REG - Digital Barriers plc - Final Results <Origin Href="QuoteRef">DGB.L</Origin> - Part 3
29/09/2017 07:09
- Part 3: For the preceding part double click ID:nRSc2040Sb
segment, the Group's Services Division was
predominantly focused on the UK market and integrated third party technology
and own product into UK Services customers. The Services Division was no
longer strategic to the Group, and therefore signed an agreement for the
disposal of the business on 1 April 2016..
The Group's 'Video Business' Division is focused on the advanced surveillance
market. This covers image and data capture (for example, 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.
The Group's Thruvision Division is focused on the stand-off passive body
scanning technology.
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 and supplemented this with additional analysis to assist readers of the
Annual Report better understand the impact of the proposed divestment. 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 income) 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 Solutions Central
Services(discontinued) Video Business (continuing) Thruvision (continuing)2017£'000 Total Solutions(continuing) Central (continuing) Total
2017 2017 2017 2017
£'000 £'000 £'000 £'000
Total segment revenue 243 24,480 2,025 26,505 - 26,748
Inter-segment revenue - - (1) (1) - (1)
Revenue 243 24,480 2,024 26,504 - 26,747
Depreciation - 385 96 481 - 481
Segment adjusted operating loss (207) (7,333) (106) (7,439) (3,590) (11,236)
Amortisation of intangibles initially recognised on acquisition - (1,411) (98) (1,509) - (1,509)
Share based payment charge - - - - (424) (424)
Acquisition related income/(costs) and exceptional write off of bad debt - - - - 627 627
Impairment of goodwill and intangibles - (7,500) - (7,500) - (7,500)
Release of deferred consideration - - - - 2,329 2,329
Segment operating loss (207) (16,244) (204) (16,448) (1,058) (17,713)
Loss attributable to discontinued operations 207
Segment operating loss from continuing operations (17,506)
Finance income 1,872
Finance costs (1,081)
Loss before tax from continuing operations (16,715)
Income tax credit 242
Loss for the year from continuing operations (16,473)
Services Solutions Central
Services(discontinued) Video Business (continuing) Thruvision (continuing)2016£'000 Total Solutions(continuing) Central (continuing) Total
2016 2016 2016 2016
£'000 £'000 £'000 £'000
Total segment revenue 3,777 18,778 2,649 21,427 - 25,204
Inter-segment revenue - (291) - (291) - (291)
Revenue 3,777 18,487 2,649 21,136 24,913
Depreciation 66 256 93 349 - 415
Segment adjusted operating loss (565) (1,152) (98) (1,250) (3,621) (5,436)
Amortisation of intangibles initially recognised on acquisition (120) (1,215) (105) (1,320) - (1,440)
Acquisition related costs and exceptional write off of bad debt - - - - (792) (792)
Share based payment charge - - - - (1,718) (1,718)
Loss on disposal of businesses (528) - - - - (528)
Impairment of goodwill (3,619) - - - - (3,619)
Segment operating loss (4,832) (2,367) (203) (2,570) (6,131) (13,533)
Loss attributable to discontinued operations 4,832
Operating loss attributable to 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)
Analysis of revenue by customer
There have been two (2016: three) individually material customers in the Video
Business operating segment during the year. These customers individually
represented £6,481,000 and £3,638,000 of Group turnover for the year (2016:
£2,763,000, £2,628,000 and £2,200,000).
There has been one (2016: none) individually material customers in the
ThruVsion operating segment during the year representing £1,000,646.
There were no (2016: no) material customers in the Services operating segment
during 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.
2017 2016
£'000 £'000
United Kingdom 2,378 3,108
United States of America 18,232 5,340
Indonesia 1,210 3,996
Malaysia 19 2,962
Rest of World 4,665 5,730
26,504 21,136
The Group's non-current assets by geography are detailed below:
2017 2016
£'000 £'000
United Kingdom 8,945 16,126
United States of America 20,643 19,422
29,588 35,548
3. Adjusted loss before tax
An adjusted loss before tax measure has been presented as the Directors
believe that this is a better 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:
2017 2016
£'000 £'000
Amortisation of intangibles initially recognised on acquisition 1,509 1,320
Share based payment (i) 424 792
Financing set up costs (ii) 421 -
Acquisition related (income)/costs and exceptional write off of bad debt (iii) (627) 1,718
Release of deferred consideration (iv) (2,329) -
Impairment of goodwill (note 5) (v) 7,500 -
Total adjustments (6,898) 3,830
(i) The performance condition associated with LTIP awards made from
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 inclusion
provides consistency over time allowing a better understanding of the
financial position of the Group.
(ii) During the year end 31 March 2017 the Group obtained a new
facility, incurring legal and set up fees.
(iii) 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. During the year ended 31 March 2017 £0.6
million of these acquisition costs were released to the income statement as
they were no longer due. This release was recorded within other income.
(iv) During the year the deferred consideration held in relation to the
Brimtek Inc. acquisition was released. The release is recorded within other
income. The carrying value of the deferred consideration is now £nil, and is
disclosed in note 10.
(v) During the year ended 31 March 2017 a £7.5 million non-cash
impairment charge has been recorded against the carrying value of goodwill
within the Video Business segment and has been separately disclosed within
Other Costs in the Consolidated Income Statement. This impairment reflects the
reduction in the forecasted recoverable amounts of the cash-generating units
as a result of the unpredictable and extended sales cycles. Further detail is
given in note 5.
4. Loss per share
Unadjusted loss per share
Loss after taxation 2017 Weighted average number of shares 2017 No. Loss per share 2017 Pence Loss after taxation 2016 Weighted average number of shares 2016 No. Loss per share 2016 Pence
£'000 £'000
Basic loss per share - continuing operations (16,473) 165,120,640 (9.98) (7,790) 105,052,916 (7.42)
Diluted loss per share - continuing operations (16,473) 165,120,640 (9.98) (7,790) 105,052,916 (7.42)
Basic loss per share - continuing and discontinued operations (16,680) 165,120,640 (10.10) (12,622) 105,052,916 (12.01)
Diluted loss per share - continuing and discontinued operations (16,680) 165,120,640 (10.10) (12,622) 105,052,916 (12.01)
Adjusted loss per share
Loss after taxation 2017 Weighted average number of shares 2017 Loss per share 2017 Pence Loss after taxation 2016 Weighted average number of shares 2016 Loss per share 2016 Pence
£'000 No. £'000 No.
Loss from continuing operations attributable to ordinary shareholders (16,473) 165,120,640 (9.98) (7,790) 105,052,916 (7.42)
Add back:
Amortisation of acquired intangible assets, net of tax 1,107 - 0.67 1,264 - 1.20
Share based payment charge* 424 - 0.26 792 - 0.75
Acquisition related (income)/costs and exceptional write off of bad debt (627) - (0.38) 1,718 - 1.64
Release of deferred consideration (2,329) - (1.41) - - -
Financing set up fees 421 - 0.25 - - -
Impairment of goodwill 7,500 - 4.54 - - -
Basic adjusted loss per share (9,977) 165,120,640 (6.04) (4,016) 105,052,916 (3.82)
Diluted adjusted loss per share (9,977) 165,120,640 (6.04) (4,016) 105,052,916 (3.82)
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. 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 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
Adjustment to acquisition of Brimtek value (288)
Impairment of goodwill associated with Video Business division (7,500)
Exchange movements 1,541
At 31 March 2017 17,076
Carrying amount of goodwill allocated to operating segments
2017 2016
£'000 £'000
Video Business 17,076 23,323
Thruvision - -
17,076 23,323
Historically the Group has been organised into Services and Solutions. In
light of the proposed divestment 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. Consequently goodwill acquired through business
combinations has been allocated for impairment testing purposes. These
segments are deemed to be the two cash-generating units ('CGUs') for
impairment testing. 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.
The Group carries out its annual impairment testing as at 28 February each
year. Impairment testing is only re-performed if an impairment triggering
event occurs in the intervening period. As a result of the proposed
divestment the impairment review conducted at the annual testing date has been
revisited to ensure the outcome remains appropriate.
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 sales. 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:
Video Business
2017 2016
Revenue growth compound from FY17 to FY20 (years one to three) (1) 25% 40%
Revenue growth from FY20 onwards (year four onwards) (2) 2.0% 2.5%
Gross margin improvement compound from FY17 to FY20 (years one to three) (3) 6% 1%
Discount rate (4) 11.1% 10.6%
(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 2.0% (2006: 2.5%) is an external estimate of the UK's
long-term growth rate .
(3) Gross margin is forecast to improve against FY17 as the product mix
continues to evolve through the next three years to include a greater
proportion of software sales together with revenues generated by the legacy
Brimtek business (which attract a lower gross margin) forming a decreasing
percentage of total revenues.
(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.
An impairment loss of £7.5 million (2016: £nil) arises in the year ended 31
March 2017 for the Video Business based on these base assumptions.
The Directors consider that an absolute change in the key assumptions set out
below is reasonably possible.
Video Business
2017 2016
Reduction in forecast revenue growth compound from FY17 to FY20 (years one to three) -10% -9%
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 result in an
increase in the impairment charge of goodwill of between full impairment of
goodwill (reduction in revenue forecast) to a £0.2 million impairment
(reduction in long term growth rate). In the prior year, if these assumptions
were to change in isolation, they would not have resulted in an impairment
charge of goodwill. 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 full impairment of
goodwill. In the prior year an absolute reduction in the forecast revenue
growth of 10% (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 £17.5 million to £nil). A rise in the discount
rate to 13.6% (i.e. +2.5%) would result in a further impairment of £10
millions
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 2016 the Board signed an agreement for the
proposed disposal of the business for nominal consideration. Consequently the
recoverable amount of the Services CGU in year ended 31 March 2016 was 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 and an impairment charge
£3,582,000 was been included in the loss attributable to discontinued
operations for the year then ended.
6. Trade and other receivables
Gross carrying amounts Provision for impairment Net carrying amounts Gross carrying amounts Provision for impairment Net carrying amounts
2017 2017 2017 2016 2016 2016
£'000 £'000 £'000 £'000 £'000 £'000
Trade receivables 6,388 (376) 6,012 11,814 (431) 11,383
Prepayments 616 - 616 780 - 780
Accrued income 168 - 168 339 - 339
Social security and other taxes 718 - 718 581 - 581
Other receivables 142 - 142 156 - 156
8,032 (376) 7,656 13,670 (431) 13,239
The Group's credit risk on trade and other receivables is primarily
attributable to trade receivables and amounts recoverable on contracts. Two
customer represents £2,382,000 (2016: one customer £2,648,000) of the Group's
trade receivables at 31 March 2017. There is no other significant
concentration of credit risk.
The Group believes that the carrying amounts of the Group's trade receivables
by the type of customer gives a fair presentation of the credit quality of the
assets:
2017 2016
£'000 £'000
Government customers 2,491 3,745
Commercial customers 3,521 7,638
6,012 11,383
Trade receivables of £2,704,000 (2016: £2,410,000) were past due but not
impaired; trade receivables of £2,560,000 (2016: £64,000) are past due and
stated after reflecting a partial impairment. These relate to a number of
independent customers and are considered to be fully recoverable.
The movement in the provision for doubtful debts is as follows:
£'000
At 31 March 2015 1,208
Provided in period 128
Utilised (767)
Released (178)
Foreign exchange 40
At 31 March 2016 431
Provided in period 150
Utilised (51)
Released (158)
Foreign exchange 4
At 31 March 2017 376
Trade receivables, net of an allowance of £376,000 (2016: £431,000) for
doubtful debts, are aged as follows:
2017 2016
£'000 £'000
Not due 3,308 8,909
Not more than three months past due 617 693
More than three months but not more than six months past due - 150
More than six months past due 2,087 1,631
6,012 11,383
The Group experiences credit risk which reflects its early stage of
development into international markets with challenging political landscapes
and sometimes protracted payment cycles. This is reflected in the provision
for doubtful debts and ageing analysis and the fact that the Group had an
extended debtor in Asia Pacific, where a delayed project implementation has
resulted in the likely replacement of the local partner by the contracting
government agency. Whilst legally contracted, fulfilled and invoiced, and
government agency confirmation of their intent to continue the project and
implement the Group's technology the Group has elected to write down the
overdue debtor. The net impact on the income statement was £1.9 million in the
year ended 31 March 2017.
7. Trade and other payables
2017 2016
£'000 £'000
Current
Trade payables 5,115 4,833
Accruals 1,735 2,737
Deferred income 349 774
Social security and other taxes 359 441
Other payables 350 341
7,908 9,126
On 17th October 2016 the Group replaced an existing £5.0 million secured
working capital facility for export activities with a new two year £10.0
million secured revolving credit facility with Investec Bank plc. The funds
available through this facility will be used to meet the increasing working
capital requirements of the Group's organic growth. The facility is secured by
a fixed and floating charge over the Group's assets and includes covenants
which are tested quarterly. The facility was not being utilised at 31 March
2017, but at 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 Annual Report and
waivers to covenants tests have been agreed with Investec during the testing
period to date. In addition to this secured facility, on 28 September 2017 the
Group has arranged an unsecured £5.25 million loan facility with Herald
Investment Trust to supplement the above facility for a period of 15 months,
which has not been drawn on.
8. Share capital
Number £'000
Authorised, allotted, called-up and fully paid
Ordinary Shares of 1 pence each
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
Shares issued in the year 23,785 -
At 31 March 2017 165,130,024 1,651
Number £'000
Authorised, allotted, called-up and fully paid
Incentive Shares of £1 each
At 31 March 2016 54,375 54
At 31 March 2017 - -
Authorised, allotted, called-up and fully paid
Deferred Shares of £1 each
At 31 March 2016 108,749 109
At 31 March 2017 163,124 163
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 July 2016, 23,785 shares were issued in the year (2015: 45,329 Ordinary
Shares) for nil consideration to certain employees as a bonus payment.
Of the 163,124 incentive shares outstanding as at 31 March 2015, none
converted into Ordinary Shares. Initial provision had not been made in the
Articles for the circumstance whereby Incentive Shares were valued at nil and
did not convert into Ordinary Shares on the conversion date. On 21 September
2015, a new class of Deferred share in lieu of Incentive shares was created so
that Incentive Shares which did not convert to Ordinary Shares on the relevant
conversion date converted into Deferred Shares with very limited rights and
value. Accordingly, 108,749 shares were converted into deferred shares of £1
each on 21 September 2015, with a further 54,375 shares on 15 February 2017.
9. Related party transactions
Loan facility
Herald Investment Trust have provided the Group with a £5.25 million working
capital facility as detailed in note 1. This facility is unsecured with no
covenants attached to it, but otherwise is on principally the same financial
terms as the Investec facility as detailed in note 7, with interest payable at
10% over 3 month Libor.
Tom Black is a member of the Herald Investment Trust Board and is also a
director of Digital Barriers plc.
Herald Investment Trust holds 15,329,712 ordinary shares in Digital Barriers
plc equating to 9.28% of the issued share capital of the Group.
10. Post balance sheet event
Loan facility with Herald Investment Trust
On 28 September 2017, Digital Barriers PLC agreed a 15 month £5.25 million
unsecured loan facility with Herald Investment Trust. The funds available
through the facility are in addition to the Group's existing revolving credit
facility and will be used to meet the working capital requirements of the
Group.
Release of deferred consideration
In June 2017 Digital Barriers reached early finalisation terms with the
vendors of Brimtek Inc. The terms of the finalisation involved a release of
$1.45 million from the escrow account back to Digital Barriers and no deferred
consideration to be paid. The performance conditions for the deferred
consideration were set at a level significantly above forecast, and
consequently deferred consideration balance at 31 March 2017 had been reduced
to £nil against an expectation of a significant shortfall to the performance
conditions set. (2016: £2,018,000).
This information is provided by RNS
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