value of deferred consideration at the acquisition date was estimated
at £2.1 million (discounted). This has been estimated based on a weighted
average probability calculation, with probability distributions applied to
various revenue and gross margin ranges. The deferred consideration payable is
sensitive to movements in the revenue and gross margin outcomes versus target.
No deferred consideration is payable at threshold revenue targets or threshold
gross margin targets. A $5 million increase in the revenue earned in the year
ended 31 December 2016 compared to the threshold target (at full target gross
margin) would result in a $2.5 million increase in the deferred consideration
due. Significant increases in the revenue and gross margins of Brimtek Inc
would result in higher fair value of the deferred consideration liability.
Total acquisition costs of £1.7 million were incurred and recorded within the
administration costs line in the income statement. This includes £0.5 million
in relation to an amount due from Brimtek to Digital Barriers which was fully
provided for immediately prior to the acquisition.
Assets and liabilities
The carrying amount and fair value of assets and liabilities in the books of
Brimtek at acquisition were as follows:
Book value at acquisition£'000 Fair value at acquisition£'000
Property, plant and equipment 202 202
Intangible assets 7 11,190
Trade and other receivables* 1,906 1,906
Inventories 2,530 2,530
Debt (68) (68)
Trade and other payables (4,546) (4,546)
Total net assets acquired 31 11,214
Goodwill 8,309
Purchase consideration 19,523
* Gross contractual amounts receivable total £1,986,000, with £80,000 not
expected to be collected based on best estimate at the date of acquisition.
Given the proximity of the acquisition to the year end, the fair value of
assets and liabilities arising from the acquisition are still considered to be
provisional as the Group expects to receive further information relevant to
the net assets acquired.
The goodwill is attributable to the value of expected sales synergies through
a more substantial US presence with access to flagship US government
customers, along with synergies attributable to the Group's operations and the
value of the assembled workforce including industry specific knowledge and
technical skills. Subject to further review, the goodwill recognised is
expected to be deductible for income tax purposes.
From the date of acquisition to the 31 March 2015, the acquired business
contributed £2.9 million revenue, £0.2 million profit before tax and the cash
flows arising from the acquisition include £17.4 million initial cash
consideration on completion and £0.1 million net debt acquired.
If the acquisition had occurred on 1 April 2015, the Group's pro forma annual
revenue and loss before tax for the year ended 31 March 2016 (for continuing
operations), based on unaudited management information for the acquired
entity, would have been approximately £46 million and £7 million
respectively.
Business disposals in the year ended 2015
On 8 May 2014, a Group company concluded a share purchase agreement for the
sale of the entire issued share capital of Margaux Matrix Limited for £1
consideration. The impact of this transaction is not material to the Group and
the Group did not sell any intellectual property as part of the transaction.
On 24 September 2014, a Group company concluded a share purchase agreement for
the sale of the entire issued share capital of Visimetrics (UK) Limited for £1
consideration. The impact of this transaction is not material to the Group and
the Group did not sell any intellectual property as part of the transaction.
On 1 April the Board signed an agreement for the proposed disposal of the
Services segment to its existing management team for £1. See note 10 for
further details.
Movements on deferred consideration
The following movements in the amounts recognised for deferred consideration
have taken place:
£'000
As at 31 March 2015 -
On acquisition of Brimtek 2,080
Exchange movement (62)
As at 31 March 2016 2,018
The exchange movement on the deferred consideration is a translation reserve
movement.
10. Disposal group classified as held for sale
On 1 April the Board signed an agreement for the proposed disposal of the
Services segment to its existing management team for £1. As indicated in the
interim results announcement on 11 December 2015, this follows the view that
the Board believes that the Services division is no longer strategic to the
Group's future. The disposal group was classified as held for sale in March
2016. The sale completed on 19 May 2016. The sale included limited ongoing
customer contracts associated with the Services segment, as well as certain
assets including vehicle leases and limited stock and moveable assets. The
book value of the assets transferred was £0.1 million. In connection with the
sale the Group transferred the division's employees, by way of a TUPE
process.
The following are attributable to the disposal group:
Income statement
2016 2015
£'000 £'000
Revenue 3,777 7,460
Cost of sales (3,114) (5,790)
Expenses (1,348) (1,562)
Exit costs (528) -
Pre-tax (loss) / profit for discontinued operation (1,213) 108
Impairment of goodwill and intangibles on valuing at fair value less costs of disposal (3,619) -
(Loss) / profit attributable to discontinued operation (4,832) 108
Income tax expense - -
No tax arises on disposal.
Loss per share - discontinued operations
Loss attributable to discontinued operations 2016 Weighted average number of shares 2016 No. Discontinued loss per share2016 Pence Profit attributable to discontinued operations 2015 Weighted average number of shares 2015 No. Discontinued profit per share 2015 Pence
£'000 £'000
Basic (loss) / profit per share (4,832) 105,052,916 (4.60) 108 69,305,105 0.16
Diluted (loss) / profit per share (4,832) 105,052,916 (4.60) 108 69,305,105 0.16
The inclusion of potential Ordinary Shares arising from LTIPs and Incentive
Shares would be anti-dilutive. Basic and diluted loss per share has therefore
been calculated using the same weighted number of shares.
Cash flows
Cash flows attributable to the disposal group include:
2016 2015
£'000 £'000
Net cash flows attributable to operating activities (93) (1,847)
Net cash flows attributable to investing activities (9) (143)
Net cash flows attributable to financing activities - -
Assets and liabilities
At the end of March 2016 the carrying amount of assets and liabilities
classified as held for sale are as follows:
Carrying amount after classification as held for sale2016
£'000
Property, plant and equipment -
Inventories 35
Liabilities -
35
This information is provided by RNS
The company news service from the London Stock Exchange