REG - Digital Barriers plc - Final Results <Origin Href="QuoteRef">DGB.L</Origin> - Part 2
29/09/2017 07:13
- Part 2: For the preceding part double click ID:nRSc2040Sa
(207) (4,832)
Loss for the year attributable to owners of the parent (16,680) (12,622)
Other comprehensive income from continuing operations
Other comprehensive income that may be subsequently reclassified to profit and loss:
Exchange differences on retranslation of foreign operations 746 123
Net other comprehensive income to be reclassified to profit or loss in subsequent years 746 123
Total comprehensive loss attributable to owners of the parent (15,934) (12,499)
Consolidated statement of financial position
at 31 March 2017
Note 31 March2017£'000 31 March2016£'000
Assets
Non-current assets
Property, plant and equipment 1,132 828
Goodwill 5 17,076 23,323
Other intangible assets 11,380 11,397
29,588 35,548
Current assets
Inventories 8,018 4,906
Trade and other receivables 6 7,656 13,239
Other financial asset - 193
Current tax recoverable 1,304 1,022
Cash and cash equivalents* 1,002 25,599
17,980 44,959
Non-current assets classified as held for sale - 35
Total assets 47,568 80,542
Equity and liabilities
Attributable to owners of the parent
Equity share capital 8 1,814 1,760
Share premium 109,078 109,078
Capital redemption reserve 4,786 4,786
Merger reserve 454 454
Translation reserve 1 (745)
Other reserves (307) (307)
Retained earnings (76,912) (60,656)
Total equity 38,914 54,370
Non-current liabilities
Deferred tax liabilities 620 57
Financial liabilities - 975
Provisions 90 119
710 1,151
Current liabilities
Trade and other payables 7 7,908 9,126
Financial liabilities - 1,097
Bank overdraft* - 14,763
Provisions 36 35
7,944 25,021
Liabilities directly associated with non-current assets classified as held for sale - -
Total liabilities 8,654 26,172
Total equity and liabilities 47,568 80,542
* - Net cash and cash equivalents (grossed up above in accordance with IAS 32) 1,002 10,836
Consolidated statement of changes in equity
for the year ended 31 March 2017
Share capital Share premium account £'000 Capital redemption reserve £'000 Merger reserve £'000 Translation reserve £'000 Other reserves £'000 Retained Earnings £'000 Total equity £'000
£'000
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
Loss for the year - - - - - - (16,680) (16,680)
Other comprehensive income - - - - 746 - - 746
Total comprehensive loss - - - - 746 - (16,680) (15,934)
Incentive share conversion 54 - - - - - - 54
Share based payment credit - - - - - - 424 424
At 31 March 2017 1,814 109,078 4,786 454 1 (307) (76,912) 38,914
Consolidated statement of cash flows
for the year ended 31 March 2017
Note Year ended31 March2017£'000 Year ended 31 March 2016
£'000
Operating activities
Loss before tax from continuing operations (16,715) (8,506)
Loss before tax from discontinued operations (207) (4,832)
Loss before tax (16,922) (13,338)
Non-cash adjustment to reconcile loss before tax to net cash flows
Depreciation of property, plant and equipment 481 415
Amortisation of intangible assets 1,588 1,530
Impairment of goodwill 7,500 3,582
Impairment of intangible assets - 37
Share-based payment transaction expense 424 792
Unrealised (gains)/loss on foreign exchange (119) 42
Release of deferred consideration (2,329) -
Disposal of fixed assets 5 15
Finance income (1,872) (227)
Finance costs 1,081 32
Working capital adjustments:
Decrease/(increase) in trade and other receivables 5,582 (2,452)
(Increase)/decrease in inventories (3,077) 2,088
Decrease in trade and other payables (840) (1,047)
(Decrease)/increase in deferred revenue (425) 300
Decrease in provisions (29) (8)
Cash utilised in operations (8,952) (8,239)
Interest paid (8) (32)
Tax received 523 1,146
Net cash flow from operating activities (8,437) (7,125)
Investing activities
Purchase of property, plant and equipment (760) (375)
Expenditure on intangible assets (32) (12)
Interest received 19 27
Acquisition of subsidiary, net of debt acquired 288 (17,511)
Net cash flow utilised in investing activities (485) (17,871)
Financing activities
Proceeds from issue of shares - 28,200
Share issue costs - (1,073)
Finance costs (549) -
Net cash flow (utilised)/from financing activities (549) 27,127
Net (decrease)/increase in cash and cash equivalents (9,471) 2,131
Net cash and cash equivalents at beginning of year 10,836 8,701
Effect of foreign exchange rate changes on cash and cash equivalents (363) 4
Net cash and cash equivalents at end of year 1,002 10,836
Reconciliation of net cash and cash equivalents
Cash and cash equivalents (disclosed within current assets) 1,002 25,599
Bank overdraft (disclosed within current liabilities) - (14,763)
Net cash and cash equivalents at end of year 1,002 10,836
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 2017 and applied in accordance with the Companies Act
2006.
The Financial Statements were authorised for issue by the Board of Directors
on 29 September 2017 and the Statement of Financial Position was signed on the
Board's behalf by Tom Black 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.
The consolidated financial statements have been prepared on a historical cost
basis, except:
o Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rates as at the dates of
the initial transactions.
o Derivative financial instruments which are classified as at fair value
through profit or loss.
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.
Basis of measurement
Going concern
As has been previously highlighted in market updates, the Group faces
unpredictable and extended sales cycles associated with a business that sells
predominantly to government customers overseas. This was the case during the
year ended 31 March 2017, where despite headline revenue growth of 25% to
£26.5 million (2016: £21.1 million), several key sales failed to close in the
final quarter of the year and this, together with an impairment charge of £7.5
million, resulted in an loss before tax for continuing operations for the
Group for the year of £16.7 million (2016: £8.5 million). This was clearly a
disappointing result for the Group.
It has become clear that, despite the class-leading nature of our technologies
and the flagship nature of our customers, we cannot successfully operate a
business on the public markets with these material challenges. Therefore, the
Board decided to undertake a far-reaching internal review of the Group was
undertaken.
Full details of this review can be found in the Chairman's Statement. This
review concluded that an alternative corporate and funding structure would be
in the best interests of the Group, its shareholders and stakeholders. It
further concluded, following a discreet marketing exercise that it would be
highly unlikely that a single buyer for the whole Group would be found and
therefore a sales process for the Video Business is currently being
undertaken, managed by Investec Bank plc.
Following a multi-staged and competitive process, the Board received a number
of indicative offers from interested parties and is currently in advanced
discussions with two parties to sell the Video Business (the "Potential
Transaction") which is expected to conclude with one of those parties in the
near future. The quantum of the consideration being proposed in cash under
either proposal is expected to be in excess of the equity market
capitalisation of the Group at the time of approval of the Annual Report.
However, the Potential Transaction remains subject to further due diligence,
the signing of binding legal documentation and shareholder approval. As such,
there can be no certainty that the discussions will lead to a transaction
being completed. As a result, to ensure the Group has adequate funding, the
directors put in place a further £5.25 million unsecured facility with Herald
Investment Trust.
Should the divestment of the Video business proceed, the secured revolving 2
year £10 million credit facility provided to the Group by Investec Bank plc
(which is secured by a fixed and floating charge over the Group's assets and
includes covenants which are tested quarterly) will be repaid in full. The
facility was not being utilised at 31 March 2017, but at the time of approval
of the financial statements is drawn to the extent of £6,094,000 with a net
debt position of £4,167,000. No banking covenants have been breached at the
time of approval of the financial statements and waivers to covenant tests
have been agreed with Investec during the testing period to date. At the time
of approval of the financial statements nothing has been drawn down under the
additional £5.25 million 15 month loan facility with Herald Investment Trust
but any drawn amount will also be repaid in full following a successful
divestment.
Should the proposed divestment of the Video Business proceed as expected, the
cash requirements of the retained Thruvision Group for the period up to and
including 30 September 2018 will be comfortably accommodated within the
Group's enlarged cash resources and a return of surplus cash to investors is
anticipated. Should the divestment not proceed as expected, the Board has
reviewed cash flow projections for the Group, including the Video Business,
for the period up to and including 30 September 2018. 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 resource, including applicable financial covenants.
However, in the event that the Group trades outside of this reasonably
foreseeable scenario, the Board believes it can take appropriate cost
reduction measures which will allow the Group to trade within its financial
resources.
Given the above the Board confirms that it has a reasonable expectation that
the Group will continue as a going concern. Therefore, these financial
statements have been prepared on this basis and do not contain any adjustments
that would result if the Group was unable to continue as a going concern.
Basis of consolidation
The consolidated financial statements for the year include those of Digital
Barriers plc and all of its subsidiary undertakings (together 'the Group')
drawn up at 31 March 2017.
Subsidiary undertakings are those entities controlled directly or indirectly
by the Company. Control is achieved when the Group is exposed or has rights to
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Subsidiaries are
consolidated from the date of their acquisition, being the date on which the
Group obtains control, and continue to be consolidated until the date that
such control ceases. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
Subsidiaries are consolidated using the Group's accounting policies. Business
combinations are accounted for using the acquisition method of accounting
except for the acquisition of Digital Barriers Services Limited by Digital
Barriers plc which has been accounted for using the pooling of interests
method. All inter-company balances and transactions, including unrealised
profits arising from them, are eliminated on consolidation. A change in the
ownership interest of a subsidiary, without a loss of control, is accounted
for as an equity transaction. If the Group loses control over a subsidiary,
it derecognises the related assets (including goodwill), liabilities,
non-controlling interest and other components of equity while any resultant
gain or loss is recognised in profit or loss. Any investment retained is
recognised at fair value.
Classification as a discontinued operation occurs on disposal or when the
operation meets the criteria to be classified as held for sale , if earlier.
When an operation is classified as a discontinued operation, the comparative
income is re-presented as it the operation had been discontinued from the
start of the comparative year.
Critical accounting estimates and judgements
In preparing the consolidated financial statements, management has to make
judgements, estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses. The critical judgements and
estimates made in preparing the consolidated financial statements are detailed
below. These judgements and estimates involve assumptions in respect of future
events which can vary from what is anticipated.
Revenue and profit recognition
Fixed price contracts are accounted for in accordance with IAS 11
'Construction Contracts'. Revenue and profits are recognised on a
percentage-of-completion basis, when the outcome of a contract can be
estimated reliably. Determining whether a contract's outcome can be estimated
reliably requires management to exercise judgement, whilst the calculation of
the contract's profit requires estimates of the total contract costs to
completion. Cost estimates and judgements are continually reviewed and updated
as determined by events or circumstances.
Intangible assets
In accordance with IFRS 3 'Business Combinations' goodwill arising on the
acquisition of subsidiaries is capitalised and included in intangible assets.
IFRS 3 also requires the identification of other intangible assets acquired.
The method used to value intangible assets is the 'Income Approach' which
requires the use of a number of estimates. These might include revenue and
margin projections and assessments of likelihood of contract renewal and these
estimates may differ from actual outcomes. The useful economic life of other
intangibles also requires the use of estimates which may differ from actual
outcomes.
Impairment of assets
The Group assess annually whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for
an asset is required, the group makes an estimate of the asset's recoverable
amount. The recoverable amount is the higher of the cash-generating units
(CGUs) fair value less costs of disposal and its value in use and is
determined for an individual asset, unless the asset does not generate cash
flows that are largely independent of those from other assets of groups of
assets. Where the carrying amount of an asset, or group of assets, exceeds its
recoverable amount, the asset is considered impaired and is written down to
its recoverable amount.
The calculation of value in use of the aggregate cash-generating units to
which goodwill has been allocated, includes an estimate of the short-term (up
to year three) and long-term (beyond year three up to five years) growth rate
of the cash-generating units, discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
The carrying amount of goodwill and the key assumptions used in the
calculation of value in use of the cash-generating units are disclosed in note
5, together with details on the impairment of goodwill in the year ended 31
March 2017.
Impairment of goodwill
The determination of whether or not goodwill has been impaired requires an
estimate to be made of the value in use of the cash-generating units to which
goodwill has been allocated. The value in use calculation includes estimates
about the future financial performance of the cash-generating units, including
management's estimates of long-term operating margins and long-term growth
rates. This calculation is performed annually each year and compared with the
recoverable amount to determine impairment. The testing is only re-performed
if an impairment triggering event occurs in the intervening period.
Deferred consideration
In recognising the fair value of deferred consideration in respect of business
combinations, contingent on future events such as revenue and profit,
management make estimates as to the extent to which the maximum deferred
consideration will be paid, based on weighted probability models in accordance
with IFRS 3. These estimates may differ from actual outcomes.
Income taxes
In recognising deferred tax assets, management make estimates of the forecast
future profitability of entities within the Group and the likely certainty
that these forecasts will be achieved. Where the final outcome of such matters
is different, or expected to be different, from previous assessments made by
management, a change to the carrying value of income tax assets and
liabilities will be recorded in the period in which such determination is
made.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any
non-controlling interest in the acquiree. Payments made that are contingent on
the vendors continuing to be employed by the Group are treated as remuneration
and recognised within the administration cost line in the income statement.
For each business combination, the acquirer measures the non-controlling
interest in the acquiree either at fair value or at the proportionate share of
the acquiree's identifiable net assets.
Any contingent consideration to be transferred by the acquirer will be
recognised at fair value at the acquisition date. Subsequent changes to the
fair value of the contingent consideration which is deemed to be an asset or
liability, will be recognised in the income statement. If the contingent
consideration is classified as equity, it should not be remeasured until it is
finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of
the consideration transferred and the amount recognised for non-controlling
interest over the net identifiable assets acquired and liabilities assumed. If
this consideration is lower than the fair value of the net assets of the
subsidiary acquired, the difference is recognised in the income statement.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date, allocated to each of the
Group's cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation
within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed
of in this circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash-generating unit retained.
Intangible assets
In accordance with IFRS 3 'Business Combinations', goodwill arising on the
acquisition of subsidiaries is capitalised and included in intangible assets.
IFRS 3 also requires the identification of other intangible assets acquired.
The method used to value intangible assets is the 'Income Approach'. The
Income Approach indicates the fair value of an asset based on the value of the
cash flows that the asset might reasonably be expected to generate.
Other intangible assets
Intangible assets acquired from a business combination are capitalised at fair
value as at the date of acquisition and amortised over their estimated useful
economic life. An intangible asset acquired as part of a business combination
is recognised outside goodwill if the asset is separable or arises from
contractual or other legal rights. The estimated useful lives of the
intangible assets are as follows:
Customer relationships - three to twelve years;
Order backlog - one to three years;
Intellectual property and Software - one to seven years;
Patents - eight years; and
Trademarks - ten years.
Amortisation is charged to administration expenses in the Consolidated Income
Statement on a straight-line basis. Intangible assets, other than development
costs, created within the business are not capitalised and expenditure thereon
is charged to the income statement in the period in which the expenditure is
incurred.
The carrying value of other intangible assets is reviewed for impairment when
events or changes in circumstance indicate that it may be impaired. If any
such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss. The recoverable amount
is estimated to be the higher of the other intangible assets fair value less
costs of disposal and its value in use and is determined for an individual
asset, unless the asset does not generate cash flows that are largely
independent of those from other assets of groups of assets. Where it is not
possible to estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit to which it
belongs.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received, excluding
discounts, rebates, VAT and other sales taxes.
Revenue from the sale of products is recognised when the risks and rewards of
ownership are transferred to the customer, which is usually at the point at
which goods are delivered to the customer.
Licence income is recognised in accordance with the substance of the
agreement. Revenue from licence agreements which have no significant remaining
performance obligations is recognised where there is persuasive evidence that
an arrangement exists, delivery has occurred, the fee is fixed or determinable
and collectability is probable.
Revenue arrangements may include the sale of products together with
installation and/or on-going support services. Where the commercial substance
of such a combination is that the individual components operate independently
of each other and fair values can be attributed to each of the components,
each are then recognised in accordance with their respective policies.
Revenue from support contracts is spread evenly over the period of the support
contract.
Revenue derived from services billed to customers on a time and materials or
fixed-price basis represents the value of work completed, including
attributable profit, based on the stage of completion achieved on each
project. For time and materials projects, revenue is recognised as services
are performed. For fixed-price projects, revenue is recognised according to
the stage of completion which is determined using the percentage-of-completion
method based on the Directors' assessment of progress against key project
milestones and risks, and the ratio of costs incurred to total estimated
project costs. The cumulative impact of any revisions to the estimate of
percentage-of-completion of any fixed-price contracts is reflected in the
period in which such impact becomes known.
Revenue is presented as the gross amount billed to a customer where it is
earned from revenue from the sale of goods or services as principal. Revenue
is presented as the net amount retained where it is earned through a
commission or fee.
Accrued income
Accrued income represents revenue recognised to date less amounts invoiced to
customers. Full provision is made for known or anticipated project losses.
Trade and other receivables
Trade receivables are recognised and measured at their original invoiced
amount less provision for any uncollectible amounts. An estimate for doubtful
debts is made when the collection of the full amount is no longer probable.
Bad debts are written off to the income statement when they are identified.
Financial assets are initially measured at fair value and subsequently at
amortised cost.
Provisions
Provisions are recognised in the statement of financial position when there is
a present legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to settle
the obligation and a reliable estimate can be made of the obligation;
discounting at a pre-tax discount rate when the time value of money is
material. Onerous contract provisions are recognised for unavoidable costs of
meeting the obligations under a contract that exceed the economic benefits
expected to be received under it.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on tax rates and
laws that are enacted or substantively enacted by the statement of financial
position's date.
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
financial statements, with the following exceptions:
· where the temporary difference arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss;
· in respect of taxable temporary differences associated with investments
in subsidiaries, associates and joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future;
and
· deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and liabilities are measured on an undiscounted
basis at the tax rates that are expected to apply when the related asset is
realised or liability is settled, based on tax rates and laws enacted or
substantively enacted at the statement of financial position date.
The carrying amount of deferred income tax assets is reviewed at each
statement of financial position's date. Deferred income tax assets and
liabilities are offset, only if a legally enforceable right exists to set off
current tax assets against current tax liabilities, the deferred income taxes
relate to the same taxation authority and that authority permits the Group to
make a single net payment.
Income tax is charged or credited to other comprehensive income if it relates
to items that are charged or credited to other comprehensive income.
Similarly, income tax is charged or credited directly to equity if it relates
to items that are credited or charged directly to equity. Otherwise income tax
is recognised in the income statement.
Equity
Equity comprises the following: Share capital represents the nominal value of
equity shares. Share premium represents the excess over nominal value of the
fair value of consideration received for equity shares, net of expenses of the
share issue. The Capital redemption reserve represents the difference between
the proceeds received and the par value of the shares bought back by the
Company. The Merger reserve represents the difference between the fair value
and the nominal value of shares issued on the acquisition of Digital Barriers
SAS (formerly known as Keeneo SAS), as merger relief was applicable to this
business combination. The Translation reserve represents the impact of
currency translation on the foreign currency net investment in Digital
Barriers SAS, Digital Barriers Inc, Brimtek Inc and other foreign
subsidiaries. Other reserves represents the difference between the carrying
value of the net assets acquired and shares issued in consideration on the
pooling of interests transaction. The Profit and loss reserve represents the
cumulative total profit or loss attributable to shareholders, excluding those
items recognised in other reserves.
Research and development costs
Research expenditure is charged to the income statement in the year in which
it is incurred.
Expenditure incurred in the development of software and hardware products for
use or sale by the business, and their related intellectual property rights,
is capitalised as an intangible asset only when:
· technical feasibility has been demonstrated;
· adequate technical, financial and other resources exist to complete the
development, which the Group intends to complete and use;
· future economic benefits expected to arise are deemed probable; and
· the costs can be reliably measured.
Development costs not meeting these criteria are expensed in the income
statement as incurred. When capitalised, development costs are amortised on a
straight-line basis over their useful economic lives once the related software
and hardware products are available to use. During the period of development
the asset is tested for impairment annually. Development costs with a value of
£nil (2016: £nil) have been capitalised in the period.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and accumulated impairment losses. Such cost includes the cost of replacing
part of the plant and equipment and borrowing costs for any long-term
construction projects if the recognition criteria are met. Subsequent
expenditure is capitalised only when it is probable that the future economic
benefits associated with the expenditure will flow to the Group. All other
repair and maintenance costs are recognised in profit or loss as incurred.
Depreciation is charged on the following bases to reduce the cost of the
Company's property, plant, and equipment to their residual values over their
expected useful lives at the following rates:
Leasehold improvements - 20% to 33% straight line;
Office furniture and equipment - 20% straight line;
Computer equipment - 33% straight line;
Vehicles - 25% straight line; and
Demonstration stock - 20% to 50% straight line.
The carrying value of property, plant and equipment is reviewed for impairment
when events or changes in circumstances indicate the carrying value may be
impaired.
An item of property, plant and equipment and any significant part initially
recognised is derecognised upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in income
statement when the asset is derecognised.
The residual values, useful lives and methods of depreciation of property,
plant and equipment are reviewed at each financial year end and adjusted
prospectively, if appropriate.
Inventories
Inventories are valued at the lower of cost and net realisable value on a
first-in first-out basis. In the case of finished goods, cost includes all
direct expenditure and production overheads based on the normal level of
activity. Where necessary, an appropriate allowance is made for obsolete,
slow-moving and defective inventories. In certain instances stock items are
used for demonstration purposes, in this case the stock item is classified as
a fixed asset and depreciated in line with the Group depreciation policy.
Trade and other payables
Trade and other payables are initially recognised at fair value. Subsequent to
initial recognition, they are measured at amortised cost.
Cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash
at bank and in hand and short-term deposits with an original maturity of three
months or less.
For the purpose of the consolidated statement of cash flows, cash and cash
equivalents consist of cash and short-term deposits, as defined above, net of
outstanding bank overdrafts as they are considered an integral part of the
Group's cash management.
Up to September 2016, a cash pooling arrangement existed across most HSBC Bank
Plc bank accounts, cash and overdraft balances held within individual
subsidiary companies were reported gross on the statement of financial
position in accordance with IAS 32.This is because it is not deemed that these
arrangements qualify for net presentation. Net cash reserves is defined as the
net of these cash and overdraft balances.
Financial instruments
The Group classifies financial instruments, or their component parts, on
initial recognition as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contractual arrangement.
Non-derivative financial assets
Non-derivative financial instruments comprise cash at bank, trade and other
receivables and trade and other payables. The Group initially records the
financial assets on the date they are originated. All other financial assets
(including assets designated as at fair value through profit or loss) are
recognised initially on trade date, which is the date that the Group becomes a
party to the contractual provision of the instrument.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial asset are transferred. Any interest
in transferred financial assets that is created or retained by the Group is
recognised as a separate asset or liability.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments
that are not quoted in an active market. Such assets are recognised initially
at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, loans and receivables are measured at amortised cost
using the effective interest method, less any impairment losses.
Loans and receivables comprise of loans to related parties and trade and other
receivables.
Cash and cash equivalents comprise cash balances with original maturities of
three months or less.
Non-derivative financial liabilities
The Group initially recognises financial liabilities on the date that they are
originated. All other financial liabilities are recognised initially on the
trade date, which is the date that the Group becomes a party to the
contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations
are discharged, cancelled or expire. The Group classifies non-derivative
financial liabilities into other financial liabilities category. Such
financial liabilities are recognised initially at fair value less any directly
attributable transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortised cost using the effective
interest method.
Foreign currency translation
The Group's consolidated financial statements are presented in Sterling, which
is also the Parent Company's functional currency. Each entity in the Group
determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded in the entity's
functional currency by applying the spot exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the functional currency rate of exchange ruling
at the statement of financial position's date. All differences are taken to
the income statement, except when hedge accounting is applied and for
differences on monetary assets and liabilities that form part of the Group's
net investment in a foreign operation. These are taken to other comprehensive
income until the disposal of the net investment, at which time they are
reclassified from equity to profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the
initial transactions.
The assets and liabilities of foreign operations are translated into Sterling
at the rate of exchange ruling at the statement of financial position's date.
Income and expenses are translated at weighted average exchange rates for the
period where this is a reasonable approximation of the actual rates. Where
weighted average exchange rates are not a reasonable approximation of the
actual rates, the actual exchange rates at the date of the transaction are
used. The resulting exchange differences are recognised in other comprehensive
income. On disposal of a foreign entity, the deferred cumulative amount
recognised in equity relating to that particular foreign operation is
recognised in the income statement.
Retirement benefits
The Group operates a Group defined contribution personal pension plan for
certain employees. Pension costs are calculated annually and charged to the
income statement as they arise.
Share-based payments
Certain employees of the Company receive remuneration in the form of awards
under a Long Term Incentive Plan ('LTIP') in the form of nil-cost options and
HMRC Approved Options. The Group combines Parallel Options at nil-cost with
HMRC Approved Options so that the value awarded to employees is not more than
a Top-Up Award.
All awards made under the LTIP after 31 March 2015 are subject service
conditions and performance conditions that relate to revenue (with a profit
related underpin) in the future. The total amount to be expensed over the
vesting period of the awards is determined by reference to the fair value at
the date at which the awards or options are granted and the number of awards
that are expected to vest. The fair value is determined using the
Black-Scholes model. Expected volatility was determined taking into account
historic volatility of the Group's share price and the volatility of similar
companies' share price. The number of awards expected to vest are adjusted to
reflect the extent to which non-market performance and service conditions are
expected to be satisfied, based on conditions prevailing at each statement of
financial position's date and up to the date of vesting. At the vesting date,
the cumulative expense recognised in the income statement is adjusted to take
account of the number of awards and options that actually vest on the above
basis. Parallel Options are valued at the difference between the value of a
Top-Up Award and an HMRC Approved Option. At the date of grant, it was assumed
that the non-market performance conditions would be met. Adjustments are made
subsequently, where necessary, to reflect updated assessments of whether
non-market performance conditions will be met.
It is the intention of the Group that shares needed to satisfy awards will be
purchased in the market to the extent that they are not already held by the
Group's employee share trust, unless it is in the interests of the Group to
issue new shares.
Certain of the Executive Directors have been issued an aggregate of 217,500
Incentive Shares. The Incentive Shares only reward participants if shareholder
value is created, thereby aligning the interests of the Executive Directors
with those of shareholders. The Incentive Shares carry the right to 12.5% of
any increase in the value of the Company in excess of the retail prices index
after 1 February 2010. The Incentive Shares do not carry any voting or
dividend rights and are not transferable except in limited circumstances. The
holders of Incentive Shares can realise value from the shares either by
converting them into Ordinary Shares or by the Company, at its election,
responding to a request to so convert the shares by choosing to redeem them.
They are treated as equity-settled awards with a market vesting condition. The
fair value at the date at which the Incentive Shares were acquired was
determined using a Stochastic model. This original fair value (£217,500) was
recognised as a current liability on the statement of financial position as it
becomes repayable if the Executive Directors leave office.
At a General Meeting held on 27 December 2012, the terms relating to the
Incentive Shares were changed, triggering a revaluation. The total amount to
be expensed over the vesting period of the modified Incentive Shares has been
calculated in the year by reference to the incremental fair value on 27
December 2012 of the modified Incentive Shares compared to the fair value on
27 December 2012 of the original Incentive Shares. This resulted in a charge
to the Consolidated Income Statement in the year of £5,000 (2016: £35,000).
Employee Benefit Trust
The Digital Barriers plc Employee Benefit Trust (the 'Trust'), which purchases
and holds Ordinary Shares of the Company in connection with employee share
schemes, is included in the Group financial statements. Any consideration paid
or received by the Trust for the purchase or sale of the Company's own shares
is shown as a movement in shareholders' equity.
Operating Leases
Leases in which a significant proportion of the risk and rewards of ownership
are retained by the lessor are classified as operating leases. Operating lease
rentals payable or receivable are charged or credited to the income statement
on a straight-line basis over the lease term.
Adoption of new and revised International Financial Reporting Standards
The Group's accounting policies have been prepared in accordance with IFRS
effective as for its reporting date of 31 March 2017.
The IASB issued amendments to four standards under Annual improvement
2012-2014 cycle together with amendments to IAS 1. These amendments had an
effective date after the date of 1 January 2016 and have been applied by the
Group. Theses did not have a material impact on the Company's financial
statements in the period of initial application.
Standards Issued by not yet effective
The standards and interpretations that are issued, but not yet effective, up
to the date of issuance of the Group's financial statements are disclosed
below. The Group intends to adopt these standards, if applicable, when they
become effective.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account
for revenue arising from contracts with customers. Under IFRS 15, revenue is
recognised at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for transferring goods or services to a
customer.
The new revenue standard will supersede all current revenue recognition
requirements under IFRS. Either a full retrospective application or a modified
retrospective application is required for annual periods beginning on or after
1 January 2018. Early adoption is permitted.
The Group plans to adopt the new standard on the required effective date using
the full retrospective method. During 2017, the Group will perform a
preliminary assessment of IFRS 15 using the clarifications issued by the IASB
in April 2016 and will monitor any further developments.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4
Determining whether an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The standard
includes two recognition exemptions for lessees - leases of 'low-value' assets
(e.g., personal computers) and short-term leases (i.e., leases with a lease
term of 12 months or less). At the commencement date of a lease, a lessee will
recognise a liability to make lease payments (i.e., the lease liability) and
an asset representing the right to use the underlying asset during the lease
term (i.e., the right-of-use asset). Lessees will be required to separately
recognise the interest expense on the lease liability and the depreciation
expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the
occurrence of certain events (e.g., a change in the lease term, a change in
future lease payments resulting from a change in an index or rate used to
determine those payments). The lessee will generally recognise the amount of
the remeasurement of the lease liability as an adjustment to the right-of-use
asset.
IFRS 16 also requires lessees and lessors to make more extensive disclosures
than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019.
Early application is permitted, but not before an entity applies IFRS 15. A
lessee can choose to apply the standard using either a full retrospective or a
modified retrospective approach. The standard's transition provisions permit
certain reliefs.
In 2018, the Group plans to assess the potential effect of IFRS 16 on its
consolidated financial statements.
2. Segmental information
Historically the Group has been organised into Services and Solutions. In
light of the potential transaction of the Video business the directors believe
that providing segment analysis that shows the Video Business as a separate
segment to the Thruvision business would aid readers of the Annual Report.
Combined, the Video Business and Thruvision make up the previously reported
Solutions segment.
Until the disposal of the
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