REG - Digital Barriers plc - Half Yearly Report <Origin Href="QuoteRef">DGB.L</Origin> - Part 2

ThruvisionAnnouncement

11/12/2015 07:11

- Part 2: For the preceding part double click  ID:nRSK7359Ia 

include share based payments
charges. Comparative figures have been updated to incorporate this change. 
 
5. Goodwill 
 
Carrying amount of goodwill allocated to operating segments: 
 
            6 months ended    6 months ended    Year ended    
            30 September2015  30 September2014  31 March2015  
            Unaudited         Unaudited         Audited       
            £'000             £'000             £'000         
 Services   3,582             3,582             3,582         
 Solutions  14,636            14,716            14,604        
 Goodwill   18,218            18,298            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 named 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 balance sheet 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 that an impairment charge of £6.25m arose in the six
month period to 30 September 2014, along with a delay in Services revenue; an
update to the impairment calculations has been undertaken to ensure the
carrying value of goodwill attributable to both Services and Solutions 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
cost base of the company has stabilised following the restructuring programme
undertaken by the Group in the year ended 31 March 2014 and as a result the
cost base is not considered to be a key assumption. 
 
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 28
February 2015. The key assumptions that supported that impairment review are
detailed on page 62 of the 2015 Annual Report. 
 
As in prior period, the Directors have also considered reasonably possible
changes in the key assumptions used within the forecasts.  Whilst revenues
within the Services division are expected to be second half weighted this
financial year, in light of the revenue decline evidenced in the period ended
30 September 2015 a reasonably possible reduction to Services revenue of -8%
compound over the period FY15 to FY18 has been considered.  At this level of
revenue decline an impairment charge of £1.2million would arise, which would
rise to £2.1m if combined with an increase in discount rate of 2.5%.
Sensitivities within the Solutions division remain largely unchanged on those
detailed on page 63 of the 2015 Annual Report. 
 
The carrying value of goodwill remains valid. 
 
6. Issued share capital 
 
As at 30 September 2015, there were 84,534,810 Ordinary Shares in issue (30
September 2014: 64,624,616, 31 March 2015: 84,489,481). On 6 July 2015, 45,329
Ordinary shares were issued following the exercise by four employees of vested
share options under the Group Long Term Incentive Plan. The shares were issued
to the Employee Benefit trust which subsequently transferred them to the
employees concerned. On 21 September 2015, 108,749 Incentive Shares, which had
failed to convert into Ordinary shares, were converted into Deferred shares of
£1.00 each in the capital of the Company. 
 
On 11 December the Company announced that it proposed to raise £25.8million
(after expenses) through the fully underwritten placing of 80,571,429 new
Ordinary Shares at 35 pence per share. Further details are given in Note 10. 
 
7. Share Options 
 
The following share awards were granted in the period: 
 
                              HMRC Approved Options  Parallel Options  Top-Up awards  Part A awardsJuly 2015  Part A awardsAug 2015  
                              July 2015              July 2015         July 2015                                                     
 Number granted               914,469                914,469           2,640,531      450,000                 150,000                
 Fair value per option/award  £0.12                  £0.25             £0.37          £0.37                   £0.43                  
 Exercise price               £0.365                 nil               nil            nil                     nil                    
 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 (H115:
£0.2million), with the fair value charge attributable to new awards in the
period determined using a Black Scholes calculation. Historic 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. 
 
8. Related party transactions 
 
On 2 July 2015 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    500,000                     
 Zak Doffman    1,000,000                   
 Sharon Cooper  250,000                     
 
 
Full details of the plan can be found in the 2015 Annual Report on page 34. 
 
9. Financial instruments 
 
The Fair Value of financial assets and financial liabilities which are
short-term are not disclosed, as the Directors estimate that the carrying
amounts of financial assets and financial liabilities are not significantly
different to their fair value. 
 
In line with the fair value hierarchy as disclosed in the consolidated
financial statements, the bank loan of £0.3m (which has subsequently been
repaid) is a level 2. 
 
10. Post balance sheet event 
 
On 11 December the Company announced that it had conditionally agreed to
acquire the entire issued share capital of Brimtek Inc, a provider of
state-of-the-art technical surveillance solutions to US defence, homeland
security, federal law enforcement and intelligence communities, for a maximum
aggregate consideration of up to $45million. Of the total consideration
payable under the terms of the acquisition, $25million is payable in cash upon
completion, and the remaining up to $20million payable as deferred contingent
consideration during the period up to 31 December 2017. 
 
In order to finance the initial cash consideration and to provide additional
working capital for the Enlarged Group, the Company also announced on the 11
December 2015 that it proposes to raise £25.8million (after expenses) through
the fully underwritten placing of 80,571,429 new Ordinary Shares at 35 pence
per share. 
 
As is normal in such circumstances, the placing is conditional upon the
Company obtaining shareholder approval in a general meeting. 
 
This information is provided by RNS
The company news service from the London Stock Exchange