REG - Digital Barriers plc - Half-year Report <Origin Href="QuoteRef">DGB.L</Origin> - Part 2
29/11/2016 07:06
- Part 2: For the preceding part double click ID:nRSc3676Qa
months ended 30 September 2016
ServicesDiscontinued NAContinuing APContinuing EMEAContinuingUnaudited£'000 TotalSolutionsContinuing Total
Unaudited Unaudited Unaudited Unaudited Unaudited
£'000 £'000 £'000 £'000 £'000
Total regional revenue 244 10,234 1,395 1,408 13,037 13,281
Inter-region revenue - - - - - -
Revenue 244 10,234 1,395 1,408 13,037 13,281
6 months ended 30 September 2015
ServicesDiscontinued NAContinuing APContinuing EMEAContinuingUnaudited£'000 TotalSolutions Continuing Total
Unaudited Unaudited Unaudited Unaudited Unaudited
£'000 £'000 £'000 £'000 £'000
Total regional revenue 1,232 643 3,990 2,057 6,690 7,922
Inter-region revenue - - - (2) (2) (2)
Revenue 1,232 643 3,990 2,055 6,688 7,920
Year ended 31 March 2016
ServicesDiscontinued NAContinuing APContinuing EMEAContinuingUnaudited£'000 TotalSolutionsContinuing Total
Audited Unaudited Unaudited Unaudited Unaudited
£'000 £'000 £'000 £'000 £'000
Total regional revenue 3,777 5,679 11,014 4,454 21,147 24,925
Inter-region revenue - - - (11) (11) (11)
Revenue 3,777 5,679 11,014 4,443 21,136 24,914
Note: NA (North America), AP (Asia-Pacific), EMEA (UK, Europe and Middle
East)
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:
6 months ended 6 months ended Year ended
30 September 2016 30 September 2015 31 March 2016
Unaudited Unaudited Audited
£'000 £'000 £'000
Amortisation of intangibles initially recognised on acquisition 864 633 1,320
Share-based payment(i) 430 437 792
Acquisition related costs and exceptional write off of bad debt (ii) (509) - 1,718
Total adjustments 785 1,070 3,830
(i) The basis of calculation was updated for the year ended 31
March 2016 to adjust for share-based payment charges. The Directors considered
this to be a more helpful measure in understanding the true underlying costs
of the business. The revised calculation provides consistency over time
allowing a better understanding of the financial position of the Group.
Comparatives for the 6 months ended 30 September 2015 has been updated to
reflect this change.
(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. For the 6-month period to 30 September
2016, £0.5 million of these accrued costs were released to the income
statement as no longer due.
4. Loss per share
The basic loss per share is calculated on the loss from continuing operations
attributable to ordinary shareholders and the weighted average number of
shares in issue during the period.
The basic adjusted loss per share is calculated on the adjusted loss after tax
and the weighted average number of shares in issue during the period.
The following reflects the loss and share data used in the basic and diluted
loss per share calculations:
6 months ended 6 months ended Year ended
30 September 2016 30 September 2015 31 March 2016
Unaudited Unaudited Audited
£'000 £'000 £'000
Loss from continuing operations attributable to ordinary shareholders (4,766) (5,163) (7,790)
Amortisation of intangibles initially recognised on acquisition, net of tax 839 605 1,264
Share-based payment 430 437 792
Acquisition related costs and exceptional write off of bad debt (509) - 1,718
Adjusted loss after tax (4,006) (4,121) (4,016)
Weighted average number of shares 165,111,309 84,511,031 105,052,916
Basic and diluted loss per share (2.88p) (6.11p) (7.42p)
Basic and diluted adjusted loss per share* (2.42p) (4.88p) (3.82p)
* As explained in note 3, the basis of calculation was adjusted in 31 March
2016 to include share-based payment charges. Comparative figures for the
period to 30 September 2015 has been updated to incorporate this change
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.
5. Goodwill
Carrying amount of goodwill allocated to operating segments:
6 months ended 6 months ended Year ended
30 September 2016 30 September 2015 31 March 2016
Unaudited Unaudited Audited
£'000 £'000 £'000
Services - 3,582 -
Solutions 24,196 14,636 23,323
Goodwill 24,196 18,218 23,323
Goodwill acquired through business combinations has historically been
allocated for impairment testing purposes to two groups of cash-generating
units ('CGUs'). These groups of CGUs were the two operating segments
'Services' and 'Solutions' as the goodwill relates to synergies at this level.
Following the disposal of the Services business in May 2016, there remains
only one CGU within the Group - the Solutions division.
The Group conducts annual impairment tests on the carrying value of the CGUs
in the statement of financial position as at 28 February each year. Impairment
testing is only re-performed if an impairment triggering event occurs in the
intervening period. Given the fact the acquisition of Brimtek on 1 March 2016
an update to the impairment calculations has been undertaken to ensure the
carrying value of goodwill attributable to newly enlarged Solutions division
remains valid. Based on the review, no impairment to goodwill has been
recorded in the period.
Value in use calculations are used to determine the recoverable amount of
cash-generating units. The key assumptions for the value in use calculations
remain the forecast revenue growth of each CGU, 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 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 has prepared updated cash flow forecasts for the business based on
the most recent three-year detailed financial forecasts. These cash flow
forecasts take into account recent trading performance, with the resulting
profit forecast over the period to FY18 remaining materially unchanged from
the profit forecast within the annual impairment review carried out as at 29
February 2016. The key assumptions that supported that impairment review are
detailed on page 62 of the 2016 Annual Report.
As in prior period, the Directors have also considered reasonably possible
changes in the key assumptions used within the forecasts. Sensitivities
within the Solutions division remain largely unchanged on those detailed on
page 63 of the 2016 Annual Report with no impairment arising.
The movement in Goodwill in the period is a result of foreign exchange
movement (increase £1.2m) and a measurement period adjustment of the 1 March
2016 position (decrease £0.3m).
The carrying value of goodwill remains valid.
6. Issued share capital
As at 30 September 2016, there were 165,130,024 Ordinary Shares in issue (30
September 2015: 84,534,810, 31 March 2016: 165,106,239). In addition, there
were 108,749 Deferred Shares in issue (30 September 2015: nil, 31 March 2016:
108,749).
7. Share options
The following share awards were granted in the period:
HMRCApprovedOptions ParallelOptions Top-UpawardsJuly 2016 Part A awardsJuly 2016 SharesaveoptionsJuly 2016
July 2016 July 2016
Number granted 344,214 344,214 1,493,286 305,000 1,717,853
Fair value per option/award £0.16 £0.32 £0.48 £0.48 £0.22
Exercise price £0.48 nil nil nil £0.31
Vesting period (years) 3.0 3.0 3.0 3.0 3.0
The vesting and exercise of these awards are subject to certain performance
conditions relating to revenue and profit in the performance period.
The share-based payment charge in the period amounts to £0.4million (H116:
£0.4million), with the fair value charge attributable to new awards in the
period determined using a Black Scholes calculation. Share option awards made
prior to 2015 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 these historic LTIP
awards have failed to vest.
During the half-year the Group relaunched the Digital Barriers Sharesave
Scheme, which allows eligible employees to use regular savings to purchase
shares. 1,717,853 shares were issued as a result, and employees surrendered
442,060 options in relation to the 2014 Sharesave scheme in the period,
resulting in an acceleration of the remaining share-based payment charge
attributable to these options of £0.3million.
8. Related party transactions
On 28 July 2016 the Remuneration Committee of the Group made a conditional
award to Colin Evans, Zak Doffman and Sharon Cooper, under the rules of The
Digital Barriers Long Term Incentive Plan (the "Plan"). The vesting and
exercise of these awards are subject to certain performance conditions
relating to revenue and profit in the performance period.
Top-up award(no of shares)
Colin Evans 250,000
Zak Doffman 500,000
Sharon Cooper 200,000
Full details of the plan can be found in the 2016 Annual Report on page 34.
9. Financial instruments
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair
values of financial instruments by valuation techniques:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: other techniques for which all inputs which have a significant effect
on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data.
The Group have a Level 3 financial liability of £2.2 million of deferred
consideration measured at fair value on a recurring basis at (31 March 2016:
£2.0m) following the acquisition of Brimtek Inc. 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. The
movement in the deferred consideration for the period is due to exchange rate
movement.
The Group have a Level 2 financial liability of £0.3 million of financial swap
measured at fair value. The fair values of other financial assets and
liabilities, which are short term, are not disclosed as the Directors estimate
that the carrying amount of the financial assets and liabilities are not
significantly different to their fair value. These financial assets and
liabilities are carried at amortised cost.
10. Disposal group classified as held for sale
On 1 April 2016 the Board signed an agreement for the proposed disposal of the
Services segment to its existing management team for £1, the sale completed on
19 May 2016. As indicated in the interim results announcement on 11 December
2015, this follows the view that the Board believed that the Services division
was no longer strategic to the Group's future. The disposal group was
classified as held for sale in March 2016, with full details on the assets and
liabilities classified as held for sale as at 31 March 2016 disclosed in note
26 on page 77 of the 2016 Annual Report.
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.
In the six months ended 30 September 2016 revenues attributable to the
disposal group amounted to £0.2 million (H116: £1.2 million, FY16: £3.7
million) with a loss attributable to the discontinued operation of £0.2
million (H116: £0.5 million, FY16: £4.8 million). Full details on the income
statement and cash flows attributable to the disposal group for the year ended
31 March 2016 are disclosed in note 26 on page 77 of the 2016 Annual Report.
The basic and diluted loss per share for the six months ended 30 September
2016 is 0.12 pence (H116: 0.59 pence, FY16: 4.60 pence) based on 165,111,309
(H116: 84,511,031, FY16: 105,052,916) weighted average shares in issue.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.
11. Post balance sheet event
On 17th October 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.
This information is provided by RNS
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