REG - Ten Alps PLC - Final Results <Origin Href="QuoteRef">TAL.L</Origin> - Part 2
07/11/2016 07:06
- Part 2: For the preceding part double click ID:nRSG4367Oa
At 1 July 2014 25,662 3,818 171 1,310 30,961
At 30 June 2015 25,662 3,818 171 1,310 30,961
Additions 2,288 500 2,450 - 5,238
At 30 June 2016 27,950 4,318 2,621 1,310 36,199
Amortisation / impairment
At 1 July 2014 (18,765) (3,818) (171) (1,254) (24,008)
Charge for the year - - - (43) (43)
Disposals & retirements - - - (12) (12)
At 30 June 2015 (18,765) (3,818) (171) (1,309) (24,063)
Charge for the year - (69) (337) (1) (407)
Impairment charge (4,399) - - - (4,399)
At 30 June 2016 (23,164) (3,887) (508) (1,310) (28,869)
Net Book Value
At 30 June 2016 4,786 431 2,113 - 7,330
At 30 June 2015 6,897 - - 1 6,898
Goodwill
Goodwill arising on acquisitions after the date of transition to IFRS is
attributable to operational synergies and earnings potential expected to be
realised over the longer term.
Brands and Customer Relationships
Brand and customer relationships relate to the intangible assets arising on
the acquisition of Reef Television.
Websites
Development costs of revenue generating websites are capitalised as intangible
assets.
Impairment Tests for Goodwill
The carrying amount of goodwill by operating segment is:
2016 2015
£'000 £'000
Publishing - 4,399
TV 3,801 1,611
Communicate 985 887
Total 4,786 6,897
Goodwill is not amortised but tested annually for impairment with the
recoverable amount being determined from value in use calculations. The key
assumptions for the value in use calculations are those regarding the discount
rate, growth rates and forecasts in income and costs.
The Group assessed whether the carrying value of goodwill was supported by the
discounted cash flow forecasts of operating segment based on financial
forecasts approved by management covering a seven-year period, taking in to
account both past performance and expectations for future market
developments.
Management has used a seven year model predominately because the earn out
models used on acquisitions have been based on seven year scenarios.
Management estimates the discount rate using a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific
to media businesses.
In assessing the divisions the Group reviewed the management forecasts. For
the television production businesses the Group evaluated the impact of the
shift in strategy towards producing higher value series and developing
relationships with international broadcasters, together with the increasing
impact made in the year via new executive producers and management. For the
publishing businesses the Group wrote down the carrying value of goodwill
across all the publishing businesses to nil. This reflects the substantial
level of losses incurred by the publishing businesses, the sale of the trade
of Grove House Publishing during the year, the post year end placing of Ten
Alps Media into creditors voluntary liquidation and the closure of many loss
making titles and publishing contracts in Ten Alps Communications. For Ten
Alps Communicate, the Group's communications business, the Group evaluated the
continued progress in delivering significant multi-year contracts to blue chip
customers such as TfL and the progress made in attracting new blue chip
customers, together with the expected to be made in future years through the
addition of new skillsets from the acquisition of Straker Films.
The financial year 2016/17 business unit forecasts are based on the individual
budgets for each division. For the years following, a growth rate of 2.5 per
cent. is applied to the 2016/17 forecasts on an annual basis. Management
believe this rate does not exceed the growth rate of the industry and the UK
economy in the long term and is a cautious assumption, which may in reality be
significantly lower than the growth rate management would expect to achieve.
In evaluating the recoverable amount, we employ the discounted cash flow
methodology, which is based on making assumptions and judgements on forecasts,
margins, discount rates and working capital needs. These estimates will differ
from actuals in the future and could therefore lead to material changes to the
recoverable amounts. The key assumptions used for estimating cash flow
projections in the Group's impairment testing are those relating to revenue
growth and operating margin. The key assumptions take account of the
businesses' expectations for the projection period. These expectations
consider the macroeconomic environment, industry and market conditions, the
unit's historical performance and any other circumstances particular to the
unit, such as business strategy and client mix.
As all the segments operate in a similar media landscape the discount rate
applied across to the segments for 2016 was 6.3 per cent. (2015: 9.1 per
cent.). The decrease reflects the weighting of the debt and equity valuation
of the Group based on the balance sheet with the overall calculation and
methodology remaining unchanged from prior years. As the equity value has
decreased proportionately to the debt in the year, the discount rate has
fallen to reflect the lower debt borrowing costs compared to the costs of
equity. A sensitivity analysis of an increase in the discount rate by 2.7 per
cent. is shown below.
TV
A pre-tax discount rate of 6.3 per cent. (2015: 9.1 per cent.) has been used.
The main assumptions on which the forecast cash flows were based include
revenue growth and margin growth. All key assumptions used by management
within the cash flow forecasts are based on past experience and sector
experience.
Publishing
A pre-tax discount rate of 6.3 per cent. (2015: 9.1 per cent.) has been used.
The main assumptions on which the forecast cash flows were based include
revenue growth and margin growth. All key assumptions used by management
within the cash flow forecasts are based on past experience and sector
experience.
Communicate
A pre-tax discount rate of 6.3 per cent. (2015: 9.1 per cent.) has been used.
The main assumptions on which the forecast cash flows were based include
revenue growth and margin growth. All key assumptions used by management
within the cash flow forecasts are based on past experience and sector
experience.
Changes in these assumptions can have a significant effect on the recoverable
amount and therefore the value of the impairment recognised.
Assumption Judgement Sensitivity
Discount Rate As indicated above the rate used is 6.3 per cent. An increase in the discount rate to 9 per cent. will result in no impairment charge.
Growth Rate and Strategic plans Strategic investment, restructuring and growth of owned assets assumed for 2016 A rate of 2.5 per cent. has been used for financial years 2017/18 onwards. If a 0 per cent. growth rate was applied for financial years 2017/18 onwards. TV and Communicate would not be impaired.
Cashflows Cash collection is consistent with previous years with no significant bad debts being incurred due to write offs taken in the previous years and provisions for this year. If a 15 per cent. fall in cashflow estimates was applied for financial years 2016/17 onwards. TV and Communicate would not be impaired.
6) BUSINESS COMBINATIONS
Reef Television Limited
On 14 July 2015 the Group acquired 100 per cent. of the share capital of an
English registered company called Reef Television Limited. The Group paid
initial £2.49 million cash for its 100% holding with a further £3 million
payable via redeemable loan notes and shares on certain earn out targets being
met between 2016 and 2018. The balance sheet acquired was £0.94 million in net
assets. The directors consider the £3 million deferred consideration will be
met over the 3 year period. The assets and liabilities arising from the
acquisition are as follows:
Book Value Fair Value Adjustments Fair Value
£'000 £'000 £'000
Intangible fixed assets - 2,950 2,950
Property, plant and equipment 34 - 34
Trade and other receivables 536 - 536
Cash and cash equivalents 2,580 - 2,580
Trade and other payables (1,619) - (1,619)
Current tax liabilities (587) - (587)
Deferred tax (2) (590) (592)
Net assets/(liabilities) acquired 942 2,360 3,302
Goodwill capitalised 2,190
Consideration given 5,492
Satisfied by:
Issue of shares -
Cash 2,492
Deferred contingent consideration 3,000
5,492
The fair value adjustments made to book value relate to the intangible assets
identified on the acquisition. Goodwill relating to the acquisition of Reef
amounted to £2.19 million.
Earnout Details
The earnout consists of three elements:
· Loan Note Consideration of up to £1.5 million
· Deferred Consideration of up to £1.5 million and
· Additional amount of earn out consideration
The Loan Note Consideration and the Deferred Consideration will be settled in
cash or Ordinary Shares, at the Company's discretion, subject to a maximum of
50 per cent. of the Loan Note Consideration and the Deferred Consideration
being able to be settled in Ordinary Shares. Any issue of new Ordinary Shares
to the Vendors will be subject always to the resultant shareholding of the
Vendors being not greater than 29.99 per cent. of the issued share capital of
Ten Alps, as enlarged by the issue of that tranche of Ordinary Shares. The
Ordinary Shares will be valued at the average mid-market closing share price
of the Company over the five Business Days prior to the finalisation of the
relevant accounts.
The Loan Note Consideration is redeemable and the Deferred Consideration is
payable in three tranches of up to £0.5 million each, subject to the level of
gross profitability of Reef Television for the financial years ended 30 June
2016, 30 June 2017 and 30 June 2018. In respect of the 2016 financial year,
the maximum
Loan Note Consideration and Deferred Consideration payment of £1 million was
subject to Reef Television achieving at least £1.8 million in gross profits
and to be adjusted downwards thereafter on a straight-line basis to a minimum
level of £1.5 million, below which point none of the first tranche of Loan
Note Consideration and Deferred Consideration will be paid. The same
performance metrics will apply to the second and third tranches of Loan Note
Consideration and Deferred Consideration due in respect of the 30 June 2017
and 2018 financial years, with the target gross profit ranges of £2 million to
£1.5 million and £2.2 million to £1.5 million, respectively.
The maximum Loan Note Consideration and Deferred Consideration payment of £1
million in respect of the 2016 financial year is payable as Reef Television
achieved at least £1.8 million in gross profits.
If there is an over-achievement in either of the 2016 or 2017 years the excess
will be carried forward to the next financial year of assessment and if there
is an over-achievement in either of the 2017 or 2018 years the Vendors will
have the ability to claim back amounts not paid due to under-performance in
previous years.
An additional amount of earn-out consideration is payable by the Company if
the aggregate gross profit for the three years exceeds £6 million. Subject to
certain conditions, the Company will pay 50 per cent. of such gross profit
excess to the Vendors in either cash or by the issue of Ordinary Shares (in
respect of up to 50 per cent. of this additional consideration) at the
Company's option. No provision has been made for this element of deferred
consideration, due to the uncertainty of future gross profit revenue streams
being greater than £6 million over the three year period.
Straker Films Limited
On 30 March 2016 the Group acquired 100 per cent. of the share capital of
Straker Films Limited. The Group paid initial consideration of £0.7 million,
of which £0.64 million was paid in cash and £0.06 million is deferred. The
balance sheet acquired was £0.8 million. The assets and liabilities arising
from the acquisition are as follows:
Fair Value
Book Value Adjustments Fair Value
£ £ £
Intangible assets 156,042 (156,042) -
Property, plant & equipment 38,780 (28,780) 10,000
Trade and other receivables 176,610 - 176,610
Cash and cash equivalents 599,584 - 599,584
Trade and other payables (182,809) - (182,809)
Net assets acquired 788,207 (184,822) 603,385
Goodwill capitalised 98,000
Consideration given 701,385 - 701,385
Satisfied by:
Cash 641,385
Deferred consideration 60,000
701,385
7) SHARE CAPITAL
2016 2015
Ordinary shares with a nominal value of: 0.1p 2.0p
Authorised:
Number Unlimited Unlimited
Issued and fully paid:
Number 419,397,339 276,666,012
Nominal value (£'000) 419 5,534
Deferred shares with a nominal value of 1.99p
Authorised, issued and fully paid:
Number 276,666,012 -
Nominal value (£'000) 5,506 -
Preference shares with a nominal value of 0.01p
Authorised, issued and fully paid:
Number 2,908,631 -
Paid up value (£'000) 2,909 -
Fully paid ordinary shares carry one vote per share and carry the right to
dividends.
In July 2015, at a General Meeting of the Company, shareholders approved
capital restructure proposals whereby each of the existing issued shares of 2
pence each in the capital of the Company were subdivided and converted into
one new ordinary share of 0.01 pence and one deferred share of 1.99 pence.
Immediately after the subdivision and re-designation, the ordinary shares were
subject to a 10 for 1 consolidation resulting in ordinary shares with a
nominal value of 0.1 pence each.
Deferred shares have attached to them the following rights and restrictions:
- they do not entitle the holders to receive any dividends and distributions;
- they do not entitle the holders to receive notice or to attend or vote at
General Meetings of the Company;
- they have very limited rights on a return of capital; and
- they are not admitted or listed on any stock exchange and are not freely
transferable.
The principal terms of the preference shares are as follows:
(a) they are convertible at 2.5 pence per ordinary share at the holder's
option (which would give rise to the issue of 116,345,240 new ordinary shares
if the preference shares were completed in full and no dividend had accrued);
(b) they are redeemable at the Company's option on the date falling five
years after their issue;
(c) they have a dividend of 4.5 per cent. per annum (which increases to 13.5
per cent. per annum if they are not converted or redeemed within five years of
their issue) which is payable on 31 July each year, or accrued and repayable
when the preference shares are converted or redeemed; and
(d) they are freely transferable.
The preference shares have been classified as equity rather than debt. The
intention by all parties at the inception of the preference shares was that
the preference shares would be converted to equity when the opportunity
presents itself, rather than be repaid. Therefore the directors have valued
the debt component of the preference shares instrument using the assumption
that there will be no cash outflows, so the value is nil.
2016 2015
Ordinary shares Number of Shares Share Capital Share Premium Number of Shares Share capital Share premium
£'000 £'000 £'000 £'000
At start of year 276,666,012 5,534 15,228 276,666,012 5,534 15,228
Share consolidation (10 for 1) (248,999,411) - - - - -
Share placing and subscription for cash 225,000,000 225 4,275 - - -
Shares issued in lieu of fees 26,516,660 26 504 - - -
Shares issued in debt conversion 140,214,078 140 2,664 - - -
At end of year 419,397,339 5,925 22,671 276,666,012 5,534 15,228
Below is a description of the nature and purpose of the individual reserves:
· Share capital represents the nominal value of shares issued;
· Share premium includes the amounts over the nominal value in respect of
share issues. In addition, costs in respect of share issues are debited to
this account;
· Merger reserve is used where more than 90 per cent. of the shares in a
subsidiary are acquired and the consideration includes the issue of new shares
by the Company, thereby attracting merger relief under the Companies Act 1985
and, from 1 October 2009, the Companies Act 2006;
· Retained earnings include the realised gains and losses made by the
Group and the Company; and
· Preference shares represents the nominal value of preference shares
issued.
8) AVAILABILITY OF REPORT AND ACCOUNTS
The Company's annual report and accounts for the year ended 30 June 2016 will
be posted to shareholders in due course, a soft copy of which will also be
available to download from the Company's website at www.zincmedia.com.
This information is provided by RNS
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