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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Zpg | LSE:ZPG | London | Ordinary Share | GB00BMHTHT14 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 490.40 | 489.60 | 489.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMZPG
RNS Number : 7876X
ZPG PLC
29 November 2017
29 November 2017
RECORD PERFORMANCE AND NEW MILESTONES ACROSS THE BUSINESS
Full-year results for the twelve months ended 30 September 2017
ZPG Plc (LSE:ZPG) ("ZPG" or the "Company"), which owns and operates some of the UK's most trusted home-related digital platforms, today announces its full-year results for the twelve months ended 30 September 2017 (the "Period").
Financial highlights
Hot Features
Premium
2017 2016 YoY %
------------------------------------------- ------ ------ -----
Revenue (GBPm) 244.5 197.7 24
Adjusted EBITDA(1,2) (GBPm) 96.4 77.1 25
Adjusted basic EPS(1,3) (pence per share) 15.2 12.7 20
------------------------------------------- ------ ------ -----
2017 2016 YoY %
------------------------------------------- ------ ------ -----
Profit for the year(4) (GBPm) 37.4 36.7 2
Basic EPS (pence per share) 8.8 8.9 (1)
Full Year dividend (pence per share)(5) 5.7 5.2 10
Business highlights
-- Revenue increase of 24% to GBP244.5 million & Adjusted EBITDA increase of 25% to GBP96.4 million
-- Record traffic of 648 million visits to platform generating record of over 56 million partner leads
-- Materially enhanced revenue diversification & cross-sell opportunities resulting from acquisitions
-- New Zoopla MovePlanner tool generating over 10,000 leads per month for Comparison partners -- Continued marketing investment in new national campaigns resulting in record brand awareness
-- Net debt(6) increased to GBP191.5m (FY16: GBP146.5m) as result of further strategic acquisitions in year
-- Continued to be highly cash generative with strong cash conversion ratio(7) over 88% (FY16: 81%)
-- Statutory Profit for the year was up 2% after acquisition-related costs and share-based payments
Property
-- Revenue up 41% to GBP122.3 million driven by strong underlying performance and acquisitions
-- Total number of unique partners (including acquisitions) up 12% to 24,962(8) as at end of Period
-- UK Agency partners & inventory up 6% and 5% respectively to 14,775 branches & 969k listings
-- ARPP(9) (including acquisitions) up by 5% to GBP358 due to success of additional product cross-sell
-- Average number of products per partner now stands at 1.4, up 27% from same time last Period
-- GBP1m+ in additional referral fees generated for our partners so far through the MoveIT platform
Comparison
-- Strong switching levels across all verticals with revenue up 10% to GBP122.2 million over Period
-- 34.3 million leads generated helping consumers save over GBP400 million off their household bills
-- Account sign-ups up 60% to 1.9 million with average leads per consumer account up 6% to 1.3
-- Traffic to uSwitch up 14% YoY with unpaid traffic now accounting for the majority of site visits
-- Zoopla delivering >25% of mortgage traffic to uSwitch demonstrating the cross-sell opportunity
-- Significantly enhanced our proposition with the acquisition of Money, following end of the Period
Commenting on today's announcement Alex Chesterman, Founder & CEO of ZPG Plc said:
"We are delighted to have delivered another year of record performance across the business as we continued to provide increased transparency to our consumers and efficiency to our partners. The combination of our underlying organic growth and further strategic acquisitions has made us stronger and more diversified than ever before, resulting in record revenues up 24% to GBP244.5 million and record Adjusted EBITDA up 25% to GBP96.4 million.
"Our Property division performed very well driven by strong demand for our additional products, further migration of our software partners to cloud-based products and a continuation of returning portal partners. We significantly enhanced the partner cross-sell opportunity with the successful integration of our acquisitions in website, software, data and print products and saw the average number of products per partner increase by 27% over the Period."
"Our Comparison division experienced strong levels of switching across all verticals, helping consumers save over GBP400 million off their household bills during the Period. Energy continued to benefit from returning switchers on fixed term deals and supplier price rises, resulting in a record of over a million energy switches over a twelve-month period. Our acquisition of Money, following the end of the Period, has further diversified our revenues and enhanced the consumer cross-sell opportunity with market-leading products now in Energy, Communications and Finance."
"We are also pleased to announce today the acquisition of Calcasa, the leading provider of automated property valuations and statistical market analysis in the Netherlands, which further enhances our data capabilities, product portfolio and partner relationships."
"Looking ahead, we are very excited by both the underlying growth opportunities in each division and the unique and unrivalled cross-sell opportunities we have created as we continue on our mission to be the platform of choice for consumers and partners engaged in property and household decisions."
Outlook
ZPG has had a good start to the 2018 financial year across both divisions and Management remains comfortable with current market expectations(10) for FY18. We are encouraged by the rate of progress on cross-selling products to our Property partners as well as the rate of returning UK agents to our portals which now stands at over 1,000 branches. Our Comparison business is trading well and we are pleased with the progress to date on the integration of Money where we have already seen some exciting wins. We look forward to the roll out of a number of new products in 2018 in addition to deeper product integration as we continue to capitalise on both our consumer and partner cross-sell opportunities.
-S-
For further information, please contact:
Lawrence Hall, Head of Communications - lawrence.hall@zpg.co.uk / 07890 078 945
Rachael Malcolm, Head of Investor Relations - rachael.malcolm@zpg.co.uk / 0203 8725 648
James Isola, Maitland - 020 7379 5151
http://www.zpg.co.uk/
A webcast of the management team presentation to analysts and investors will be made available at www.zpg.co.uk at 09.00am this morning and registration can be accessed here. An audio dial-in will also be made available:
Standard International Access: +44 (0) 203 003 2666
UK Toll-Free Number: 0808 109 0700
United States Toll-Free Number: 1 866 966 5335
United States Toll Number: 1 646 843 4608
Participant password: ZPG
1. When reviewing performance, the Directors use a combination of both statutory and adjusted performance measures. The adjusted performance measures, including Adjusted EBITDA and Adjusted basic EPS, provide additional information in line with how financial performance is measured by Management and reported to the Board. These measures are reconciled in the Summary Income Statement in the Finance Review below.
2. Adjusted EBITDA is defined as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items.
3. Adjusted basic EPS is calculated as profit for the year excluding exceptional items and amortisation of intangible assets arising on acquisitions, adjusted for tax and divided by the weighted average number of shares in issue for the year.
4. Profit for the year includes GBP27.6m (FY16: GBP15.7m) of exceptional items and amortisation of intangibles arising on acquisitions (adjusted for tax) recognised during the Period.
5. Full Year dividend includes an interim dividend of 1.9 pence per share and ZPG's proposed final dividend of 3.8 pence per share
6. Net debt is defined as loans and borrowings less cash and cash equivalents as per the consolidated statement of financial position.
7. Cash conversion ratio is calculated as: Net cash flows from operating activities less deal related transaction costs of GBP3.4 million /EBITDA
8. The total number of unique Property partners has been restated to exclude 788 legacy software customers of Property Software Group who are not paying for an active support contract and to include Zoopla Advertising and Data partners
9. Average revenue per partner (ARPP) represents total revenue from ZPG's Property partners in a given month divided by the number of Property partners during the month, measured as a monthly average over the Period.
10. As at 28 November 2017 Company collated consensus figures for FY18 Revenue and EBITDA were GBP302m and GBP118m, respectively. These figures include only those analysts who have published updated figures since 7 September 2017, the date of our last market update.
Cautionary Statement
This document contains forward-looking statements. These forward-looking statements include matters that are not historical facts. Statements containing the words "believe", "expect", "intend", "may", "estimate" or, in each case, their negative and words of similar meaning are forward-looking. By their nature, forward-looking statements involve risks and uncertainties because they relate to events that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that the Company's actual financial condition, results of operations and cash flows, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Company's financial condition, results of operations and cash flows, and the development of the industry in which we operate are consistent with the forward-looking statements in this document, those results or developments may not be indicative of results or developments in subsequent periods. Important facts that could cause the Company's actual results of operations, financial condition or cash flows, or the development of the industry in which we operate, to differ from current expectations include those principal risks and uncertainties disclosed below. As a consequence, the Company's future financial condition, results of operations and cash flows, as well as the development of the industry in which we operate, may differ from those expressed in any forward-looking statements made by us or on the Company's behalf.
About ZPG Plc (www.zpg.co.uk)
ZPG Plc (LSE:ZPG) ("ZPG") owns and operates some of the UK's most trusted digital brands that help empower smarter property and household decisions including Zoopla, uSwitch, Money, PrimeLocation and SmartNewHomes. We are also one of the leading residential property data and software providers with a range of products including Hometrack, TechnicWeb, Ravensworth, Alto, Jupix, ExpertAgent, PropertyFile and MoveIT. Our websites and apps attract over 50 million visits per month and over 25,000 business partners use our services. ZPG was founded in 2007 and has a highly experienced management team, led by Founder & CEO, Alex Chesterman OBE.
Zoopla is the UK's most comprehensive property website, helping consumers to research the market and find their next home by combining hundreds of thousands of property listings with market data and local information.
uSwitch is the UK's leading comparison website for home services switching, helping consumers to find the best deal and save money on their gas, electricity, broadband, TV, phone and other products.
Money is one of the UK's leading financial services comparison websites, helping consumers compare products including mortgages, loans, credit cards, bank accounts and insurance from more than 600 providers.
PrimeLocation is one of the UK's leading property websites, helping house-hunters in the middle/upper tiers of the market find their dream home from the top estate agents, letting agents and property developers.
SmartNewHomes is the UK's leading website dedicated exclusively to new homes, helping buyers understand the market and search for new build homes from all the leading property developers across the country.
Hometrack is a leading supplier of automated property valuations and property market insights in the UK and Australia to partners including mortgage lenders, developers, investors, housing associations and others.
TechnicWeb is the UK's leading estate agency website design and hosting business specialising in designing and operating fully-responsive websites for the property sector.
Ravensworth is the UK's leading provider of print solutions to estate agents and offers a comprehensive range of products and services for every stage of the property marketing journey from listing through to post-sale.
Alto, Jupix and ExpertAgent are some of the leading cloud-based estate agency and property management software systems used by thousands of property professionals across the UK for the day-to-day management of inventory, marketing and communications.
PropertyFile and MoveIT are innovative tools used by estate agents to improve communication and efficiency with their customers and to allow them to generate additional revenue streams via referrals.
Business Review
Chief Executive Officer's statement and business review
We're stronger and more diversified than ever before
2017 has been another very exciting year for ZPG as we continued to help our consumers to make smarter property and household-related decisions and our partners to operate more effectively. The combination of our underlying organic growth and strategic acquisitions has made us stronger and more diversified than ever before, resulting in record revenues up 24% to GBP244.5 million and record Adjusted EBITDA up 25% to GBP96.4 million.
Delivering on our strategy & mission
We have made significant progress towards our mission of being the platform of choice for consumers and partners engaged in property and household decisions. During the Period, we announced five acquisitions, three further strategic investments and the launch of two new national marketing campaigns.
Our audience continued to grow and remains highly engaged with a new record of 648 million visits to our websites, of which 72% were via mobile devices. We launched new national advertising campaigns for both our Zoopla and uSwitch brands. Zoopla's new campaign highlighted how we can help simplify the process of moving home, through the eyes of hermit crabs, the world's most prolific home movers. uSwitch's new marketing campaign unveiled an updated logo identity and new brand slogan - 'Switching made simple'. Both campaigns resulted in record levels of national brand awareness. As a result we generated a record of over 56 million leads for our more than 25,000 partners during the Period.
Our cross-sell strategy to both consumers and partners is working. We are engaging our consumer audience effectively and are driving thousands of incremental leads across our platforms. In March we launched our innovative MovePlanner tool on Zoopla which helps consumers manage everything move-related in one place and allows us to generate leads for conveyancing, removals, insurance, energy, broadband and more. This tool is now generating over 10,000 incremental leads per month for our Comparison partners. Zoopla is also now driving over 25% of the overall mortgage traffic to uSwitch.
We continued to attract a focused, transaction-ready audience to our uSwitch website with account sign-ups increasing by 60% to 1.9m at the end of the Period. Consumers can now manage multiple products within their account and set reminders for contract end dates so that they never miss an opportunity to switch to a better deal. In addition, uSwitch's app won numerous awards during the Period including 'Most innovative use of mobile' and 'Best app' at the MOMA Awards and 'Best use of mobile' at the DADI Awards.
The cross-sell opportunity to our Property partners has been significantly enhanced through the acquisitions of TechnicWeb, Hometrack, ExpertAgent and Ravensworth. We are now able to offer best-in-class portal, software, websites, data and print services to our partners. Our MoveIT platform generated over GBP1m in referrals fees for our partners and has become a net revenue generator for a number of agents who are able to earn an additional GBP1,000+ per transaction by offering additional relevant services to consumers including conveyancing, mortgages and energy switching. As at the end of the Period the average number of products per partner was up 27% to 1.4.
To reflect the evolution of the business, following the recent acquisitions ZPG will update its divisional key performance indicators ('KPIs') from FY2018 onwards. In Property, the Company will report revenue by Marketing, Software and Data and its total number of unique Property partners and Average Revenue Per Partner (ARPP) across the division. In Comparison, the Company will report revenue by Energy, Communications and Finance and its total number of Comparison leads and Average Revenue Per Lead (ARPL) across the division. Full details of the like-for-like performance under the new methodology (including acquisitions in both periods) can be found in the Appendix.
Acquisitions & partnerships
We completed four acquisitions during the Period and one following the end of the Period, enhancing our product propositions and cross-sell opportunities to both our consumers and partners.
November 2016: TechnicWeb is one of the UK's leading estate agency website design and hosting businesses. This acquisition has now been integrated into our wider business and gives our partners the ability to instantly refresh their online presence with a choice of different fully mobile-optimised website designs.
January 2017: Hometrack is the UK's leading provider of residential property market insights and analytics. This acquisition has helped us to further differentiate our products for both consumers and partners and has also introduced a new set of partners to ZPG including 18 of the top 25 mortgage lenders in the UK.
March 2017: ExpertAgent is a leading property software provider that provides essential systems for the day-to-day management of estate agent businesses. By integrating with existing ZPG products we are able to ensure all of our partners benefit from a choice of platforms suitable to their requirements.
September 2017: Ravensworth is the leading provider of integrated print solutions to over 4,500 UK estate agent branches. This deal further enhances ZPG's comprehensive product offering for its Property partners which now includes portal, software, websites, on-demand print and data services.
October 2017 (following the end of the Period): Money is one of the UK's leading finance comparison websites, helping consumers to compare thousands of deals in more than 60 product categories including mortgages, loans, credit cards, bank accounts and insurance.
We also made further strategic investments in Neos; the UK's first home insurance provider that provides the latest connected home technology and Zero Deposit; an exciting new insurance product that replaces the need for tenants to place a security deposit at the beginning of a tenancy. Additionally we took an equity stake in PropertyFinder Group, a Dubai-based business which owns the leading property portals across the Middle East and North Africa.
These new acquisitions and strategic partnerships help to further differentiate our products and services.
Property
Revenues in our Property division increased by 41% to GBP122.3 million for the Period, driven by strong demand for our additional upsell products, further migration of our software partners to cloud-based products and a continuation of returning portal partners. This figure includes a full twelve months of trading from Property Software Group, which was acquired on 28 April 2016, as well as the post-acquisition trading of TechnicWeb, Hometrack, ExpertAgent and Ravensworth which were acquired during the Period. On a like-for-like basis (including acquisitions in both periods) Property revenue increased by 9%.
We saw the total number of unique Property partners increase by 12% to 24,962 at the end of the Period. This figure has been restated to align portal and software partner count under the same methodology as previously announced at the half year(1) . The number of UK Agents advertising across our Property platform increased by 6% to 14,775 and our inventory grew by 5% to over 969k listings at the end of the Period. ARPP increased by 5% to GBP358 due to strong demand for premium portal products, the continued migration of software partners to cloud-based products and the inclusion of acquisitions.
The combination of strong organic growth and the integration of acquisitions enables ZPG to provide the UK's most comprehensive product offering to its Property partners including best-in-class portals, software, websites, data and print services to help our partners market, manage and maximise their business opportunities. Traffic to our Property platform has continued to grow to over 48 million visits per month, up 6% year-on-year (YoY), delivering over 22 million leads to our Property partners over the Period, with appraisal leads up 33% YoY.
We have substantially enhanced the breadth of our Property Marketing proposition to include the provision of cloud-based websites via TechnicWeb (acquired 1 December 2016) and on-demand print services solutions via Ravensworth (acquired 1 September 2017).
Our Property Software business is performing well with the continued migration of partners from desktop to cloud-based products, growing from 39% at the end of September 2016 to 46% at the end of September 2017. On 28 February 2017, we acquired ExpertAgent, one of the UK's leading cloud-based software providers, further enhancing our stable of software products and enabling us to offer even more partners the ability to generate additional revenues through the integration of our MoveIT and PropertyFile products into the ExpertAgent platform.
The acquisition of Hometrack, the UK's leading provider of residential property market insights, on 31 January 2017, formed the cornerstone of our Property Data business. Since the acquisition, Hometrack has signed new deals with TSB and Bank of Ireland and extended its relationship with HSBC, and now serves 18 of the top 25 mortgage lenders in the UK. We have also made good progress on the integration of Hometrack's valuation data into the overall business with the coverage of Zoopla's house price estimates increasing to over 80% of UK households.
Comparison
We experienced strong levels of switching across all Comparison verticals, helping our consumers to save over GBP400 million off their household bills during the Period. Revenues in our Comparison division increased 10% to GBP122.2 million and we generated 34.3 million leads for our Comparison partners during the Period, up 13% YoY. ARPL decreased by 3% to GBP3.57 reflecting a shift in product mix within the Communications vertical.
As a backdrop to this year, we saw exceptionally strong switching volumes in both the Energy and Communications verticals in 2016 from our market-leading collective switches, energy supplier price cuts and strong competition amongst communications suppliers. The Energy vertical particularly benefitted from returning switchers on fixed term deals and supplier price rises, enabling us to reach a new milestone of over one million energy switches in a twelve-month period.
Our Communications vertical performed in line with expectations. Mobile switching was boosted by increased competition amongst suppliers and ongoing optimisation of the consumer experience driving greater lead generation and broadband switching benefitted from strong consumer demand whilst fully absorbing the changes to the advertising standards which came into effect at the beginning of the year. We continued to develop our Finance offering and significantly enhanced our proposition with the acquisition of Money after the end of the Period.
In September 2017, the CMA published its final report as part of its market study into Digital Comparison Tools (DCTs) which highlighted how comparison services are putting power into the hands of the consumer and driving increased competition, highlighting the ongoing regulatory support for the role of DCTs.
Our talent
We grew our team by 20% over the Period from 735 to 882 staff members as a result of both organic growth and strategic acquisitions. We remain passionate about being a market-leading employer and providing a world-class environment and continue to place significant emphasis on employee engagement and wellbeing by investing in market-leading benefits. Our London headquarters was recently named 'One of the coolest offices in Britain' by Glassdoor.
Looking ahead
We are very excited by both the underlying growth and unique cross-sell opportunities we have created in each division as we continue our mission of being the platform of choice for consumers and partners engaged in property and household decisions. We will continue to invest in the business for the long-term and look forward to launching more innovative products and services in the year ahead.
I would like to welcome all those who have joined the ZPG family this year and thank the entire team for their continued commitment.
Alex Chesterman
Founder & CEO
(1) The total number of unique Property partners has been restated to exclude 788 legacy software customers of Property Software Group who are not paying for an active support contract and to include Zoopla Advertising and Data partners
Finance Review
Revenue increased by 24% to GBP244.5 million and Adjusted EBITDA increased by 25% to GBP96.4 million compared to the same twelve-month period last year. The increase was driven by a strong underlying performance across both divisions together with the inclusion of in-year acquisitions. These results include a full twelve months of trading from Property Software Group, which was acquired on 28 April 2016, as well as trading from the date of the acquisition of TechnicWeb, Hometrack, ExpertAgent and Ravensworth. Full details of the like-for-like performance (including acquisitions in both periods) can be found in the Appendix.
Statutory Profit for the year was up 2% to GBP37.4 million after the impact of increased deal-related exceptional costs, amortisation of intangibles assets arising on acquisitions and share-based payments. Statutory basic EPS marginally decreased to 8.8 pence per share as a result of the placing of 20.9 million shares to help fund strategic acquisitions.
When reviewing performance, the Directors use a combination of both statutory and adjusted performance measures. The adjusted performance measures, including Adjusted EBITDA and Adjusted basic EPS, provide additional information in line with how financial performance is measured by Management and reported to the Board. These measures are reconciled in the Summary Income Statement below.
During the Period, ZPG secured a GBP125.0 million extension to its credit facilities and raised GBP74.3 million (net of fees) through a share placing to help fund acquisitions. As at 30 September 2017, ZPG had a leverage of 2.0x with net debt of GBP191.5 million and headroom against its covenants.
The Company maintains a target dividend pay-out ratio of 35-45% of profits excluding share-based payments and exceptional items, and the Directors have proposed a final dividend of 3.8 pence per share. This brings total dividends for the 2017 financial year to 5.7 pence per share, up 10% on the same period last year, which represents a 40.4% pay-out ratio.
Summary Income Statement
GBPm 2017 2016 YoY % ----------------------------------------------------------- -------- -------- ------ Revenue 244.5 197.7 24 Operating costs (148.1) (120.6) 23 Adjusted EBITDA 96.4 77.1 25 Share-based payments (7.6) (4.8) 58 Depreciation (1.2) (1.7) (29) Amortisation of other intangible assets (2.6) (2.0) 30 Amortisation of intangible assets arising on acquisitions (14.6) (7.5) 95 Exceptional items (16.7) (11.4) 46 Operating profit 53.7 49.7 8
Net finance costs (5.6) (3.5) 60 Profit before tax 48.1 46.2 4 Income tax expense (10.7) (9.5) 13 Profit for the year 37.4 36.7 2 ----------------------------------------------------------- -------- -------- ------ Amortisation of intangible assets arising on acquisitions 14.6 7.5 95 Exceptional items 16.7 11.4 46 Adjustment for tax (3.7) (3.2) 16 Adjusted Profit for the year 65.0 52.4 24 ----------------------------------------------------------- -------- -------- ------ Adjusted earnings per share: Adjusted basic earnings per share (pence per share) 15.2 12.7 20 Basic earnings per share (pence per share) 8.8 8.9 (1)
Revenue
GBPm 2017 2016 YoY
%
----------------------------- --------- --------------------------- -----
Property:
Agency(1) 87.1 66.5 31
New Homes 13.1 11.7 12
Other(2) 22.1 8.5 160
----------------------------- --------- --------------------------- -----
Property Revenue 122.3 86.7 41
----------------------------- --------- --------------------------- -----
Comparison:
Energy 60.1 52.7 14
Communications 44.0 44.1 -
Other 18.1 14.2 27
----------------------------- --------- --------------------------- -----
Comparison Revenue 122.2 111.0 10
----------------------------- --------- --------------------------- -----
Total Revenue 244.5 197.7 24
----------------------------- --------- --------------------------- -----
(1) Agency includes twelve months of trading from Property Software
Group, ten months of trading from TechnicWeb, seven months of
trading from Expert Agent and one month of trading from Ravensworth
(2) Other includes eight months of trading from Hometrack
The Property division generated GBP122.3 million of revenue, up 41% on the same period last year. Agency revenue, which includes acquisitions, was up 31% at GBP87.1 million. Excluding acquisitions, revenue generated from UK estate and lettings agents advertising across ZPG's Property platform (UK Agency) was up 8% driven by returning partners and demand for depth products such as Valuation Booster, Premium Listings and AdReach. New Homes revenue increased 12% to GBP13.1 million, driven by demand for additional products like Area Sponsorship and targeted email marketing campaigns. Other Property revenue of GBP22.1 million was up 160% on the same period last year as a result of the inclusion of eight months of trading from Hometrack. Excluding Hometrack, Other Property revenue, which is made up largely from third party advertising, increased by 7%.
The Comparison division generated GBP122.2 million of revenue, up 10% against tough comparators last year as outlined in the Business Review. Energy generated GBP60.1 million of revenue, up 14% on the same period last year, driven by returning switchers on fixed term deals and supplier price rises driving increased awareness of the benefits of switching. Communications revenue was flat at GBP44.0 million after the vertical absorbed the impact of changes to the advertising standards for broadband as outlined in the Business Review. Other Comparison revenue, which is predominantly generated from financial products such as banking and credit cards, generated GBP18.1 million of revenue, up 27%.
Operating costs
Operating costs increased 23% to GBP148.1 million comprising Staff costs of GBP51.6 million, Marketing costs of GBP77.1 million and Other costs of GBP19.4 million. The increase in costs is largely attributable to the inclusion of acquisitions, above-the-line advertising costs associated with two national advertising campaigns for both Zoopla and uSwitch and costs associated with ZPG's new headquarters.
Adjusted EBITDA
Adjusted EBITDA increased by 25% to GBP96.4 million year-on-year. Property Adjusted EBITDA increased to GBP55.5 million driven by a strong underlying performance, the inclusion of twelve months of trading from Property Software Group and acquisitions during the Period. The Property margin increased from 44% to 45% during the Period as a result of the strong underlying performance across the Company's Property Marketing vertical and the inclusion of the eight months of trading from the higher margin Hometrack business.
Comparison Adjusted EBITDA increased to GBP40.9 million as a result of the strong switching performance across the division. The margin reduced slightly to 33% from 35% as a result of ZPG's additional strategic investment in brand advertising for uSwitch and the strong performance in the same period last year as outlined in the Business Review.
Share-based payments
The share-based payments charge increased as expected from GBP4.8 million to GBP7.6 million in line with 2017 grants for the LTIP and deferred bonus schemes.
Depreciation & Amortisation of other intangible assets
Depreciation decreased to GBP1.2 million due to the write-down of leasehold improvements at the Company's previous office headquarters recognised in the previous period. Amortisation of other intangible assets increased to GBP2.6 million reflecting the Company's ongoing capital expenditure on further development of its integrated products such as the MovePlanner.
Amortisation of acquired intangible assets
ZPG splits out amortisation of intangible assets arising on acquisitions and amortisation of other intangibles for the purposes of calculating Adjusted basic EPS. Amortisation of acquired intangible assets increased to GBP14.6 million as a result of the inclusion of amortisation arising on the acquisitions of TechnicWeb, Hometrack, ExpertAgent, Ravensworth and a full year of Property Software Group.
Exceptional items
Exceptional items include costs that Management believes to be exceptional in nature by virtue of their size or incidence. Total exceptional items were GBP16.7 million in 2017 which includes GBP14.7 million relating to continuing deferred consideration and Management shareholder bonuses resulting from acquisitions, GBP3.8 million of transaction costs relating to the Hometrack, ExpertAgent and Money acquisitions and an exceptional non-cash gain of GBP1.5 million on the disposal of the Propertyfinder.com domain name which was transferred during the period for 1% of the issued share capital of Property Finder International Limited.
Net finance costs
The Company incurred net finance costs of GBP5.6 million during the Period. The increased charge reflects the GBP125 million increase in the Company's credit facility since 30 September 2016 to GBP325 million to help fund strategic acquisitions.
Income tax expense
The Company's income tax charge was GBP10.7 million representing an effective income tax rate of 22%. This is higher than the statutory tax rate of 19.5% for the Period due to non-deductible transaction costs and management deferred and contingent consideration expenses arising on acquisitions.
Profit for the year
Adjusted Profit for the year, calculated as profit for the year after adding back exceptional items and amortisation of intangible assets arising on acquisitions, adjusted for tax, increased by 24% to GBP65.0 million. Statutory Profit for the year increased by 2% to GBP37.4 million after the impact of increased exceptional costs, amortisation of intangible assets arising on acquisitions and share-based payments.
Earnings per share (EPS)
Adjusted basic EPS, which strips out the impact of exceptional items and amortisation of intangible assets arising on acquisitions, increased by 20% to 15.2 pence per share. Statutory basic EPS decreased marginally to 8.8 pence per share after the placing of 20.9 million shares on 1 February 2017 to help fund strategic acquisitions.
Other comprehensive income
During the year the Company recognised a non-cash gain of GBP1.1 million on a revaluation of ZPG's investment partnerships with some of the UK's leading technology start-ups.
Summary statement of financial position
GBPm 2017 2016 Intangible assets 491.0 322.6 Available for sale financial assets 4.5 0.7 Property, plant and equipment 6.6 6.4 Cash and cash equivalents 75.4 3.4 Working capital (1) (12.8) 7.4 Loans and borrowings (266.9) (149.7) Deferred and contingent consideration(2) (38.4) (30.7) Provisions(2) (1.7) (2.7) Tax assets and liabilities(2) (17.8) (15.2) ------------------------------------------ -------- -------- Net assets 239.9 142.2 ------------------------------------------ -------- --------
(1) Working capital is defined as both current and non-current, trade and other receivables less trade and other payables.
(2) Includes both current and non-current balances
The Company was in a strong financial position as at 30 September 2017. Net assets were GBP239.9 million with intangible assets increasing to GBP493.4 million to reflect goodwill and acquired intangible assets resulting from the TechnicWeb, Hometrack, ExpertAgent and Ravensworth acquisitions. Available for sale financial assets of GBP4.5 million represents the Company's investment partnerships and the Company's 1% shareholding of Property Finder International Limited as outlined in the Business Review.
Cash and cash equivalents increased to GBP75.4 million as a result of the timing difference between the arrangement of funds to complete the Money acquisition that was announced on 7 September 2017 and completion on 1 October 2017. ZPG's liability for deferred and contingent consideration payable as a result of the Company's acquisitions was GBP38.4 million at 30 September 2017.
Net debt position
GBPm 2017 2016 Total loans and borrowings (266.9) (149.7) Cash and cash equivalents 75.4 3.4 Net debt (191.5) (146.3) ---------------------------- -------- --------
As at 30 September 2017 the Company had net debt of GBP191.5 million including loans and borrowings of GBP266.9 million. The overall increase in net debt can be attributed to the funding of acquisitions during the Period and the payment of the deferred consideration relating to both the uSwitch and Property Software Group acquisitions, net of increases arising from the share placing and operating cash flows.
On 1 October 2017, the acquisition of Money completed and ZPG paid an initial consideration of GBP60 million increasing the Company's net debt to GBP251.5 million. The Company's net debt to EBITDA ratio remained comfortably within the updated covenant limits with a leverage of 2.7x.
Summary statement of cash flows(3)
GBPm 2017 2016 ------------------------------------------------------ -------- ------------ Net cash flows from operating activities 81.0 60.9 ------------------------------------------------------ -------- ------------ Cash flows (used in)/from investing activities: Acquisitions and investments (164.3) (87.4) Interest income received 0.1 0.1 Capital expenditure (7.1) (6.5) Net cash used in investing activities (171.3) (93.8) ------------------------------------------------------ -------- ------------ Proceeds from issue of share capital, net of fees 74.3 - Proceeds on issue of debt, net of issue costs 215.0 89.4 Repayment of debt (97.5) (52.5) Interest paid (6.0) (3.0) Treasury shares purchased - (0.4) Shares purchased by trusts (0.1) - Shares released from trusts 0.2 0.2 Dividends paid (23.6) (16.6) ------------------------------------------------------ -------- ------------ Net cash flows from financing activities 162.3 17.1 ------------------------------------------------------ -------- ------------ Net increase/(decrease) in cash and cash equivalents 72.0 (15.8) Cash and cash equivalents at end of the period 75.4 3.4 ------------------------------------------------------ -------- ------------
(3) The consolidated statement of cash flows has been represented in the prior year to move transaction costs on acquisitions of GBP1.3 million to operating cash flows. The impact was to reduce net cash flows from operating activities by GBP1.3 million to GBP60.9 million and to reduce the net cash flows used in investing activities to GBP93.8 million.
The Company continues to be highly cash generative with net cash inflows from operating activities of GBP81.0 million during the Period, up 33% on the same period last year. Capital expenditure increased to GBP7.1 million as a result of the development of new integrated projects such as the MovePlanner as outlined in the Business Review. The Company had an outflow of GBP164.3 million relating to the cash costs of the acquisitions of Hometrack, ExpertAgent and Ravensworth, deferred consideration relating to previous acquisitions and investment partnerships.
The investing activities were funded by a net increase in cash from financing activities including GBP74.3 million raised in equity and a net increase of GBP117.5 million in borrowings.
Dividends
The Company maintains a target dividend pay-out ratio of 35-45% of profits excluding share-based payments and exceptional items based on the strong cash generation and long-term earnings potential of the Company. The Directors have proposed a final dividend of 3.8p, bringing total dividends for the Period to 5.7 pence per share, up 10% year-on-year, equating to a 40.4% pay-out ratio. Subject to shareholder approval at the 2018 Annual General Meeting this will be paid on 8 February 2018 to those shareholders on the share register as at 8 December 2017.
Subsequent events
On 1 October 2017, ZPG completed the acquisition of Money, one of the UK's leading financial services comparison websites for GBP80 million on a cash-free, debt-free basis, plus a performance-based earn-out of up to GBP60 million. The acquisition was financed through a combination of existing cash resources and a GBP50m extension to ZPG's credit facilities with an opening net debt ratio of c.2.7x the enlarged Company's Adjusted EBITDA.
As at the date of this report the Company is well advanced in its acquisition of Calcasa B.V., a leading provider of automated property valuations and statistical market analysis in the Netherlands, for EUR30.0 million (GBP26.5 million(4) ) on a cash-free, debt-free basis, with a performance-based earn-out of up to EUR50.0 million (GBP44.2 million(4) ). The acquisition is expected to complete on 1 December 2017 and will be financed through a combination of cash resources and an extension to the Company's existing credit facilities with an opening net debt ratio of c.2.9x the enlarged Company's Adjusted EBITDA. Exchange rate of GBP/EUR = 1.13
Andy Botha - CFO
Appendix 1: ZPG KPIs (unaudited)
The figures below are for the twelve-month periods to 30 September 2017 and 30 September 2016. To reflect the evolution of the business, ZPG will update its divisional key performance indicators ('KPIs') from FY2018 onwards. In Property, the Company will report revenue by Marketing, Software and Data and its total number of unique Property partners and Average Revenue Per Partner (ARPP) across the division. In Comparison, the Company will report revenue by Energy, Communications and Finance and its total number of Comparison leads and Average Revenue Per Lead (ARPL) across the division. Each period includes a full twelve month's trading from Property Software Group, TechnicWeb, Hometrack, ExpertAgent, Ravensworth and Money in order to give a more meaningful comparative. These figures are unaudited.
(GBPm) FY 17 FY 16 YoY% ----------------------------------------------------- ----------------- ------- ----- Property Revenue 135.8 124.3 9 Comparison Revenue 146.7 135.5 8 ----------------------------------------------------- ----------------- ------- ----- Revenue 282.5 259.8 9 ----------------------------------------------------- ----------------- ------- ----- Staff costs 59.6 52.7 13 Marketing costs 87.2 83.7 4 Other costs(1) 26.5 24.4 8 ----------------------------------------------------- ----------------- ------- ----- Total Operating costs 173.3 160.8 8 ----------------------------------------------------- ----------------- ------- ----- Adjusted EBITDA(2) 109.2 99.0 10 ----------------------------------------------------- ----------------- ------- ----- KPIs ----------------------------------------------------- ----------------- ------- ----- Visits(3) (million) 676 630 7 FTEs(4) 942 937 1 Divisional KPIs Property: Marketing(5) (GBPm) 91.6 85.6 7 Software(6) (GBPm) 23.2 20.8 12 Data(7) (GBPm) 21.0 17.9 17 ----------------------------------------------------- ----------------- ------- ----- Property Revenue (GBPm) 135.8 124.3 9 ----------------------------------------------------- ----------------- ------- ----- Property Operating costs (GBPm) 74.9 71.8 4 ----------------------------------------------------- ----------------- ------- ----- Property Adjusted EBITDA (GBPm) 60.9 52.5 16 ----------------------------------------------------- ----------------- ------- ----- Blended ARPP (average revenue per partner) (8) (GBP) 454 432 5
Total unique number of Property partners(9) (000s') 25,465 24,920 2 ----------------------------------------------------- ----------------- ------- ----- Comparison: Energy(10) (GBPm) 62.6 54.9 14 Communications(11) (GBPm) 44.0 44.1 0 Finance(12) (GBPm) 40.1 36.5 10 ----------------------------------------------------- ----------------- ------- ----- Comparison Revenue (GBPm) 146.7 135.5 8 ----------------------------------------------------- ----------------- ------- ----- Comparison Operating costs (GBPm) 98.4 89.0 11 ----------------------------------------------------- ----------------- ------- ----- Comparison Adjusted EBITDA (GBPm) 48.3 46.5 4 ----------------------------------------------------- ----------------- ------- ----- ARPL (average revenue per lead)(13) (GBP) 2.88 2.99 (4) Number of Comparison leads(14) (million) 50.9 45.3 12 ----------------------------------------------------- ----------------- ------- -----
(1 Other Costs represents technology, property and administrative costs)
(2 Adjusted EBITDA is defined as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items.)
(3 Visits comprise individual sessions on the Company's websites or mobile applications by users for the Period indicated as measured by Google Analytics)
(4 FTEs is defined as the number of full time equivalent employees across the Company)
(5 Marketing represents revenue generated from the provision of marketing services including portal, websites and print revenues)
(6 Software represents revenue generated from the provision of software services)
(7 Data represents revenue generated from the provision of data services)
8 ARPP (average revenue per partner) is defined as total Property revenue generated divided by the total number of Property partners during the month, measured as a monthly average over the Period
9 Total unique number of Property partners is defined as the total number of unique businesses paying for ZPG Property services during the period (subscription or transactional)
(10 Energy represents revenue generated from energy switching services, business energy and boiler cover)
(11 Communications represent revenue generated from mobile, broadband, pay TV and home phone switching services)
(12 Finance represents revenue generated from financial product switching services)
13 ARPL (average revenue per lead) is defined as total Comparison revenue divided by the total number of Comparison leads during the Period
(14 A Comparison lead is measured at the point when a consumer shows) (intent to switch via an application form hosted on the Company's website, clicks through to a specific offer or at the point in time when the customer leaves the Company's website having clicked through to a third-party website)
Principal risks and uncertainties
KEY RISK DESCRIPTION AND MANAGEMENT AND MITIGATION MOVEMENT
IMPACT
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Changing market The way in which Flat
environment* consumers * Increasing user engagement levels by continuing a
interact consumer-centric approach to product development.
The Company with businesses
participates is evolving
in fast-moving rapidly.
marketplaces The Company's * Regular open dialogue with our partners to ensure
which are subject partners are that we continually develop our products to meet
to rapid technological constantly their needs.
developments developing
and changes in their business
consumer trends models and the
which may impact way in which * Continual optimisation of all our websites and
the Company's they interact products across all platforms and devices.
ability to offer with consumers
the best products directly. Failure
and services of the Company
to its partners to adapt to meet * Maintaining organisational flexibility, allowing fast
and consumers. the needs of responses to new business opportunities or threats.
its partners
could lead to
a fall in the
number of * Monitoring and regular review of search engine
partners optimisation and digital marketing spend.
and revenues.
The Company is
also subject * Regular monitoring of changes in market environment
to changes in and emerging trends.
policies set
by search engine
providers.
Failure
to keep pace
with these
changes
may lead to the
Company's
websites
receiving less
exposure to
consumers
and result in
a fall in visitor
numbers.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Integration of The challenges Up
acquisitions surrounding * Oversight of the enlarged Company, by an Executive
integrating Management Team experienced in dealing with The addition
The Company is different acquistions, to ensure harmonisation of strategy and of four
highly acquisitive, cultures, objectives across the Company. acquisitions
which presents working practices during
inherent operational, and locations the year,
strategic and could impact and more
cultural challenges. team retention * Clear communication of the Company vision and recently
and performance. strategy to align the team. Money,
increases
The inability the
to successfully likelihood
integrate our * Centralised shared service functions across finance, of this
acquisitions HR and legal. risk
may adversely materialising
affect consumer
and/or partner
experience with * Hometrack now based out of The Cooperage to encourage
a resulting greater integration.
impact
on strategic
cross-sell
opportunites * Communicating the benefits of acquisitions to both
and the Company's partners and consumers.
future revenues.
In addition,
there is the * Forming functional teams across the Company where
possibility that possible.
the financial
and operational
control
environments
of acquired
entities
are not as
established
as those of the
Company or those
required when
operating in
a listed
environment.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
IT systems and Any failure of Flat
cyber security the Company's * Regularly testing the security of the IT systems and
IT infrastructure platforms, including penetration testing and testing
A number of the through error of Distributed Denial of Service (DDoS) attack
Company's IT or attack could procedures.
systems are impair the
interdependent operation
and a failure of the Company's
in one system websites and * Maintaining separate platforms for our portals,
or a security services, the websites, software and data services.
breach may disrupt processing and
the efficiency storage of data
and functioning and the
of the Company's day-to-day * Restricting access to data, systems and code and
operations. The management of ensuring all systems are secure and up to date.
Company is also the Company's
exposed to the business.
increasing risk
associated with In addition, * Providing training for staff on information security,
cyber-attacks. any theft or data protection and compliance and operating a
The Company holds misuse of data Company-wide data policy.
consumer and held within the
partner data Company's
which could be databases
susceptible to could have both
loss or theft. reputational
and financial
implications
for the Company.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Retention and Competition for Flat
recruitment qualified talent * Building a strong employee brand in the recruitment
is intense and market and building strong talent pipelines.
Success depends an inability
on the continued to attract highly
retention and skilled employees
performance of could adversely * Operating a structured approach to recruitment using
the Company's impact the specialist teams to ensure timely recruitment of high
valued employees. Company's quality employees.
Skilled development, operations,
technical, operating, financial
sales and marketing condition or
personnel are prospects. * Investing in succession planning and improving
essential for learning and development, giving opportunities for
the business Similarly, an employees to upgrade skills.
to meet its strategic inability to
goals and the motivate, develop
Company operates and retain key
in markets with team members * Investment in our offices and team environments.
a high demand could adversely
for high calibre impact the
personnel. Company's
operations, * Providing competitive reward and compensation
financial packages to all staff, comprising a blend of short
condition and and long-term incentives for managers.
prospects.
The Company has
a track record * Instilling the culture of the Company to build and
of growth through maintain staff loyalty
acquisition -
an inability
to retain key
team members
from these
businesses
could increase
business risk
in the event
of reliance on
their
business-critical
knowledge.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Regulatory environment There is a risk Up
that changes * Maintaining regular open and constructive dialogue
The Company operates to the regulatory with all significant regulatory bodies. Increased
in a number of environment could levels
regulated require the of Government
environments. Company policy
Certain revenue to revise its * Implementing processes to ensure compliance with all review
streams within strategy, mandatory reporting obligations including a dedicated and proposals
the Comparison operations Regulation and Compliance team. within
division are or business markets
regulated by model. we operate
the FCA. The in have
Comparison division Changes in * Regular monitoring of regulatory risks by the Board, impacted
also voluntarily regulation the Audit Committee, the legal function and internal our exposure
complies with may also impact audit and throughout the business. to this
the Ofgem Confidence the Company's risk.
Code and is involved profitability
in regular via increased
communication compliance costs
with Ofcom. or a fall in
revenues as a
result of
subsequent
changes in
consumer
or partner
behaviour
Non-compliance
with regulations
set by a
regulatory
body may also
have both
reputational
and financial
implications
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Macroeconomic Brexit-specific Flat
conditions considerations * Regularly reviewing market conditions and indicators.
have been
The Company derives outlined
a material share below.
of its revenues * Building consumer and partner brand loyalty.
from the UK and Changes in the
also now UK, European
internationally, and Australian
with operations economies have * Maintaining a flexible cost base that can respond to
in Australia. the potential changing conditions.
The Company is to adversely
therefore largely impact the demand
dependent on for our products
the macroeconomic and services * Diversifying risk by maintaining a balance between
conditions in in the markets different revenue streams, including diversification
the UK as well we operate in. through the acquisitions of Hometrack and Money (1
as being exposed Such changes October 2017), in order to provide protection against
to changes in could affect volatility within our markets.
macroeconomic the average
conditions property
internationally. prices, the
number * Developing revenue streams in other related/ adjacent
of mortgage markets.
approvals
and the volume
of transactions
in the UK housing * Promoting the benefit and potential savings for
market. consumers of home (and now financial) services
switching.
Subsequently,
the marketing,
data and software
purchasing
budgets
of the Company's
partners could
decrease, which
could reduce
demand for the
Company's
services
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Competitive If competitors Down
environment can provide, * Ensuring partners understand the unique value
or are perceived proposition that can be provided through our websites, Our
The Company operates to provide, an products and services. increasingly
in marketplaces enhanced partner diversified
which are highly or consumer position,
competitive. service including
The actions of then there is * Offering attractive and competitive pricing packages the addition
the Company's a risk to the to partners. of Hometrack
competitors, Company's and Money,
and/or our own forecasted has reduced
inaction, can revenue and other our exposure
have a significant KPIs. * Continuing to develop and extend the Company's to volatility
and adverse impact innovative product offering and improve the value in individual
on the Company. The Company provided for partners. competitive
invests markets.
significantly
in marketing
to build brand * Developing and maintaining a number of strong
awareness and consumer brands through marketing.
drive traffic
to its websites.
Increased digital
marketing * Diversifying risk through multiple revenue streams
expenditure
by competitors,
or general price
increases, may
cause the Company
to incur
additional
marketing spend
to ensure that
it can continue
to compete
effectively.
There is a risk
that competitors
entering or
targeting
the Company's
primary revenue
markets may
reduce
the Company's
relative market
share in one
or more of the
markets we
operate
in.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Data governance The acquisition New for
(Previously considered of additional * Established Data & Analytics function with newly FY18
within regulatory brands allows appointed Data Director as of October 2017. reporting.
"environment"). us to control
and process
The Company's increasing
operations rely levels of data * Legal function with specialist data governance
on the effective which can be expertise and Data Protection Manager.
governance and used to target
appropriate use product
of data we control offerings,
and process for deliver synergies * Established ZPG Company-wide Data Working Group,
the benefit of and, ultimately, which includes relevant individuals throughout all
consumers and provide the best levels of the business.
our customers. consumer
experience
and partner
value. * Annual information security and data protection
Should we be training compulsory for all staff.
unable to
therefore
maximise on this
opportunity we * Operational plan in place to ensure compliance with
will be unable upcoming implementation of the General Data
to maximise our Protection Regulation (GDPR).
revenues.
In addition,
insufficient
understanding
of what data
we hold and how
we can
appropriately
use it can have
a significant
effect on our
reputation as
well as the
potential
for financial
penalties.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Reputational Damage to any Flat
and brand damage of the Company's * Embedding a culture of transparency, social awareness
brands could and ethical behaviour throughout the Company.
The Company operates lead to a fall
a number of in consumer
identifiable confidence,
and respected reducing traffic * Regularly reviewing the Company's risks and reviewing
brands which and leads for and developing internal controls to mitigate the risk
could be damaged the Company's of error or fraud.
by factors such partners and
as unethical in turn impacting
or unlawful activity, the Company's
poor customer revenue. * Executing the Company's strategy, which has both
service or negative consumers and the Company's partners at its core.
press. There is also
a risk that the
Company's
partners * Established dedicated public relations team.
may choose to
terminate their
existing
relationship * Continually investing in the Company's brands.
with the Company
as a result of
any reputational
damage, which
would directly
impact the
Company's
revenues.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
Debt covenants Failure of the Flat
and funding Company to comply * Negotiating sufficient headroom within the Company's
with its existing existing facility, including renegotiation on the We have
The Company holds debt covenants acquisition of Money. increased
external debt may lead to a our leverage
and therefore default on the as a
must ensure compliance Company's result
with its covenant borrowings * Consideration of current debt covenants embedded into of recent
ratios. The Company and a requirement budgeting and forecasting processes. acquisitions
also needs to for the Company but consider
ensure that it to repay any there
has the funding amounts to be
required to deliver outstanding * Regularly monitoring compliance with current debt no material
on its strategy or to renegotiate covenants and available headroom. change
and future growth the terms of in our
plans and that its facility. ability
it manages its to meet
debt and cash The level of * Proactive cash management. our debt
balances effectively. debt within the covenants.
business and
the covenants
in place may * Consideration of additional or alternative funding
also restrict should significant opportunities for growth be
the amount of identified.
funds available
for future
growth,
including future
M&A activity.
----------------------- ------------------ ----------------------------------------------------------------------- --------------
The EU referendum
The result of the UK's EU referendum in 2016 increased the level of macroeconomic uncertainty, increasing the likelihood of the impacts outlined under "macroeconomic conditions" above. In light of the continued macroeconomic uncertainty, and the mitigating factors set out below, there has been no material change to the severity of this risk for the Company throughout the year.
During the year, the Company has continued to consider the impact of this result on the business and its potential implications. The Directors believe that the Company's multi-channel, multi-brand strategy creates a diverse revenue base which means it is well placed to minimise any negative impacts. In particular:
-- the increasingly diversified market position resulting from the Company's most recent acquisitions;
-- the Property division is largely subscription based and is therefore less susceptible to short-term shocks or variations in the property market or wider economy;
-- a large proportion of our Property partners are engaged in both sales and lettings, which reduces the risk of any downturn in the property market on their businesses;
-- an economic downturn increases the propensity for consumers to search our Comparison platforms for the best deals to save money on their household expenses; and
-- a weaker Pound may lead to higher price inflation in areas such as energy bills, which may benefit our Comparison division
Viability statement
The Directors have conducted a robust assessment of the principal risks facing the Company and believe that the Company is well placed to successfully manage these risks. Therefore, in accordance with the 2014 revisions to the UK Corporate Governance Code, the Directors confirm that they have a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due for the next three years. The Directors continue to believe that a three-year viability period is appropriate to ensure that forecasting is reasonable and that the Company can conduct a reasonable identification and assessment of its foreseeable principal risks. The following factors, which were identified in the prior year, continue to be relevant:
-- the Company operates in markets which are subject to rapid technological, consumer and regulatory changes;
-- the Company operates a three year planning cycle; and
-- the Company has engaged in a high number of significant acquisitions, which are constantly evolving the business and changing future cash flows.
In arriving at their conclusion, the Directors considered the Company's forecast financial performance and cash flows over the three year viability period. The forecast has then been subject to sensitivity analysis, both based on across-the-board changes to revenue and expenditure, as well as scenario analysis to reflect the estimated impact of the principal risks identified above. The following list provides examples of the sensitivities performed:
-- periodic increases to LIBOR, impacting the Company's finance costs;
-- weaker UK GDP growth over the next three years than forecast by the OECD;
-- changes in market conditions requiring responsive increases in costs;
-- loss of certain material revenue contracts across each of the Company's revenue streams;
-- underachievement of the Company's cross-sell strategy;
-- changes in regulation set by regulators, such as Ofgem and Ofcom, leading to a reduction in consumer switching;
-- financial penalties, as well as a reduction in revenue resulting from reputational damage, due to non-compliance with GDPR; and
-- increase in IT security costs in response to external attack/data hack, as well as a reduction in revenue resulting from reputational damage.
Mitigations to address the materialisation of any significant challenge to forecasted cash flows include actions such as a reduction in brand marketing, a freeze in staff headcount and/or a reduction in dividend pay-out.
The Directors note that the Company's current debt facility requires renewal in April 2020, which is within the final year of the viability period. For this reason, it is not appropriate to consider a longer viability period. The Directors are comfortable that the Company has sufficient assets and future cash flows to successfully renegotiate or extend its current facility and therefore the assumption made by Management that the facility continues to be in place until at least November 2020 is considered reasonable.
The analysis considered the Company's ability to meet its operational and financial obligations throughout the Period, including compliance with the Company's existing debt covenants. Based on the analysis performed, the Directors confirm that they have a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due for the next three years.
Full year results
The financial information set out below has been taken from the consolidated financial statements of ZPG Plc for the year ended 30 September 2017 which were approved by the Board of Directors on 28 November 2017. The financial information does not constitute statutory accounts within the meaning of sections 435(1) and (2) of the Companies Act 2006. The consolidated financial statements will be filed with the Registrar of Companies, subject to their approval by the Company's shareholders at the Company's Annual General Meeting on 30 January 2018. The Company's Annual Report for the year ended 30 September 2017 will be posted to shareholders, and will be made available on the Company's website, in December 2017.
Independent Auditors' report
Deloitte LLP confirm that they have issued an unqualified opinion on the full financial statements of ZPG Plc.
Statement of Director's responsibilities
The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 30 September 2017. Certain parts thereof are not included within this Announcement.
The Directors confirm to the best of their knowledge that:
a) the consolidated financial statements from which the financial information within these preliminary consolidated financial results have been extracted, are prepared in accordance with IFRSs as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole; and
b) the Annual Report and the Business Review and Finance Review include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties faced by the Group. The Directors of ZPG Plc and their respective responsibilities are listed in the Annual Report for 2017. This responsibility statement was approved by the Board of Directors and is signed on its behalf by:
Alex Chesterman
Director
28 November 2017
Consolidated statement of comprehensive income
For the year ended 30 September 2017 from continuing operations
2017 2016
Notes GBP000 GBP000
------------------------------------------ ----- --------- ---------
Revenue 244,538 197,728
Administrative expenses (190,834) (148,053)
------------------------------------------ ----- --------- ---------
Adjusted EBITDA 3 96,410 77,110
Share-based payments 24 (7,647) (4,852)
Depreciation and amortisation (18,348) (11,179)
Exceptional items 3 (16,711) (11,404)
------------------------------------------ ----- --------- ---------
Operating profit 4 53,704 49,675
Finance income 47 51
Finance costs (5,664) (3,564)
------------------------------------------ ----- --------- ---------
Profit before tax 48,087 46,162 Income tax expense 9 (10,678) (9,484) ------------------------------------------ ----- --------- --------- Profit for the year 37,409 36,678 ------------------------------------------ ----- --------- --------- Attributable to Owners of the parent 37,409 36,678 ------------------------------------------ ----- --------- --------- Other Comprehensive Income Fair value movements - Available for sale financial assets 16 1,139 - ------------------------------------------ ----- --------- --------- Total comprehensive income for the period 38,548 36,678 ------------------------------------------ ----- --------- --------- Earnings per share Basic (pence) 11 8.8 8.9 Diluted (pence) 11 8.6 8.8 ------------------------------------------ ----- --------- ---------
Consolidated statement of financial position
As at 30 September 2017
2017 2016
Notes GBP000 GBP000
-------------------------------------------- ----- ------- -------
Assets
Non-current assets
Intangible assets 14 491,020 322,621
Property, plant and equipment 15 6,560 6,413
Available for sale financial assets 16 4,461 724
Trade and other receivables 17 - 3,262
-------------------------------------------- ----- ------- -------
502,041 333,020
-------------------------------------------- ----- ------- -------
Current assets
Trade and other receivables 17 38,531 36,615
Cash and cash equivalents 75,368 3,367
-------------------------------------------- ----- ------- -------
113,899 39,982
-------------------------------------------- ----- ------- -------
Total assets 615,940 373,002
-------------------------------------------- ----- ------- -------
Liabilities
Current liabilities
Trade and other payables 18 51,379 32,522
Current tax liabilities 2,948 6,146
Deferred and contingent consideration 19 16,799 28,143
Provisions 20 259 1,304
-------------------------------------------- ----- ------- -------
71,385 68,115
-------------------------------------------- ----- ------- -------
Non-current liabilities
Loans and borrowings 21 266,865 149,696
Deferred and contingent consideration 19 21,622 2,533
Provisions 20 1,440 1,410
Deferred tax liabilities 22 14,687 9,021
-------------------------------------------- ----- ------- -------
304,614 162,660
-------------------------------------------- ----- ------- -------
Total liabilities 375,999 230,775
-------------------------------------------- ----- ------- -------
Net assets 239,941 142,227
-------------------------------------------- ----- ------- -------
Equity attributable to owners of the parent
Share capital 23 439 418
Share premium reserve 74,304 50
Other reserves 23 85,603 86,007
Retained earnings 79,595 55,752
-------------------------------------------- ----- ------- -------
Total equity 239,941 142,227
-------------------------------------------- ----- ------- -------
The consolidated financial statements of ZPG Plc were approved by the Board of Directors and were signed on its behalf by:
A Chesterman A Botha Director Director 28 November 2017 28 November 2017
Consolidated statement of cash flows
For the year ended 30 September 2017
2017 2016
GBP000 GBP000
------------------------------------------------------ --------- --------
Cash flows from operating activities
Profit before tax 48,087 46,162
Adjustments for:
Depreciation of property, plant and equipment 1,154 1,709
Amortisation of intangible assets 17,194 9,470
Finance income (47) (51)
Finance costs 5,664 3,564
Share-based payments 7,647 4,852
Gain on barter transaction (1,540) -
Movement in contingent and deferred consideration 11,334 7,075
------------------------------------------------------ --------- --------
Operating cash flow before changes in working capital 89,493 72,157
Increase in trade and other receivables (1,563) (4,991)
Increase in trade and other payables 9,152 3,862
(Decrease)/increase in provisions (1,015) 505
------------------------------------------------------ --------- --------
Cash generated from operating activities 96,067 72,157
Income tax paid (15,083) (11,290)
------------------------------------------------------ --------- --------
Net cash flows from operating activities 80,984 60,867
------------------------------------------------------ --------- --------
Cash flows (used in)/from investing activities
Acquisition of subsidiaries, net of cash acquired (136,884) (47,125)
Settlement of deferred and contingent consideration (32,722) (37,042)
Amounts paid from/(into) escrow in relation to
deferred and contingent consideration 6,341 (2,448)
Acquisition of available for sale financial assets (1,058) (979)
Disposal of available for sale financial assets - 255
Interest received 47 51
Acquisition of property, plant and equipment (1,215) (3,980)
Acquisition and development of intangible assets (5,885) (2,561)
Net cash flows used in investing activities (171,376) (93,829)
------------------------------------------------------ --------- --------
Cash flows from/(used in) financing activities
Proceeds on issue of shares, net of issue costs 74,275 -
Proceeds on issue of debt, net of issue costs 215,000 89,358
Repayment of debt (97,500) (52,500)
Interest paid (5,899) (2,942)
Treasury shares purchased - (414)
Shares purchased by trusts (112) -
Shares released from trusts 238 182
Dividends paid (23,609) (16,554)
------------------------------------------------------ --------- --------
Net cash flows from financing activities 162,393 17,130
------------------------------------------------------ --------- --------
Net increase/(decrease) in cash and cash equivalents 72,001 (15,832)
Cash and cash equivalents at beginning of period 3,367 19,199
------------------------------------------------------ --------- --------
Cash and cash equivalents at end of period 75,368 3,367
------------------------------------------------------ --------- --------
Consolidated statement of changes in equity
For the year ended 30 September 2017
Other reserves
-------- -----------------------------
Share
Share premium Shares Merger Treasury Retained Total
capital reserve in trust reserve shares earnings equity
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ----- -------- -------- --------- -------- -------- --------- --------
At 1 October
2016 418 50 (768) 87,133 (358) 55,752 142,227
Profit for the
period - - - - - 37,409 37,409
Other Comprehensive
Income:
Fair value movements - - - - - 1,139 1,139
Transactions
with owners
recorded directly
in equity:
Shares issued 21 74,254 - - - - 74,275
Share-based
payments 24 - - - - - 6,055 6,055
Treasury shares
released 23 - - - - 60 (60) -
Current tax
on share-based
payments 9 - - - - - 309 309
Deferred tax
on share-based
payments 9 - - - - - 2,049 2,049 Shares purchased by trusts - - (112) - - - (112) Shares released from trusts - - 304 - - (66) 238 Other - - - - - (39) (39) Transfer between reserves(1) - - - (656) - 656 - Dividends paid 10 - - - - - (23,609) (23,609) --------------------- ----- -------- -------- --------- -------- -------- --------- -------- At 30 September 2017 439 74,304 (576) 86,477 (298) 79,595 239,941 --------------------- ----- -------- -------- --------- -------- -------- --------- --------
1 The transfer from merger reserve to retained earnings in 2017 and 2016 represents an equalisation adjustment in respect of the amortisation charge on intangibles which arose on acquisition of The Digital Property Group Limited on 31 May 2012. The intangible assets are now fully amortised
Other reserves
-------- -----------------------------
Share
Share premium Shares Merger Treasury Retained Total
capital reserve in trust reserve shares earnings equity
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ----- -------- -------- --------- -------- -------- --------- --------
At 1 October
2015 418 50 (1,017) 88,118 - 29,671 117,240
Profit and total
comprehensive
income for the
period - - - - - 36,678 36,678
Transactions
with owners
recorded directly
in equity:
Share-based
payments 24 - - - - - 3,990 3,990
Treasury shares
purchased 23 - - - - (414) - (414)
Treasury shares
released 23 - - - - 56 (56) -
Current tax
on share-based
payments 9 - - - - - 217 217
Deferred tax
on share-based
payments 9 - - - - - 888 888
Shares released
from trust - - 249 - - (67) 182
Transfer between
reserves(1) - - - (985) - 985 -
Dividends paid 10 - - - - - (16,554) (16,554)
------------------- ----- -------- -------- --------- -------- -------- --------- --------
At 30 September
2016 418 50 (768) 87,133 (358) 55,752 142,227
------------------- ----- -------- -------- --------- -------- -------- --------- --------
1 The transfer from merger reserve to retained earnings in 2017 and 2016 represents an equalisation adjustment in respect of the amortisation charge on intangibles which arose on acquisition of The Digital Property Group Limited on 31 May 2012.
Notes to the consolidated financial statements
1. Accounting policies
ZPG Plc is a company domiciled and incorporated in the United Kingdom. The address of the registered office is The Cooperage, 5 Copper Row, London SE1 2LH.
1.1 Basis of preparation
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below for the years ended 30 September 2017 and 30 September 2016. The policies have been consistently applied to all the periods presented, unless otherwise stated.
The consolidated statement of cash flows has been represented in the prior year to move transaction costs on acquisitions of GBP1.3 million to operating cash flows. The impact was to reduce net cash flows from operating activities by GBP1.3 million to GBP60.9 million and to reduce the net cash flows used in investing activities to GBP93.8 million.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and IFRIC Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRS"). They are prepared on the historical cost basis.
The preparation of consolidated financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Management to exercise judgement in applying the Group's accounting policies. Note 1.20 and 1.21 give further details relating to the Group's critical accounting estimates and judgements.
The presentational currency of the financial statements is Pound Sterling (GBP). Amounts included in the consolidated financial statements are shown in round thousands unless otherwise indicated.
At the date of approval, the following standards and interpretations which have not been applied in these consolidated financial statements were in issue but are only effective for financial years beginning on or after 1 January 2017:
-- Amendments to IAS 7 'Disclosure Initiative' (effective 1 January 2017)*
-- Amendments to IAS 12 'Recognition of Deferred Tax Assets for Unrealised Losses' (effective 1 January 2017)*
-- IFRS 9 'Financial Instruments' (effective 1 January 2018)
-- IFRS 15 'Revenue from Contracts with Customers' (effective 1 January 2018)
-- Amendments to IFRS 2 'Share-based Payments' (effective 1 January 2018)*
-- IFRIC 22 'Foreign Currency Transactions and Advanced Consideration' (effective 1 January 2018)*
-- Amendments to IFRS 4 'Insurance contracts' (effective 1 January 2018)*
-- Amendments to IAS 40 'Investment Properties' (effective 1 January 2018)*
-- IFRS 16 'Leases' (effective 1 January 2019)*
-- IFRS 17 'Insurance Contracts' (effective 1 January 2021)*
* not yet endorsed for use in the EU
IFRS 9 - Financial Instruments is effective for the first time for the financial year commencing 1 October 2018. The implementation of IFRS 9 will require the reclassification of the Group's Available for sale financial assets. From 1 October 2018 these assets will be measured as Fair value through other comprehensive income in accordance with IFRS 9. As this treatment mirrors the Group's current policy, there is not expected to be any material impact on the Group's reported results; however, Management notes that any gain or loss arising on the sale of these assets may no longer be able to be recognised in the Consolidated income statement but will remain within Other Comprehensive Income.
IFRS 15 - Revenue from Contracts with Customers is effective for the first time for the financial year commencing 1 October 2018. An initial impact assessment was performed during 2017 by Management to identify potential implications for the business on its existing contracts and the recognition of revenue. Management has identified a number of contract types which could result in a change in the profile of revenue recognition as currently drafted, including but not limited to: contracts for the provision of desktop software and contracts for advertising services. Management also notes that the current recognition of sales commission across the Group will also change and will lead to these costs being spread over the expected life of the contract. As the Group is still in the process of assessing the full impact of IFRS 15 it is not currently practicable to quantify the impact of this standard and therefore the standard could have a material impact on the future results of the Group, in particular revenue, administrative expenses and accrued and deferred revenue. Management intend to provide an indication of the expected impact of IFRS 15 in the interim announcement for the period to 31 March 2018.
The impact of IFRS 16 - Leases will require the Group to record its current property leases and fleet of motor vehicles on the statement of financial position. The leases impacted are currently treated as operating expenses. The change in recognition is expected to increase future depreciation charges and lead to a reduction in operating expenses. Future commitments under current operating leases are outlined in Note 27 which gives some indication of the impact on the Group going forward, however, as IFRS 16 is effective for the first time for the financial year commencing 1 October 2019 a full assessment of the standard has not yet been made and therefore the standard could have a material impact on the future results of the Group.
All other standards identified above are not expected to have a material impact on the consolidated financial statements.
1.2 Adoption of new and revised standards
These consolidated financial statements have been prepared in accordance with the policies set out in the Group's Annual Report for the year ended 30 September 2016. No new or revised accounting standards were adopted in the period.
1.3 Basis of consolidation
The consolidated financial statements incorporate the accounts of ZPG Plc ("the Company") and entities controlled by the Company ("its subsidiaries") (together "the Group"). Control exists when the Group has existing rights to give it the ability to direct the relevant activities of an entity and has the ability to affect the returns the Group will receive as a result of its involvement with the entity. The results of subsidiaries are included in the consolidated financial statements from the date control commences until the date when control ceases.
Throughout the year the Group acquired a number of entities and their subsidiaries. The results of each acquisition have been consolidated from the date of acquisition as set out in Note 13. The consolidated results for 2017 are therefore not a like for like comparison for 2016. Full details of the acquisitions are set out in Note 13.
Full details of acquisitions made in 2016 are set out in the Group's Annual Report 2016 and are summarised in Note 13.
The Company has one trading subsidiary that uses a functional currency which is different to the presentational currency of the Group. Hometrack Australia Limited's functional currency is the Australian Dollar as it is the currency of the primary economic environment in which it operates.
Assets and liabilities for Hometrack Australia are translated into Pound Sterling using the exchange rate at the statement of financial position date and the consolidated statement of comprehensive income translated using the average exchange rate for the year. Exchange differences on translation into the presentational currency are recognised within other comprehensive income. The principal exchange rates for the Australian Dollar against Pound Sterling used in these consolidated financial statements are: average: 1.66, closing: 1.71.
1.4 Going concern
The consolidated financial position shows a positive net asset position and the Group continues to generate net cash flows from operating activities and maintain its current dividend policy. The Group also has access to a GBP325 million debt facility of which GBP269 million was drawn down at 30 September 2017. The facility includes required covenant ratios of Net Debt: EBITDA and interest cover. The Group are comfortably within these limits. As a consequence, the Directors believe that the Group is well placed to manage its business and financial risks successfully.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, thus they continue to adopt the going concern basis of accounting in preparing the historical financial information.
1.5 Revenue
Revenue represents amounts due for services provided during the period, net of value added tax. The Group recognises revenue under two categories - Property and Comparison.
Revenue from Property derives principally from subscription to the Group's property websites and from the provision of property software to UK domestic, overseas and commercial estate agents ("UK Agency revenue"), home developers ("New Homes revenue") and overseas and commercial estate agents along with the provision of property data to financial and other institutions ("Other property revenue") . Subscription revenue, including fees for listing on the Group's property websites or the ongoing provision of property data, is recognised over the period of the subscription. Software revenue includes subscription to Software as a Service (SaaS), desktop software licensing, support and installation fees. Installation fees are recorded at fair value when the installation is complete. Ongoing SaaS revenue, support and licensing fees are recognised over the service period. Revenue from other property services is recognised in the month in which the service is provided.
The main sources of Comparison revenue are fees received for the comparison of gas and electricity services ("Energy revenue") and mobile, broadband, pay TV and home phone services ("Communications revenue"). Revenue is recognised at the point at which a lead is generated to an energy or communications provider, based on the historical conversion of such leads into completed switches. Revenue from other comparison services ("Other Comparison revenue") is recognised in the month in which the service is provided.
1.6 Leases
During 2016 the Group entered into a new 15 year lease agreement for its head office at The Cooperage, London. During 2017 the Group's previous offices were sublet to a third party.
All of the Group's current lease and sub-lease arrangements are recognised as operating leases as the material risks and rewards incidental to ownership remain with the lessor.
Operating lease expenses are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease. Rent-free periods, lease arrangement fees and other direct costs are amortised through the consolidated statement of comprehensive income over the term of the lease.
Operating lease income is recorded in the consolidated statement of comprehensive income on a straight-line basis over the period of the lease and is classified as other income. Any rent-free or reduced rent periods are amortised through the consolidated statement of comprehensive income over the term of the lease.
1.7 Finance income and costs
Finance income represents interest receivable on cash and deposit balances and gains recognised on foreign currency transactions. Interest receivable is recognised as it accrues using the effective interest method.
Finance costs represent interest charges and certain fees charged on the Group's revolving credit facility as well as losses recognised on foreign currency transactions. Finance costs are recognised as they accrue using the effective interest method.
Foreign exchange gains and losses are recognised monthly based on the translation of assets and liabilities held in foreign currencies to Pound Sterling and realised gains and losses on transactions recorded in the period. The Group's principal exposure is to the Australian Dollar, through its Australian subsidiary, and the US Dollar, through agreements with of a number of suppliers based in the United States. The Directors are comfortable that any sensitivity to fluctuations in exchange rates would not have a material impact on the results of the Group.
1.8 Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. This cost includes the purchase price, directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions. Items of property, plant and equipment are subsequently measured at cost less accumulated depreciation and are not revalued.
Depreciation is recognised so as to write off the cost of assets less their residual values over their useful economic lives, using the straight-line method, as follows:
Fixtures and fittings -over 2 to 5 years Computer equipment -over 2 to 5 years Leasehold improvements -over the lease term Freehold property - over 50 years
The Directors review the residual values and useful economic lives of assets on an annual basis.
1.9 Business combinations
The acquisition of subsidiaries and businesses is accounted for using the acquisition method in accordance with IFRS 3. The consideration for each acquisition is measured at the aggregate of fair values of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, net of cash acquired. Acquisition related costs, other than those associated with the issue of debt or equity securities, are recognised in the consolidated statement of comprehensive income as incurred.
At the acquisition date, the identifiable assets acquired and liabilities assumed are recognised at their fair value with the exception of deferred tax assets and liabilities, which are measured in accordance with IAS 12 - Income Taxes. Identifiable net assets include the recognition of any separately identifiable intangible assets. Further detail of the identifiable assets and liabilities recognised during the year on acquisitions are provided in Note 13.
Deferred and contingent consideration are measured at fair value at the date of acquisition. Where the amounts payable are classified as a financial liability any subsequent change in the fair value is charged/credited to the Group's consolidated statement of comprehensive income. Amounts classified as equity are not subsequently remeasured. Where consideration to Management shareholders is contingent on their continued employment the amount is recognised as a remuneration expense in the statement of comprehensive income over the deferral period when it coincides with the period of continued employment.
1.10 Goodwill
Goodwill arising on a business combination represents the difference between the fair value of the consideration paid and the fair value of assets and liabilities acquired and is recorded as an intangible asset. Goodwill is not subsequently subject to amortisation but is tested for impairment annually and whenever the Directors have an indication that it may be impaired. For the purposes of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the combination. Any impairment in carrying value is charged to the consolidated statement of comprehensive income.
1.11 Intangible assets
Purchased intangible assets with finite lives are initially recorded at cost. Intangibles arising on acquisition are recorded at fair value. All intangibles are subsequently stated at initial value less accumulated amortisation and accumulated impairment losses. Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of the intangible assets as follows:
Brand - 5 -10 years Domain names -5 years Database -3 -10 years Customer relationships -5 -10 years Website development and computer -3 -8 years software
1.12 Impairment of tangible and intangible assets
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Where the asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Any impairment loss is recognised immediately in the consolidated statement of comprehensive income.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount to the extent that this increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of comprehensive income.
1.13 Research and development
The Group incurs expenditure on research and development in order to develop new products and enhance the existing websites. Research expenditure is expensed in the period in which it is incurred. Development costs are expensed when incurred unless they meet certain criteria for capitalisation. Development costs whereby research findings are applied to creating a substantially enhanced website or new product are only capitalised once the technical feasibility and the commercial viability of the project has been demonstrated and they can be reliably measured. Capitalised development costs are amortised on a straight-line basis over their expected useful economic life.
Once the new website enhancement or product is available for use, subsequent expenditure to maintain the website or product, or on small enhancements to the website or product, is recognised as an expense when it is incurred.
Research and Development tax credit claims made in the UK are recognised as a credit to administrative expenses in the financial year relevant to the claim. Research and Development tax credits in Australia are recognised as a deduction to the tax expense.
1.14 Financial instruments
Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Full details of financial instruments are included in Note 26.
Investments in unlisted securities not meeting the definition of associates, joint ventures or subsidiaries are classified as available for sale financial assets and are initially recorded at fair value plus transaction costs. The investments are then remeasured at each subsequent reporting date to fair value. Changes in the fair value of the unlisted securities are recognised in other comprehensive income, with the exception of impairment losses. On disposal of the asset any gains and losses recorded within other comprehensive income are realised and are reclassified to the consolidated statement of comprehensive income.
Trade and other receivables are designated as loans and receivables. They are recognised at amortised cost, which is net of any allowance for impairment in relation to irrecoverable amounts. This is deemed to be a reasonable approximation of their fair value. The provision is reviewed regularly in conjunction with a detailed analysis of historical payment profiles and past default experience. When a trade receivable is deemed uncollectable, it is written off against the allowance account. The Group receives interest income on certain amounts held in escrow.
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Trade and other payables are not interest bearing and are designated as other financial liabilities. They are recognised at their carrying amount, which is deemed to be a reasonable approximation of their fair value.
Loans and borrowings are measured at amortised cost, net of direct costs. Direct costs are released through the consolidated statement of comprehensive income under the effective interest method, along with interest charged, over the life of the instrument.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The Company's Ordinary Shares are classified as equity instruments and are recognised at the proceeds received, net of any direct issue costs. Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
Financial instruments are not used for speculative purposes.
The Group's cash and cash equivalents represent amounts held in the Group's current accounts and overnight deposits that are immediately available.
The information set out below provides information about how the Group determines fair values of various financial assets and financial liabilities that are measured subsequent to initial recognition at fair value:
-- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
-- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Details of the type of fair value input used is included within the relevant note.
1.15 Net Debt
The Group defines Net Debt as loans and borrowings less cash and cash equivalents, both as per the statement of financial position. The Group does not currently hold any financial derivatives, have any leases recorded as finance leases or operate a defined benefit pension plan and therefore these costs are not currently considered. These, and any other financing costs, will be considered as they become applicable to the results of the Group. The calculation of net debt is presented in Note 21.
1.16 Current tax
Current income tax comprises UK income tax and is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the statement of financial position date. Current tax is recognised in the consolidated statement of comprehensive income except to the extent that it is required to be recognised directly in equity.
1.17 Deferred tax
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and
-- investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. Deferred tax is recognised in the consolidated statement of comprehensive income except to the extent that it is required to be recognised directly in equity.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax assets are recovered.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle balances on a net basis.
1.18 Provisions
Provisions are recognised when the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate of the amount of the obligation can be made. Provisions are measured at Management's best estimate of the expenditure required to settle the obligation at the statement of financial position date and are discounted to present value where the impact is material. The unwinding of any discount is recognised in finance costs.
Dilapidation provisions are recognised based on Management's best estimate of costs to make good the Group's leasehold properties at the end of the lease term.
Onerous lease provisions relate to contracts whereby the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.
Restructuring provisions are recognised when a full restructuring plan has been developed and communicated. The restructuring provisions represent expected costs incurred of completing the restructure including redundancy costs.
1.19 Employee benefits: defined contribution benefit scheme
The Group operates a defined contribution pension scheme which is a post-employment benefit plan under which the Group pays fixed contributions into a fund. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Contributions payable to the fund are charged to the statement of comprehensive income in the period to which they relate.
1.20 Share-based payments
The Group provides equity-settled share-based incentive plans whereby ZPG Plc grants shares or nil-cost options over its shares to employees of its subsidiaries for their employment services. The Group also issues warrants over shares in ZPG Plc to a number of the Group's estate agent partners, allowing them to acquire shares in exchange for making their property listings available for inclusion on the Group's property websites.
Equity-settled share-based payments to employees and partners are measured at the fair value of the equity instruments at the grant date. The fair value is measured using a suitable valuation model, including the Black-Scholes and Monte-Carlo valuation models where appropriate, and is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each statement of financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to meet a market vesting condition. Details regarding the determination of the fair value of equity-settled share-based payment transactions are set out in Note 24.
Where the terms and conditions of options are modified before they vest, the increase in fair value of the options, measured immediately before and after the modification, is charged to the income statement over the remaining vesting period.
Within the company accounts of ZPG Plc equity-settled share options granted directly to employees or estate agent partners of a subsidiary are treated as a capital contribution to the subsidiary. The capital contribution is measured by reference to the fair value of the share-based payments charge for the period and is recognised as an increase in the cost of investment with a corresponding credit to equity.
A number of shares are held in trust in order to settle future exercises of the Group's share incentive schemes. Details of the trusts are included in Note 24. Shares held in trust are treated as a deduction from equity.
Employer's National Insurance Contributions are accrued, where applicable, at a rate of 13.8%. The amount accrued is based on the market value of the shares at 30 September 2017 after deducting the exercise price of the share option.
1.21 Sources of estimation uncertainty
Comparison revenue and accrued income
Revenue generated by the Comparison division is recognised at the point at which a transaction or interaction on the Group's website is completed and a lead is generated. A Management estimate is required in calculating a revenue accrual to estimate the number of successful switches based upon leads provided for each partner in the period between the last date of billing and the latest partner data being made available. The accrued income is estimated by considering the volume of leads that have passed from the Group's website to the partner, the historical conversion of such leads into completed switches and contracted revenue per switch.
Recognition of acquired intangibles on acquisition
During the period the Group completed its acquisition of Hometrack, ExpertAgent, TechnicWeb and Ravensworth. The process of determining the fair value of intangible assets acquired in each acquisition requires an estimation of future cash flows arising from acquired intangibles and there is a risk that inaccurate estimation could lead to the valuation of acquired intangibles and goodwill being misstated. The details of assets and liabilities recognised upon acquisition is set out in note 13.
The Group engaged third party valuation experts for Hometrack and ExpertAgent to mitigate the risk associated with the valuation of assets and liabilities upon acquisition; however, estimation uncertainty still exists in the preparation of forecasts that underpin the valuation models. Intangibles recognised are subsequently amortised over their useful economic lives; as such, no future revaluation of the assets recognised will be made except for the purposes of impairment reviews.
Recognition of earn-out agreements
In consideration for the acquisition of Hometrack an earn-out agreement was entered which is contingent upon the future performance of a ten-year licence agreement also entered into at the point of acquisition. The earn-out is measured at fair value at the point of acquisition using discounted future cashflows under a range of weighted scenarios requiring an estimation of the future performance of the currently nascent licence agreement.
Deferred and contingent consideration on the acquisition of Hometrack was recognised at GBP13 million. At each reporting period the earn-out will be measured at fair value with any revaluation being recognised in the statement of comprehensive income. The initial fair value recognised upon acquisition was assessed to represent fair value as at 30 September 2017.
Impairment of goodwill and intangibles
The Group holds goodwill and intangibles on the statement of financial position in respect of business acquisitions made. Acquired intangibles include acquired goodwill, brands, customer relationships, databases, websites and software of which GBP491.0 million has been recognised as at 30 September 2017 (2016 : GBP322.6 million). The Group is required to review these assets annually for impairment. Determining whether goodwill and intangible assets are impaired requires an estimation of the recoverable value of the relevant cash-generating unit, which represents the higher of fair value and value in use. The value in use calculation requires an estimation of future cash flows expected to arise from the cash-generating unit, discounted using a suitable discount rate to determine if any impairment has occurred.
The impairment review has concluded that the carrying value of the Group's intangible assets is supported by the value in use of the respective cash generating units. Details of the impairment analysis are included in Note 14.
1.22 Key accounting judgements
PropertyFinder Group barter transaction
PropertyFinder Group is a Dubai-based business with leading property portals across the Middle East and North Africa. During the period the propertyfinder.com domain name was transferred in exchange for 1% of the issued share capital of Property Finder International Limited, the PropertyFinder Group parent entity.
A key accounting judgement was made in recognising the fair value of the acquired asset as required by IAS 38. Property Finder International Limited is a private company registered in the British Virgin Islands and as such is required to make only limited public financial disclosure. Determining the fair value of the investment is therefore subject to inherent uncertainty. Management used various sources of publicly available information, including the audited value of an investment in PropertyFinder Group disclosed by a listed investment company to determine the fair value at acquisition.
The investment in PropertyFinder is held as an available for sale financial asset and therefore is subsequently measured at fair value at each reporting date. As at 30 September 2017 the asset is valued at GBP1.7 million on the statement of financial position.
1.23 Alternative performance measures
In the analysis of the Group's financial performance certain information disclosed in the consolidated financial statements may be prepared on a non-GAAP basis or has been derived from amounts calculated in accordance with IFRS but is not itself an expressly permitted GAAP measure. These measures are reported in line with how financial information is analysed by Management. When reviewing performance, the Directors use a combination of both statutory and adjusted performance measures. The adjusted performance measures, including Adjusted EBITDA and Adjusted basic EPS, provide additional information to help assess the underlying performance of the business as they strip out deal-related costs and give a closer approximation to ZPG's cash flows.
The non-GAAP measures are designed to increase comparability of the Group's financial performance year on year. However, these measures may not be comparable with non-GAAP measures adopted by other companies. The key non-GAAP measures presented by the Group are:
-- Adjusted EBITDA - which is defined as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items (Note 3); and
-- Adjusted basic EPS - which is defined as profit for the year, excluding exceptional items and amortisation of intangible assets arising on acquisitions, adjusted for tax (adjusted profit for the year) and divided by the weighted average number of shares in issue for the year (Note 11).
Both of these measures are used in determining the remuneration of the Executive Directors and Management and are used by the Company's external debt providers to assess performance against covenants and determine the interest charge
2. Business segments
The Board of Directors has been identified as the Group's chief operating decision maker. The monthly reporting pack provided to the Board to enable assessment of the performance of the business has been used as the basis for determining the Group's operating segments.
Whilst the chief operating decision maker monitors the performance of the business at a revenue and Adjusted EBITDA level, depreciation and amortisation, share-based payments, exceptional items, finance income and costs and income tax are all monitored on a consolidated basis.
Assets and liabilities are also managed on a centralised basis and are not reported to the chief operating decision maker in a disaggregated format.
The chief operating decision maker monitors six individual revenue streams as set out below. The six revenue streams are grouped under two headings: Property and Comparison. Adjusted EBITDA is monitored on an aggregated basis under these two headings. Revenue and costs shown under the Agency heading include trading for 10 months of TechnicWeb, seven months of ExpertAgent and one month of Ravensworth, being the results of each entity from the date of acquisition. Other property revenue includes eight months trading of Hometrack. The consolidated results for 2017 are therefore not a like for like comparative for 2016.
Property
-- Agency revenue, which represents property advertising services and the provision of property software, websites and other marketing materials to estate agents and lettings agents;
-- New Homes revenue, which represents property advertising services provided to new home developers; and
-- Other property revenue, which predominantly represents the provision of property data to large financial institutions and other third parties as well as display advertising and other data services.
Comparison
-- Energy revenue, which represents gas and electricity switching services;
-- Communications revenue, which represents mobile, broadband, pay TV and home phone switching services; and
-- Other Comparison revenue, which predominantly represents financial services switching, boiler cover, business energy and data insight services.
All material revenues in 2017 are generated in the UK and Australia (UK: GBP240.1 million, Australia: GBP4.4 million). In 2016 all material revenues were generated in the UK.
The following table analyses the Company's consolidated revenue streams as described above:
Property Comparison Total
2017 GBP000 GBP000 GBP000
------------------------------ -------- ---------- ---------
Revenue
Agency 87,130 - 87,130
New Homes 13,123 - 13,123
Other Property 22,135 - 22,135
Energy - 60,086 60,086
Communications - 43,970 43,970
Other Comparison - 18,094 18,094
------------------------------ -------- ---------- ---------
Total revenue 122,388 122,150 244,538
------------------------------ -------- ---------- ---------
Underlying costs(1) (66,879) (81,249) (148,128)
------------------------------ -------- ---------- ---------
Adjusted EBITDA 55,509 40,901 96,410
------------------------------ -------- ---------- ---------
Share-based payments (7,647)
Depreciation and amortisation (18,348)
Exceptional items (16,711)
------------------------------ -------- ---------- ---------
Operating profit 53,704
------------------------------ -------- ---------- ---------
Finance income 47
Finance costs (5,664)
------------------------------ -------- ---------- ---------
Profit before tax 48,087
------------------------------ -------- ---------- ---------
Income tax expense (10,678)
------------------------------ -------- ---------- ---------
Profit for the year 37,409
------------------------------ -------- ---------- ---------
Property Comparison Total
2016 GBP000 GBP000 GBP000
------------------------------ -------- ---------- ---------
Revenue
Agency 66,498 - 66,498
New Homes 11,736 - 11,736
Other Property 8,516 - 8,516
Energy - 52,659 52,659
Communications - 44,137 44,137
Other Comparison - 14,182 14,182
------------------------------ -------- ---------- ---------
Total revenue 86,750 110,978 197,728
------------------------------ -------- ---------- ---------
Underlying costs(1) (48,202) (72,416) (120,618)
------------------------------ -------- ---------- ---------
Adjusted EBITDA 38,548 38,562 77,110
------------------------------ -------- ---------- ---------
Share-based payments (4,852)
Depreciation and amortisation (11,179)
Exceptional items (11,404)
------------------------------ -------- ---------- ---------
Operating profit 49,675
------------------------------ -------- ---------- ---------
Finance income 51
Finance costs (3,564)
------------------------------ -------- ---------- ---------
Profit before tax 46,162
------------------------------ -------- ---------- ---------
Income tax expense (9,484)
------------------------------ -------- ---------- ---------
Profit for the year 36,678
------------------------------ -------- ---------- ---------
1 - Underlying costs represent administrative expenses before depreciation and amortisation, share-based payments and exceptional items.
3. Adjusted EBITDA
The performance measure Adjusted EBITDA provides additional information to help assess the underlying performance of the business as it strips out deal related costs and gives a closer approximation to ZPG's cash flows. Adjusted EBITDA is used by Management to run the business, in determining the remuneration of the Executive Directors and Management and is used by the Company's external debt provider to assess performance against covenants and to determine the interest charge.
The Group defines Adjusted EBITDA as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items. Exceptional items include costs and income which Management believes to be exceptional in nature by virtue of their size or incidence. Such items would include costs associated with business combinations, one-off gains and losses on disposal, and similar items of a non-recurring nature together with reorganisation costs and similar charges. In 2017 the majority of exceptional items relate to the acquisition of subsidiaries set out in Note 13.
This is adjusted for share-based payment expenses which are comprised of charges relating to: (i) warrants issued to certain of the Group's partners; and (ii) employee incentive plans which are aimed at retaining staff and aligning employee objectives with those of the Group. The Directors consider that excluding share-based payments and other non-cash charges such as depreciation and amortisation in arriving at Adjusted EBITDA gives an alternative measure of the consolidated underlying financial performance and a closer approximation to the consolidated operating cash flows.
The table below presents a reconciliation of profit for the period to Adjusted EBITDA for the periods shown:
2017 2016
GBP000 GBP000
---------------------------------------------------------- ------- -------
Operating profit 53,704 49,675
Depreciation of property, plant and equipment 1,154 1,709
Amortisation of intangible assets arising on acquisitions 14,618 7,481
Amortisation of other intangible assets 2,576 1,989
Share-based payments (Note 24) 7,647 4,852
Exceptional items 16,711 11,404
---------------------------------------------------------- ------- -------
Adjusted EBITDA 96,410 77,110
---------------------------------------------------------- ------- -------
Exceptional items comprise:
2017 2016
GBP000 GBP000
------------------------------------------------- ------- -------
Transaction costs incurred on acquisitions 3,788 1,256
Gain on disposal of domain name (1,540) -
Release of dilapidations provision (519) -
Management deferred consideration conditional on
continued employment 10,542 4,412
Management earn-out consideration conditional on
continued employment 792 2,663
Management deal related performance bonuses 3,334 3,073
Other 314 -
------------------------------------------------- ------- -------
Exceptional items 16,711 11,404
------------------------------------------------- ------- -------
The gain on disposal represents the fair value of the Propertyfinder.com domain name which was sold during the period in return for 1% of the issued share capital of Property Finder International Limited.
The dilapidations provision was released on the successful arrangement of a sub-lease for the Company's previous office space at the Harlequin Building, London.
Other principally represents a charge in the period in respect of restructuring provisions in relation to internal restructuring.
4. Operating profit
2017 2016
GBP000 GBP000
---------------------------------------------------------- ------- -------
Operating profit is stated after charging/(crediting):
Depreciation of property, plant and equipment 1,154 1,709
Amortisation of intangible assets arising on acquisitions 14,618 7,481
Amortisation of other intangible assets 2,576 1,989
Research and Development tax credits (559) (472)
Operating lease rentals:
- Land and buildings 2,794 1,671
- Other 262 339
Operating lease income (421) -
Share-based payments (Note 24) 7,647 4,852
---------------------------------------------------------- ------- -------
The total gross value of research and development expenditure in the period was GBP5.1 million. Research and development expenditure relates to staff costs incurred in the development of new products and features.
5. Auditor's remuneration
2017 2016
GBP000 GBP000
-------------------------------------------------------- ------- -------
Fees payable to the Group's auditor and its associates:
- for the audit of ZPG Plc and the consolidated
financial statements 180 85
- for the audit of subsidiaries of ZPG Plc 165 125
-------------------------------------------------------- ------- -------
Total audit fees 345 210
-------------------------------------------------------- ------- -------
Fees payable to the Group's auditor and its associates
for other services to the Group:
- Audit related assurance services 40 28
Total non-audit fees 40 28
-------------------------------------------------------- ------- -------
Audit related assurance services represent fees incurred in respect of the review of the Group's half-year results.
6. Employee costs
2017 2016
GBP000 GBP000
-------------------------------------------- ------- -------
Staff costs (including Directors) comprise:
Wages and salaries 43,777 30,454
Social security costs 6,817 4,839
Defined contribution pension costs 1,011 770
Share-based payments (Note 24) 5,537 3,584
-------------------------------------------- ------- -------
57,142 39,647
-------------------------------------------- ------- -------
7. Remuneration of Key Management Personnel
2017 2016
GBP000 GBP000
---------------------------------- ------- -------
Salary, benefits and bonus 2,840 2,550
Defined contribution pension cost 159 146
Share-based payments 2,045 1,772
---------------------------------- ------- -------
5,044 4,468
---------------------------------- ------- -------
Key Management Personnel comprises the Chairman, the Directors and the Managing Directors of Property, Comparison and Data.
Further information about the remuneration of the Directors is provided in the audited part of the Directors' Remuneration Report in the Annual Report 2017.
All of the key Management personnel excluding the Chairman and the Non-Executive Directors are members of the Group's defined contribution pension plans (2016: all).
8. Director and employee numbers
The average monthly number of Directors and employees in administration and Management during the period was:
2017 2016
Number Number
--------------- ------- -------
Administration 830 580
Management 20 19
--------------- ------- -------
850 599
--------------- ------- -------
9. Income tax expense
2017 2016
GBP000 GBP000
-------------------------------------------------- ------- -------
Current tax
Current period 16,141 14,076
Adjustments in respect of pre-acquisition periods
for acquired entities (889) -
Adjustment in respect of prior periods (279) (625)
-------------------------------------------------- ------- -------
Total current tax 14,973 13,451
-------------------------------------------------- ------- -------
Deferred tax
Origination and reversal of temporary differences (4,229) (3,282)
Adjustment in respect of prior periods (66) 215
Effect of change in UK corporation tax rate - (900)
-------------------------------------------------- ------- -------
Total deferred tax (4,295) (3,967)
-------------------------------------------------- ------- -------
Total income tax expense 10,678 9,484
-------------------------------------------------- ------- -------
Corporation tax is calculated at 19.5% (2016: 20%) of the taxable profit for the year.
On 15 September 2016 the Finance act 2016 confirmed a reduction in the rate of corporation tax to 19% from 1 April 2017 and 17% from 1 April 2020. The Finance Bill was substantively enacted at the prior year end date and therefore the one-off impact of remeasuring the UK deferred tax assets and liabilities for the rate change was recognised at 30 September 2016.
The charge for the year can be reconciled to the profit in the statement of comprehensive income as follows:
2017 2016
GBP000 GBP000
--------------------------------------------------- ------- -------
Profit before tax 48,087 46,162
--------------------------------------------------- ------- -------
Current corporation tax rate of 19.5%% (2016: 20%) 9,377 9,232
Non-deductible expenses 2,612 1,562
Adjustments in respect of pre-acquisition periods
for acquired entities (889) -
Adjustments in respect of prior periods (345) (410)
Enhanced relief for R&D expenditure - Australia (77) -
Effect of change in UK corporation tax rate - (900)
--------------------------------------------------- ------- -------
Total income tax expense 10,678 9,484
--------------------------------------------------- ------- -------
In addition to the amount charged to profit and loss, the following amounts relating to tax have been recognised directly in equity:
2017 2016
GBP000 GBP000
------------------------------------------------ ------- -------
Current tax
Credit for current tax on share-based payments (309) (217)
Deferred tax
Credit for deferred tax on share-based payments (2,049) (888)
------------------------------------------------ ------- -------
Total income tax recognised directly in equity (2,358) (1,105)
------------------------------------------------ ------- -------
The Group's effective tax rate for the year ended 30 September 2017 is 22.2% (2016: 20.5%). The effective tax is higher than the statutory rate due to non-deductible transaction costs and management deferred and contingent consideration incurred on acquisitions. In 2016 the impact of non-deductible expenses was offset by the revaluation of deferred tax assets and liabilities as a result of the reduction in the corporation tax rate to 19% from 1 April 2017 and 17% from 1 April 2020.
10. Dividends
2017 2016
GBP000 GBP000
---------------------------------------------------- ------- -------
Interim dividend for 2017 of 1.9 pence per Ordinary
Share paid on 2 June 2017 8,279 -
Final dividend for 2016 of 3.7 pence per Ordinary
Share paid on 9 February 2017 15,330 -
Interim dividend for 2016 of 1.5 pence per Ordinary
Share paid on 24 June 2016 - 6,210
Final dividend for 2015 of 2.5 pence per Ordinary
Share paid on 3 March 2016 - 10,344
---------------------------------------------------- ------- -------
Total dividends paid in the year 23,609 16,554
---------------------------------------------------- ------- -------
During the year the Group paid GBP23.6 million in dividends to shareholders. Additionally, the Directors propose a final dividend for 2017 of 3.8 pence per share (2016: 3.7 pence per share) resulting in a final proposed dividend of GBP16.6 million (2016: GBP15.3 million). The dividend is subject to approval at the Company's AGM on 30 January 2018. The final dividend proposed has not been included as a liability at the statement of financial position date.
11. Earnings per share
2017 2016
GBP000 GBP000
-------------------------------------------------------- ----------- -----------
Earnings for the purposes of basic and diluted earnings
per share, being profit for the year 37,409 36,678
Exceptional items (Note 3) 16,711 11,404
Amortisation of intangible assets arising on the
acquisition of subsidiaries 14,618 7,481
Adjustment for tax (3,769) (3,170)
-------------------------------------------------------- ----------- -----------
Adjusted earnings for the year 64,969 52,393
-------------------------------------------------------- ----------- -----------
Number of shares
Weighted average number of Ordinary Shares 426,813,751 413,262,135
Dilutive effect of share options and warrants 7,884,622 5,305,776
Dilutive effect of potentially issuable shares 2,397,839 -
-------------------------------------------------------- ----------- -----------
Dilutive earnings per share denominator 437,096,213 418,567,911
-------------------------------------------------------- ----------- -----------
Basic and diluted earnings per share
Basic earnings per share (pence) 8.8 8.9
Diluted earnings per share (pence) 8.6 8.8
-------------------------------------------------------- ----------- -----------
Adjusted earnings per share
Adjusted basic earnings per share (pence) 15.2 12.7
Adjusted diluted earnings per share (pence) 14.9 12.5
-------------------------------------------------------- ----------- -----------
Adjusted Earnings per share figures exclude exceptional items and the amortisation of intangible assets arising on acquisitions which arise only on consolidation. Management believes that excluding the amortisation of these intangibles better reflects the underlying performance of the Group and increases comparability of performance year on year.
The dilutive effect of share options and warrants arises from the various share schemes operated by the Company as set out in Note 24. The 2.4 million potentially issuable shares relate to the Company's option to settle up to 50% of the deferred payment for the acquisition of ExpertAgent in shares.
12. Investment in subsidiaries and joint ventures
Details of the Company's direct and indirect subsidiaries and joint ventures at 30 September 2017 are shown below. All of the entities listed are consolidated in the consolidated accounts of ZPG Plc, the ultimate parent company of the Group.
The percentage of Ordinary Share capital of each subsidiary listed is owned entirely by the direct parent indicated other than in respect of Websky Limited where 75% of Ordinary Share capital is owned by W New Holdings Limited with Zoopla Limited owning the remaining 25%.
Zoopla Limited, uSwitch Limited, ZPG Property Services Limited, Property Software Holdings Limited and Hometrack.co.uk Limited are the only direct subsidiaries of ZPG Plc. ZPG Comparison Services Limited was incorporated in September 2017, the company does not trade and is intended to be used as a holding company.
Ulysses Enterprises Limited, uSwitch Digital Limited and uSwitch Communications Limited are in the process of being struck off the register as all trading activity under the uSwitch brand is now conducted by uSwitch Limited.
All subsidiaries incorporated in the UK are registered at The Cooperage, 5 Copper Row, London SE1 2LH. Subsidiaries incorporated in Australia are registered at Suite 501, 92 Pitt Street, Sydney NSW, 2000.
HLIX Limited did not trade in the period.
Ownership of Ordinary
Shares and voting
interest
Country of at 30 September
Name Direct parent incorporation 2017
-------------------------- ------------------------------- ---------------- ---------------------
Active
Zoopla Limited ZPG Plc United Kingdom 100%
Ravensworth Printing
Services Limited* Zoopla Limited United Kingdom 100%
W New Holdings Limited* Zoopla Limited United Kingdom 100%
W New Holdings Limited/Zoopla
Websky Limited Limited United Kingdom 100%
Technicweb Limited* Zoopla Limited United Kingdom 100%
uSwitch Limited ZPG Plc United Kingdom 100%
ZPG Comparison Services
Limited* ZPG Plc United Kingdom 100%
Property Software
Holdings Limited* ZPG Plc United Kingdom 100%
Property Software Holdings
Jupix Limited* Limited United Kingdom 100%
MoveIT Network Limited* Jupix Limited United Kingdom 100%
Property Software Property Software Holdings
Limited* Limited United Kingdom 100%
Core Estates Limited* Property Software Limited United Kingdom 100%
CFP Software Limited* Property Software Limited United Kingdom 100%
Vebra Investments
Limited* Property Software Limited United Kingdom 100%
Vebra Limited* Vebra Investments Limited United Kingdom 100%
Vebra Solutions Limited* Vebra Limited United Kingdom 100%
Hometrack.co.uk Limited* ZPG Plc United Kingdom 100%
Hometrack Data Systems
Limited Hometrack.co.uk Limited United Kingdom 100%
Hometrack Australia Hometrack Data Systems
Pty Limited Limited Australia 100%
Hometrack Nominees Hometrack Australia
Pty Limited Pty Limited Australia 100%
Active - proposal
to strike off
Ulysses Enterprises
Limited ZPG Plc United Kingdom 100%
Ulysses Enterprises
uSwitch Digital Limited Limited United Kingdom 100%
uSwitch Communications
Limited uSwitch Digital Limited United Kingdom 100%
Dormant
PSG Web Services Limited* Vebra Limited United Kingdom 100%
Real Estate Technology
Limited* Vebra Limited United Kingdom 100%
Hometrack Data Systems
SIA Limited* Limited United Kingdom 100%
Joint ventures
Hometrack Data Systems
HLIX Limited Limited United Kingdom 25%
-------------------------- ------------------------------- ---------------- ---------------------
*The Company will sign a statement of guarantee in respect of these subsidiary companies under section 479C of the Companies Act 2006. As a result, these subsidiaries are exempt from the requirements of the UK Companies Act 2006 in relation to the audit of individual accounts by virtue of section 479A of that Act.
13. Acquisitions
During 2017 ZPG acquired four new entities, the details of which are set out in Notes 13a-d. The acquisitions contributed revenue of GBP16.9 million and EBITDA of GBP7.4 million for the 2017 financial year. If all acquisitions had occurred on 1 October 2016 Group revenue and EBITDA would have been GBP257.9 million and GBP101.7 million an increase of GBP13.4 million and GBP5.3 million respectively. The total impact of the acquisitions made in the period on the Group's consolidated statement of financial position is set out below:
2017
GBP000
------------------------------------------ --------------------
Goodwill 116,552
Intangible assets 63,156
Deferred tax liability (12,001)
Other net liabilities (1,452)
Total net assets acquired 166,255
------------------------------------------ --------------------
Satisfied by:
Cash consideration, net of cash acquired 120,811
Debt assumed and discharged 16,073
Deferred and contingent consideration 29,371
------------------------------------------ --------------------
Total consideration 166,255
------------------------------------------ --------------------
The following table provides a reconciliation of amounts includes in the consolidated statement of cash flows.
2017
---------------------------------------------------------
GBP000
--------------------------------------------------------- --------
Cash consideration, net of cash acquired on acquisition 120,811
Debt assumed and discharged 16,073
--------------------------------------------------------- --------
Acquisition of subsidiaries, net of cash acquired 136,884
--------------------------------------------------------- --------
Cash expenses incurred on acquisitions made in
the period 3,135
Cash expenses incurred on the acquisition of Money 229
--------------------------------------------------------- --------
Total cash outflow on acquisition of subsidiaries 140,248
--------------------------------------------------------- --------
Goodwill
The acquisitions set out below provide a number of benefits to the Group. None of the goodwill is tax deductible (2016: none). The goodwill recognised on acquisition represents the value arising from intangible assets that are not separately identifiable under IAS 38 including the skills and knowledge of the workforce. Specific details on goodwill for each acquisition are included in the detail below.
13a. Hometrack
On 31 January 2017 ZPG Plc completed its acquisition of Hometrack through the purchase of 100% of the issued share capital of Hometrack.co.uk Limited for total consideration of GBP122.2 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the scale of the Group's current data business.
Hometrack was consolidated into the Group as of 31 January 2017. In the period, Hometrack contributed revenue of GBP13.0 million and adjusted EBITDA of GBP6.2 million to the consolidated results of the Group.
The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below. The Hometrack acquisition accounting has been finalised and updated compared to the preliminary figures presented in the 2017 ZPG Plc half year results.
The fair values of the assets and liabilities acquired are as follows:
Fair value
-----------------------------------------------------
GBP000
----------------------------------------------------- -----------
Property, plant and equipment 42
Software 9
Trade and other receivables 3,553
Deferred tax asset 217
Corporation tax asset 2,268
Trade and other payables (6,835)
Total net liabilities acquired (746)
----------------------------------------------------- -----------
Intangible assets recognised on acquisition:
- Brand 2,122
- Customer relationships 25,224
- Software 18,522
Deferred tax liability arising on intangible assets (9,171)
Goodwill on acquisition 86,274
----------------------------------------------------- -----------
122,225
----------------------------------------------------- -----------
Satisfied by:
Cash consideration, net of cash acquired 93,189
Debt assumed and discharged 16,005
Deferred and contingent consideration 13,031
----------------------------------------------------- -----------
Total consideration 122,225
----------------------------------------------------- -----------
13a.1 Intangible assets recognised on consolidation
Brand
GBP2.1 million has been recognised in respect of the Hometrack brand. Hometrack is the UK's leading provider of residential property market insights and analytics and has a strong position in the Australian market. The brand is considered to be highly recognisable in both these markets.
The brand has been valued using a relief from royalty approach. A brand royalty rate of 1.4% and a post-tax discount rate 12.85% of have been used to determine the net present value of cash flows. The useful economic life of the brand has been assessed at 10 years in line with current ZPG policy.
Customer relationships
GBP25.2 million has been recognised in respect of Hometrack's Customer relationships. Hometrack provides residential property market insights, analytics valuations and data services to over 400 partners including mortgage lenders, new home developers, investors, housing associations and local authorities. At the time of acquisition customers include 15 of the top 20 mortgage lenders in UK as well as all 4 leading Australian mortgage lenders. Over 70% of Hometrack's revenues are subscription based and underpinned by long-term relationships.
The customer relationships have been valued using a multi-period excess earnings approach. A post-tax discount rate of 13.0% has been applied to forecast cash flows relating to existing customers. The useful economic life of the customer relationships are assessed as 7-10 years reflecting the average life of the contracts and/or relationships.
Software
GBP18.5 million has been recognised in respect of Hometrack's software intellectual property. Hometrack's Automated Valuation Model ("AVM") technology underpins the market insights, analytics valuations and data services it provides to its customers. The technology is recognised by all the major ratings agencies in the UK.
The IP has been valued using a relief from royalty approach. A royalty rate of 13% and a post-tax discount rate 12.85% of have been used to determine the net present value of cash flows. The useful economic life of the IP has been assessed at eight years which is determined to be its useful life.
13a.2 Goodwill
In addition to the skilled workforce acquired, goodwill of GBP86.3 million represents the significant value of combining Hometrack's property data and expertise with the existing property database of the Group and the benefit of incorporating Hometracks's products and data into the Group's existing product offering for UK estate agents. Management believes there are significant benefits for both its consumers and partners of incorporating Hometrack into the Group to further improve the quality and depth of insight and analysis that it can provide into the UK property market, which in turn provides additional value for the Group.
13a.3 Debt assumed and discharged
Immediately prior to acquisition Hometrack had GBP16.0 million of outstanding debt due to third parties. This debt was assumed and discharged by ZPG Plc on acquisition.
13a.4 Deferred and contingent consideration
On acquisition the Group recognised deferred and contingent consideration of GBP13.0 million of which GBP11.8 million represents the fair value of a commercial earn-out agreement with the sellers. The settlement of the commercial earn-out will be in the range of GBPnil to GBP25.0 million payable up to 10 years' post-acquisition. The recognised fair value was determined using unobservable inputs (Level 3) within a weighted average scenario analysis. The inputs included a range of potential revenues generated by the underlying contract, which are unobservable, discounted at a discount rate of 13%. At each reporting period the earn-out liability will be considered in light of any additional information available with any adjustment being recognised in the consolidated statement of comprehensive income. The fair value is equal to the carrying value.
A further GBP10.2 million is payable to Management shareholders and is not contingent on performance but is conditional on the continued employment of Management up to and including the date of payment. In accordance with IFRS 3, this consideration will be recognised as a remuneration expense in the Group's consolidated statement of comprehensive income over the deferral period of between 12 months and 24 months from the date of acquisition. The Group is accruing the full GBP10.2 million over the deferral period, adjusted by an estimation of the number of leavers.
The following table sets out the amounts included in the consolidated statement of cash flows:
2017
---------------------------------------------------------
GBP'000
--------------------------------------------------------- -------------------
Cash consideration, net of cash acquired on acquisition 93,189
Debt assumed and discharged 16,005
--------------------------------------------------------- -------------------
Acquisition of subsidiary, net of cash acquired 109,194
--------------------------------------------------------- -------------------
Cash expenses incurred on acquisition 1,790
--------------------------------------------------------- -------------------
Total cash outflow on acquisition of subsidiary 110,984
--------------------------------------------------------- -------------------
13b. ExpertAgent
On 1 March 2017 Zoopla Limited, a subsidiary of ZPG Plc, completed its acquisition of ExpertAgent through the purchase of 100% of the issued share capital of Websky Limited for total consideration of GBP34.9 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the Group's current product offering for UK estate agents.
ExpertAgent was consolidated into the Group as of 1 March 2017. In the period ExpertAgent contributed revenue of GBP2.5 million and adjusted EBITDA of GBP1.4 million to the consolidated results of the Group.
The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.
The fair values of the assets and liabilities acquired are as follows:
Fair
value
-----------------------------------------------------
GBP000
----------------------------------------------------- --------
Intangible assets 56
Property, plant and equipment 24
Trade and other receivables 92
Trade and other payables (484)
Corporation tax payable (74)
Net liabilities acquired (386)
----------------------------------------------------- --------
Intangible assets recognised on acquisition:
- Brand 712
- Customer relationships 12,672
- Software 1,442
Deferred tax liability arising on intangible assets (2,612)
Goodwill on acquisition 23,055
-----------------------------------------------------
34,883
----------------------------------------------------- --------
Satisfied by:
Cash consideration net of cash acquired 20,143
Deferred and contingent consideration 14,740
Total consideration 34,883
----------------------------------------------------- --------
13b.1 Intangible assets recognised on consolidation
Brand
GBP0.7 million has been recognised in respect of the ExpertAgent brand. The ExpertAgent brand has an established history within the property industry of over 13 years and Management believes that the brand continues to generate both value and brand loyalty.
The brand has been valued using a relief from royalty approach. A brand royalty rate of 2.25% and a post-tax discount rate 13.5% of have been used to determine the net present value of cash flows. The useful economic life of the brand has been assessed at 10 years in line with current ZPG policy.
Customer relationships
GBP12.7 million has been recognised in respect of customer relationships. There is an inherent value deriving from the future cash flows of ExpertAgent's existing customer contracts as a result of the subscription nature of the service. Furthermore, ExpertAgent has historically seen a significantly high customer retention rate, a trend that is expected to continue and further increases the value of the existing contracts.
The customer relationships have been valued using a multi-period excess earnings approach. A post-tax discount rate of 13.5% has been applied to forecast cash flows relating to existing customers. The useful economic life of the customer relationships are assessed as 10 years reflecting ExpertAgent's high customer retention rate.
Software
GBP1.4 million has been recognised as an uplift to the value of the ExpertAgent product. The software was valued using a relief from royalty approach with a royalty rate of 7.0% and a post-tax discount rate of 13.5%. The software is amortised over a useful economic life of five years.
13b.2 Goodwill
Goodwill represents the opportunity of the Group to integrate the ExpertAgent product into its existing suite of property software services, as well as the revenue synergies available from the cross sell of estate agency software products to the Group's existing portal customers and vice versa, allowing the Group to offer an enhanced bundle of services to estate agents across the UK. Cross-sell opportunities also exist with the Group's Comparison division and the potential integration of products such as Moveit, which allow consumers to select from a large list of suppliers across home services, communications, surveyors and other property professionals during the home buying process, generating revenue for both the Group and, via MoveIt, commissions for estate agents.
13b.3 Deferred and contingent consideration
On acquisition the Group recognised deferred consideration of GBP14.7 million due to sellers over a period of 12 to 36 months post acquisition.
The following table sets out the amounts included in the consolidated statement of cash flows:
2017
---------------------------------------------------------
GBP000
--------------------------------------------------------- -------
Cash consideration, net of cash acquired on acquisition 20,143
--------------------------------------------------------- -------
Acquisition of subsidiary, net of cash acquired 20,143
--------------------------------------------------------- -------
Cash expenses incurred on acquisition 1,260
--------------------------------------------------------- -------
Total cash outflow on acquisition of subsidiary 21,403
--------------------------------------------------------- -------
13c. Ravensworth
On 1 September 2017 Zoopla Limited, a subsidiary of ZPG Plc, completed its acquisition of Ravensworth through the purchase of 100% of the issued share capital of Ravensworth Printing Services Limited for total consideration of GBP7.0 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the Group's current product offering for UK estate agents.
Ravensworth was consolidated into the Group as of 1 September 2017. In the period, Ravensworth contributed revenue of GBP0.6 million and adjusted EBITDA of GBP0.1 million to the consolidated results of the Group.
The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.
The preliminary fair values of the assets and liabilities acquired are as follows:
Fair value
-----------------------------------------------
GBP000
----------------------------------------------- -----------
Property, plant and equipment 14
Trade and other payables (14)
Total net liabilities acquired -
----------------------------------------------- -----------
Intangible assets recognised on acquisition:
- Brand 1,397
Deferred tax liability arising on intangibles (251)
Goodwill on acquisition 5,840
----------------------------------------------- -----------
6,986
----------------------------------------------- -----------
Satisfied by:
Cash consideration, net of cash acquired 5,986
Deferred and contingent consideration 1,000
----------------------------------------------- -----------
Total consideration 6,986
----------------------------------------------- -----------
13c.1 Intangible assets recognised on consolidation
Brand
GBP1.4 million has been recognised in respect of the Ravensworth brand. The brand is known and recognised throughout the property industry and its value is supported by the significant number of repeat customers. The useful economic life of the brand has been assessed at 5 years in line with current ZPG policy.
13c.2 Goodwill
Goodwill represents the skills of the acquired workforce and the revenue synergies available from the cross sell of Ravensworth's products to the Group's existing customer base and from the integration of Ravensworth's products into ZPG's combined offering.
13c.3 Deferred and contingent consideration
A total of GBP1.0 million has been recognised in respect of deferred consideration of GBP250,000 payable on each anniversary of the acquisition over the next four years.
The following table sets out the amounts included in the consolidated statement of cash flows:
2017
GBP000
--------------------------------------------------------- ------------------------
Cash consideration, net of cash acquired on acquisition 5,986
--------------------------------------------------------- ------------------------
Acquisition of subsidiary, net of cash acquired 5,986
--------------------------------------------------------- ------------------------
Cash expenses incurred on acquisition 76
--------------------------------------------------------- ------------------------
Total cash outflow on acquisition of subsidiary 6,062
--------------------------------------------------------- ------------------------
13d. TechnicWeb
On 30 November 2016 Zoopla Limited, a subsidiary of ZPG Plc, completed its acquisition of TechnicWeb through the purchase of 100% of the issued share capital of TechnicWeb Limited for total consideration of GBP2.2 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the Group's current product offering for UK estate agents.
TechnicWeb was consolidated into the Group as of 30 November 2016. In the period, TechnicWeb contributed revenue of GBP0.8 million and adjusted EBITDA of GBP(0.3) million to the consolidated results of the Group.
The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.
The fair values of the assets and liabilities acquired are as follows:
Fair value
-----------------------------------------------
GBP000
----------------------------------------------- -----------
Property, plant and equipment 6
Trade and other receivables 25
Corporation tax asset 26
Trade and other payables (95)
Total net liabilities acquired (38)
----------------------------------------------- -----------
Intangible assets recognised on acquisition:
- Software 1,000
Deferred tax liability arising on intangibles (184)
Goodwill on acquisition 1,383
----------------------------------------------- -----------
2,161
----------------------------------------------- -----------
Satisfied by:
Cash consideration, net of cash acquired 1,493
Debt assumed and discharged 68
Deferred and contingent consideration 600
----------------------------------------------- -----------
Total consideration 2,161
----------------------------------------------- -----------
13d.1 Intangible assets recognised on consolidation
Software
TechnicWeb specialises in designing custom built, fully responsive websites for the property sector. TechnicWeb owns and develops software to streamline the process of producing a bespoke fully responsive website for its estate agent partners.
13d.2 Goodwill
As with Ravensworth, goodwill represents the inherent value in the workforce acquired and the revenue synergies available from the cross sell of TechnicWeb's products to the Group's existing customer base and from the integration of TechnicWeb's products into ZPG's combined offering.
13d.3 Deferred and contingent consideration
On acquisition the Group recognised GBP0.6 million of deferred consideration which represents the fair value of a commercial earn-out agreement with the sellers.
The following table sets out the amounts included in the consolidated statement of cash flows:
2017
---------------------------------------------------------
GBP'000
--------------------------------------------------------- ---------------
Cash consideration, net of cash acquired on acquisition 1,493
Debt assumed and discharged 68
--------------------------------------------------------- ---------------
Acquisition of subsidiary, net of cash acquired 1,561
--------------------------------------------------------- ---------------
Cash expenses incurred on acquisition 9
--------------------------------------------------------- ---------------
Total cash outflow on acquisition of subsidiary 1,570
--------------------------------------------------------- ---------------
13e. Property Software Group
On 28 April 2016 ZPG Plc completed its acquisition of Property Software Group through the purchase of 100% of the issued share capital of Property Software Holdings Limited for total consideration of GBP69.6 million as measured in accordance with IFRS 3. Full details of the acquisition are included in the Annual Report 2016.
The fair values of the assets and liabilities acquired are as follows:
Fair value
GBP000
---------------------------------------------- ----------
Property, plant and equipment 463
Intangible assets - software (Note 14) 5,904
Trade receivables 1,543
Prepayments and other receivables 669
Corporation tax asset 66
Trade payables (188)
Accruals and other payables (1,707)
Deferred income (2,385)
Provisions (35)
---------------------------------------------- ----------
Total net assets acquired 4,330
---------------------------------------------- ----------
Intangible assets recognised on acquisition:
- Brand 2,222
- Customer relationships 20,484
Deferred tax liability arising on intangibles (4,646)
Goodwill on acquisition 47,246
---------------------------------------------- ----------
69,636
---------------------------------------------- ----------
Satisfied by:
Cash consideration, net of cash acquired 22,263
Debt assumed and discharged 24,862
Deferred and contingent consideration 22,511
---------------------------------------------- ----------
Total consideration 69,636
---------------------------------------------- ----------
The following table provides a reconciliation of the amounts included in the consolidated statement of cash flows:
2017
GBP000
-------------------------------------------------------- -------
Cash consideration, net of cash acquired on acquisition 22,263
Debt assumed and discharged 24,862
-------------------------------------------------------- -------
Acquisition of subsidiary, net of cash acquired 47,125
-------------------------------------------------------- -------
Cash expenses incurred on acquisition 1,256
Cash outflow on acquisition of subsidiaries 48,381
-------------------------------------------------------- -------
14. Intangible assets
Websites
Customer Domain and
Goodwill Brand relationships names software Database Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
Cost
At 1 October 2016 246,821 50,992 26,575 1,451 12,312 1,129 339,280
On acquisition
(Note 13) 116,552 4,231 37,896 - 21,029 - 179,708
Additions - - - 26 5,859 - 5,885
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 30 September
2017 363,373 55,223 64,471 1,477 39,200 1,129 524,873
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 1 October 2015 199,575 48,770 6,091 1,451 3,847 1,129 260,863
On acquisition
(Note 13) 47,246 2,222 20,484 - 5,904 - 75,856
Additions - - - - 2,561 - 2,561
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 30 September
2016 246,821 50,992 26,575 1,451 12,312 1,129 339,280
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
Amortisation
At 1 October 2016 - 6,605 5,908 1,296 2,225 625 16,659
Charge for the
year - 5,345 6,380 131 5,035 303 17,194
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 30 September
2017 - 11,950 12,288 1,427 7,260 928 33,853
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 1 October 2015 - 1,626 3,696 1,109 440 318 7,189
Charge for the
year - 4,979 2,212 187 1,785 307 9,470
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 30 September
2016 - 6,605 5,908 1,296 2,225 625 16,659
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
Net book value
At 30 September
2017 363,373 43,273 52,183 50 31,940 201 491,020
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
At 30 September
2016 246,821 44,387 20,667 155 10,087 504 322,621
------------------ -------- --------- -------------- ------------ --------- ----------- ----------
Goodwill and intangibles are tested for impairment by comparing the carrying amount of the cash-generating unit (CGU) with its recoverable amount, which represents the higher of its estimated fair value and value in use. An impairment loss is recognised when the carrying value of the asset exceeds its recoverable amount.
The intangible assets relate to five separate CGUs: Comparison - uSwitch, Property marketing (which includes Zoopla, TechnicWeb and Ravensworth), Hometrack, Property Software Group and ExpertAgent. Intangible assets include GBP5.2 million (2016 : GBP1.3 million) of internally generated assets. Goodwill and intangibles are allocated to each CGU per the table below.
Goodwill Other Total
Intangibles
GBP000 GBP000 GBP000
------------------------ -------- ------------ -------
Comparison - uSwitch 128,780 38,756 167,536
Property marketing 78,017 6,582 84,599
Hometrack 86,274 42,051 128,325
Property Software Group 47,247 26,317 73,564
ExpertAgent 23,055 13,941 36,996
------------------------ -------- ------------ -------
At 30 September 2017 363,373 127,647 491,020
------------------------ -------- ------------ -------
The recoverable amounts of intangible assets and goodwill are based on their value in use, which is determined using cash flow projections derived from financial plans approved by the Board covering a three year period. They reflect Management's expectations of revenue, EBITDA growth, capital expenditure, working capital and operating cash flows, based on past experience and future expectations of business performance. Cash flows for ExpertAgent and Hometrack after the three year period are based on forecasts used for the recent fair value exercise at acquisition, tending down towards the perpetuity growth rate. Cash flows for other CGUs beyond the three year period have been extrapolated using a perpetuity growth rate.
A growth rate of 2% has been applied to extrapolate the cash flows into perpetuity. Growth has been capped at 2% across all CGUs so as not to exceed the long-term expected growth rate of the industry and country the Group operates in, in accordance with IAS 36. The pre-tax discount rate used for each CGU was in the range of 13.2% to 15.5%.
The analysis performed calculates that the recoverable amount of each CGU's assets exceeds their carrying value, as such no impairment was identified. Amending the analysis such that a growth rate into perpetuity of negative 1%, or a reasonable increase in discount rate, is applied across all CGUs whilst holding all other variables constant would not give rise to an impairment.
The Directors note that the three year forecast for the Property Software Group CGU includes revenue and margin growth resulting from new and recently launched products. Failure to achieve the forecasted cash flows could indicate an impairment. Headroom currently stands at GBP20.0 million for this CGU. 2020 cash flows would need to fall by 26% from current forecasts to eliminate this headroom.
Indicators of impairment for all CGUs, including Property Software Group, will continue to be assessed throughout the 2018 financial year.
15. Property, plant and equipment
Fixtures Freehold Computer Leasehold
and fittings property equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ------------- ------------- ----------- ------------- -------
Cost
At 1 October 2016 944 209 1,962 5,640 8,755
Acquired on acquisitions 28 - 48 10 86
Additions 313 5 711 186 1,215
------------------------- ------------- ------------- ----------- ------------- -------
At 30 September 2017 1,285 214 2,721 5,836 10,056
------------------------- ------------- ------------- ----------- ------------- -------
At 1 October 2015 340 - 983 1,240 2,563
Acquired on acquisitions 34 209 150 70 463
Additions 570 - 829 4,330 5,729
------------------------- ------------- ------------- ----------- ------------- -------
At 30 September 2016 944 209 1,962 5,640 8,755
------------------------- ------------- ------------- ----------- ------------- -------
Accumulated depreciation
At 1 October 2016 373 2 721 1,246 2,342
Charge for the year 214 6 592 342 1,154
------------------------- ------------- ------------- ----------- ------------- -------
At 30 September 2017 587 8 1,313 1,588 3,496
------------------------- ------------- ------------- ----------- ------------- -------
At 1 October 2015 120 - 310 203 633
Charge for the year 253 2 411 1,043 1,709
------------------------- ------------- ------------- ----------- ------------- -------
At 30 September 2016 373 2 721 1,246 2,342
------------------------- ------------- ------------- ----------- ------------- ------- Net book value At 30 September 2017 698 206 1,408 4,248 6,560 ------------------------- ------------- ------------- ----------- ------------- ------- At 30 September 2016 571 207 1,241 4,394 6,413 ------------------------- ------------- ------------- ----------- ------------- -------
16. Available for sale financial assets
2017 2016
GBP000 GBP000
--------------------- ------- -------
At 1 October 2016 724 -
Additions 2,598 979
Fair value movements 1,139 -
Disposals - (255)
--------------------- ------- -------
At 30 September 2017 4,461 724
--------------------- ------- -------
Available for sale financial assets represent the Group's strategic partnerships with a number of UK Proptech and Fintech companies and other equity investments which do not give the Group significant influence over that entity. Key judgements that have been used in determining fair value of available for sale financial assets are set out in Note 1.22.
17. Trade and other receivables
2017 2016
GBP000 GBP000
----------------------- ------- -------
Trade receivables 15,000 8,896
Accrued income 16,355 17,228
Prepayments 2,962 3,160
Amounts held in escrow 3,543 9,884
Other receivables 671 709
----------------------- ------- -------
38,531 39,877
----------------------- ------- -------
Non-current - 3,262
Current 38,531 36,615
----------------------- ------- -------
38,531 39,877
----------------------- ------- -------
The Directors consider that the carrying value of trade and other receivables is approximate to their fair value. The carrying value also represents the maximum credit exposure.
Amounts held in escrow has decreased from GBP9.9 million to GBP3.5 million through the settlement of uSwitch deferred consideration in June 2017 as detailed in Note 19.
Details of the Group's exposure to credit risk are given in Note 26.
18. Trade and other payables
2017 2016
GBP000 GBP000
-------------------------------------------- ------- -------
Trade payables 10,425 7,618
Accruals 24,137 16,955
Other taxation and social security payments 11,715 5,865
Deferred income 3,981 1,813
Other payables 1,121 271
-------------------------------------------- ------- -------
51,379 32,522
-------------------------------------------- ------- -------
The Directors consider that the carrying value of trade and other payables is approximate to their fair value. Details of the Group's exposure to liquidity risk are given in Note 26. All trade and other payables are considered current liabilities.
19. Deferred and contingent consideration
The Group recognised a total of GBP29.4 million in respect of deferred payments due on acquisitions made in the period, as set out below and detailed in Note 13.
A further GBP11.3 million was recognised through the income statement in relation to payments to continuing Management shareholders. GBP2.8 million was recognised in respect of uSwitch, GBP5.3 million of Hometrack, GBP3.0 million for Property Software Group and GBP0.2 million for TechnicWeb.
During the year the Group also settled GBP33.0 million due in respect of uSwitch, Property Software Group and Hometrack. Amounts paid and due to be paid to Management shareholders of uSwitch are held in escrow. Of the GBP32.7 million recorded on the statement of cash flows, GBP9.7 million of deferred and contingent consideration settled during the year was conditional on continued employment of Management (2016: GBP2.9 million).
There have been no changes to the expected outcome of ongoing contingent consideration requirements made during the period outside of the finalisation of the acquisition accounting for entities acquired in the year as set out in Note 13. The fair value of deferred and contingent consideration is therefore considered equal to its carrying value. The Group's liabilities in respect of deferred and contingent consideration arising on acquisitions are set out below:
Contingent
consideration
Deferred -
consideration earn-out Total
GBP000 GBP000 GBP000
----------------------------------------------- -------------- -------------- --------
At 1 October 2016 28,859 1,817 30,676
Recognised on acquisition of TechnicWeb - 600 600
Recognised on acquisition of Hometrack 1,218 11,813 13,031
Recognised on acquisition of ExpertAgent 14,740 - 14,740
Recognised on acquisition of Ravensworth 1,000 - 1,000
Charge in the period for amounts conditional
on the continued employment of Management 10,542 792 11,334
uSwitch settlement (4,710) (1,870) (6,580)
Property Software Group settlement (25,097) - (25,097)
Hometrack settlement (1,283) - (1,283)
----------------------------------------------- -------------- -------------- --------
At 30 September 2017 25,269 13,152 38,421
----------------------------------------------- -------------- -------------- --------
Current 15,624 1,175 16,799
Non-current 9,645 11,977 21,622
----------------------------------------------- -------------- -------------- --------
At 1 October 2015 11,976 26,156 38,132
Recognised on acquisition of Property Software
Group 22,511 - 22,511
Charge in the period for amounts conditional
on the continued employment of Management 4,412 2,663 7,075
uSwitch settlement (10,040) (27,002) (37,042)
----------------------------------------------- -------------- -------------- --------
At 30 September 2016 28,859 1,817 30,676
----------------------------------------------- -------------- -------------- --------
Current 26,813 1,330 28,143
Non-current 2,046 487 2,533
----------------------------------------------- -------------- -------------- --------
20. Provisions
The movement in provisions can be analysed as follows:
Dilapidation Onerous Restructuring
provisions lease provisions Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ ------------ ------- ------------- -------
At 1 October 2016 1,985 729 - 2,714
Recognised in the period 30 130 259 419
Utilised in the period (56) (486) (130) (672)
Released in the period (519) (243) - (762)
------------------------------------ ------------ ------- ------------- -------
At 30 September 2017 1,440 130 129 1,699
------------------------------------ ------------ ------- ------------- -------
Current - 130 129 259
Non-current 1,440 - - 1,440
------------------------------------ ------------ ------- ------------- -------
At 1 October 2015 799 - - 799
Acquired on acquisition of Property
Software Group 35 - - 35
Recognised in the period 1,375 729 - 2,104
Utilised in the period (224) - - (224)
------------------------------------ ------------ ------- ------------- -------
At 30 September 2016 1,985 729 - 2,714
------------------------------------ ------------ ------- ------------- -------
Current 575 729 - 1,304
Non-current 1,410 - - 1,410
------------------------------------ ------------ ------- ------------- -------
The dilapidation provisions relate to Management's best estimate of costs to make good the Group's leasehold properties at the end of the lease term. The release in the period represents the completion of a sub-lease on the Company's previous head office location which transferred the Company's exit obligations. GBP0.1 million of the provision was utilised prior to the sub-lease.
The utilisation and release of onerous lease provisions in the period relates to the successful sub-lease of the Company's previous head office as mentioned above, which had previously been provided for. The onerous lease provision recognised during the year and held at 30 September 2017 relates to Management's best estimate of the fair value of future lease payments falling due prior to the expiry of a legacy lease agreement on computer servers relating to one of the Group's acquired entities. This onerous lease provision will be fully utilised in the 2018 financial year.
Restructuring provisions are recognised in respect of redundancy and other costs in relation to internal restructuring.
21. Loans and borrowings
On 30 April 2015 the Group entered into an agreement for the provision of a five year, GBP150 million revolving credit facility. On 18 April 2016 a GBP50 million extension to the revolving credit facility was agreed to finance the acquisition of Property Software Group, this was increased by a term loan of GBP75 million in January 2017 to finance the acquisition of Hometrack and ExpertAgent and a further GBP50 million in September 2017 to fund the acquisition of Money. The Group's total facility at 30 September 2017 is therefore GBP325 million. The drawn portion of the facility incurs interest at UK Libor plus a margin. The margin is variable based on the Group's net debt to Adjusted EBITDA ratio. The effective interest rate for the period is set out in Note 26.
2017 2016
GBP000 GBP000
----------------------------- -------- --------
Opening gross borrowings 151,500 114,000
Repayment of borrowings (97,500) (46,500)
Drawdown of borrowings 215,000 84,000
------------------------------ -------- --------
Gross borrowings 269,000 151,500
------------------------------ -------- --------
Capitalised arrangement fees (2,135) (1,804)
------------------------------ -------- --------
Total loans and borrowings 266,865 149,696
------------------------------ -------- --------
The Group has no other loans or borrowings. Further detail on borrowings is provided in Note 26,
The Company defines Net Debt as Loans and borrowings less cash and cash equivalents as reconciled below; see also note 1.15.
2017 2016
GBP000 GBP000
-------------------------- -------- -------
Loans and borrowings 266,865 149,696
Cash and cash equivalents (75,368) (3,367)
-------------------------- -------- -------
Net Debt 191,497 146,329
-------------------------- -------- -------
22. Deferred tax
Property,
plant
and equipment
and computer Intangible Share-based
software assets payments Other Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------------- ----------- ----------- ------- --------
Deferred tax asset/(liability)
at 1 October 2016 26 (12,475) 2,532 896 (9,021)
On acquisitions - (12,217) - 216 (12,001)
(Charge)/credit to profit or
loss (575) 3,046 1,206 552 4,229
Credit to equity - - 2,049 - 2,049
Foreign translation loss - - - (9) (9)
Prior year adjustment - 92 - (26) 66
------------------------------------ -------------- ----------- ----------- ------- --------
Deferred tax (liability)/asset
at 30 September 2017 (549) (21,554) 5,787 1,629 (14,687)
------------------------------------ -------------- ----------- ----------- ------- --------
Deferred tax asset/(liability)
at 1 October 2015 136 (10,623) 866 436 (9,185)
On acquisition of Property Software
Group (45) (4,646) - - (4,691)
(Charge)/credit to profit or
loss (103) 2,794 778 713 4,182
Credit to equity - - 888 - 888
Prior year adjustment 38 - - (253) (215)
------------------------------------ -------------- ----------- ----------- ------- --------
Deferred tax (liability)/asset
at 30 September 2016 26 (12,475) 2,532 896 (9,021)
------------------------------------ -------------- ----------- ----------- ------- --------
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. Deferred tax assets have been recognised in respect of all temporary differences giving rise to income tax assets because it is probable that these assets will be recoverable.
The following is an analysis of the deferred tax balances (after offset) for financial reporting purposes:
2017 2016
GBP000 GBP000
------------------------- -------- --------
Deferred tax liabilities (22,103) (12,475)
Deferred tax assets 7,416 3,454
------------------------- -------- --------
(14,687) (9,021)
------------------------- -------- --------
23. Equity
Share capital
2017 2016
GBP000 GBP000
--------------------------------------------------- ------- -------
Shares classified as capital
Authorised
439,014,156 (2016: 418,116,472) shares of GBP0.001
(2016: GBP0.001) each 439 418
--------------------------------------------------- ------- -------
Called-up share capital - allotted and fully
paid
439,014,156 (2016: 418,116,472) Ordinary Shares
of GBP0.001 (2016: GBP0.001) each 439 418
--------------------------------------------------- ------- -------
Ordinary Shares
The Ordinary Shares carry one vote per share and rights to dividends, except when they are held as Treasury shares by the Company.
On 31 January 2017 the Company placed a total of 20,897,684 new ordinary shares in the Company raising gross total proceeds of GBP76.3 million. The new shares are credited as fully paid and rank pari passu in all respects with the existing ordinary shares of 0.1 pence each in the capital of the Company, including in respect of the right to receive all dividends and other distributions declared, made or paid after the date of issue.
Other reserves - Merger reserve
The merger reserve was created in May 2012 from the premium on shares issued for the acquisition of The Digital Property Group Limited. In 2014 the merger reserve increased as a result of the Group's reorganisation prior to the initial public offering. The intangible assets are now fully amortised.
Other reserves - shares in trust
Shares in trust represents shares in issue that are held by the Employee Benefit Trust and the Share Incentive Plan Trust for the purpose of settling the Group's obligations under the Group's employee share plans, set out in Note 24.
Other reserves - Treasury shares
Between 11 February 2016 and 17 February 2016 the Group acquired 188,340 of its own shares at a weighted average price of 220.0 pence in order to settle the exercise of outstanding warrants. As at 30 September 2017 53,023 of the shares had been released from treasury to satisfy warrant exercises (2016: 25,551) leaving 135,317 shares in treasury (2016: 162,789) with a weighted average price of 220.0 pence and a total cost of GBP298,000 as at 30 September 2017. The fair value of shares in treasury as at 30 September 2017 is GBP489,000.
24. Share-based payments
The Group operates a number of share-based incentive schemes for both its employees and certain estate agent partners. The Group recognised a total share-based payments charge of GBP7.6 million for 2017 (2016: GBP4.9 million) as set out below:
2017 2016
GBP000 GBP000
---------------------------------------------------- ------- -------
Employee Share Option Scheme (i) 572 486
Long Term Incentive Plan (ii) 1,826 881
Share Incentive Plan (iii) 323 276
Deferred Bonus Plan (iv) 692 427
Value Creation Plan (v) 1,156 1,156
Management deal related performance bonus (vi) 592 358
Big Goals (vii) 376 -
Warrant charges (viii) 518 406
National Insurance Contributions payable in respect
of eligible share-based payment schemes (ix) 1,592 862
---------------------------------------------------- ------- -------
7,647 4,852
---------------------------------------------------- ------- -------
i) Employee Share Option Scheme
The Company operates an equity-settled share-based incentive scheme which was in place prior to the Company's listing on the London Stock Exchange for all employees under an approved plan up to 31 May 2012 and an unapproved plan thereafter. The options vest in instalments over four years. Options are forfeited if the employee leaves employment before the options vest. The Group recognised a charge of GBP0.6 million (2016: GBP0.5 million) in respect of options under this scheme.
The Employee Share Option Scheme will continue to operate until all shares vest or lapse, or the scheme is otherwise cancelled. There will be no future grants under this scheme.
Details of options under the scheme outstanding at 30 September 2017 are set out below:
2017 2016
------------------ -----------------
Weighted Weighted
average average
exercise exercise
Number price Number price
'000 GBP '000 GBP
------------------------------------- ------- --------- ------ ---------
Outstanding options at the beginning
of the year 2,889 0.27 3,739 0.27
Exercised during the year (1,135) 0.22 (653) 0.28
Forfeited during the year (28) 0.35 (197) 0.34
------------------------------------- ------- --------- ------ ---------
Outstanding options at the end of
the year 1,726 0.29 2,889 0.27
------------------------------------- ------- --------- ------ ---------
The options outstanding at 30 September 2017 had a weighted average exercise price of GBP0.29 (2016: GBP0.27) and a weighted average remaining contractual life of 5.5 years (2016: 6.7 years). The range of exercise prices for outstanding options is GBP0.06 to GBP0.35 (2016: GBP0.06 to GBP0.35).
The number of options exercisable as at 30 September 2017 was 1,532,000 (2016: 2,100,000).
ii) Long Term Incentive Plan
The Company operates an equity-settled Long Term Incentive Plan that grants nil-cost options to eligible employees which vest at the end of a three year vesting period. The vesting of the options is subject to both Adjusted Earnings Per Share (EPS) and Total Shareholder Return (TSR) performance criteria. The Group recognised a charge of GBP1.8 million (2016: GBP0.9 million) in respect of this scheme.
A total of 1,291,686 options have been granted in respect of the 2017 financial year. None of the options granted are exercisable as at 30 September 2017. The following information is relevant in the determination of the fair value of the LTIP options granted on 6 December 2016. There were no other material grants in 2017. The total outstanding number of LTIP options granted to date is 3,210,159 (2016: 2,866,354).
6 December 2016
grant
--------------------------- ---------------
Valuation method - TSR Monte-Carlo
Valuation method - EPS Black-Scholes
Share price at grant date GBP3.14
Exercise price GBPnil
Expected volatility 36.8%
Expected life 3 years
Expected dividend yield n/a
Risk-free interest rate 0.21%
Fair value per share - TSR GBP1.93
Fair value per share - EPS GBP3.14
--------------------------- ---------------
The volatility assumption, measured at the standard deviation of expected share price returns, has been calculated using historical daily data of six comparator companies over a term commensurate with the expected life of each option. Dividend equivalent payments will be made in respect of vested options in the form of additional shares.
Following the announcement of these results the LTIP award which was granted in August 2014 will vest subject to fulfilment of the performance criteria.
iii) Share Incentive Plan (SIP)
The SIP is an all-employee share ownership plan which has been designed to meet the requirements of Schedule 2 of the Income Tax (Earnings and Pensions) Act 2003 so that shares can be provided to UK employees under the SIP in a tax-efficient manner. Under the scheme employees may be awarded Free Shares and/or offered the opportunity to purchase Partnership Shares with one Free Matching Share for each Partnership Share purchased. During the period the Company granted a total of 90,841 (2016: 92,581) Matching Shares all of which are still subject to forfeiture should the employee leave within 12 months of the grant date. The Group recognised a charge of GBP0.3 million (2016: GBP0.3 million) in respect of shares under this scheme.
iv) Deferred Bonus Plan
The Company operates a Deferred Bonus Plan (DBP) which defers a proportion of eligible employees' annual bonuses into nil-cost options. The options vest over a period of between one and three years from the end of the performance period. The performance period for the 2017 DBP runs from 1 October 2016 until 30 September 2017. The Group recognised a charge of GBP0.7 million (2016: GBP0.4 million) in respect of this scheme.
2017 2016
Number Number
'000 '000
------------------------------------- -------- --------
Outstanding options at the beginning
of the year 313 -
Granted during the year 301 317
Exercised during the year (13) -
Lapsed during the year (4) (4)
------------------------------------- -------- --------
Outstanding options at the end of
the year 597 313
------------------------------------- -------- --------
In December 2016 a total of 301,395 options were granted in respect of the 2016 financial year. As at 30 September 2017 22,965 of the vested options remain unexercised (2016 : Nil)
v) Value Creation Plan
On 1 October 2015 the Company launched the VCP. The VCP grants nil-cost options to the Company's CEO based on Total Shareholder Return over a three and four year period. The fair value of the scheme is GBP4.3 million spread over the four year period. A charge of GBP1.2 million (2016: GBP1.2 million) was recognised in the 2017 financial year.
On 3 January 2017 3,233,127 nil cost options were granted under the Value Creation Plan. The nil cost options are subject to the rules of the Value Creation Plan and will vest depending on performance against Total Shareholder Return targets.
vi) Management deal related performance bonus
On 1 May 2016 an amendment was made to the uSwitch deal related management performance bonus such that the employee can elect to receive the bonus in the form of shares in ZPG Plc instead of a fixed cash element. The Group recognised a charge of GBP0.6 million (2016: 0.4 million) in respect of this scheme. As at 30 September 2017 2,533,646 options remain outstanding with settlement expected, in either cash or ZPG shares, on 1 June 2018.
vii) Big Goals
On 28 February 2017 an amendment was made to the Group's Big Goal Incentive Plan. The scheme grants nil-cost options to all employees on achievement of Group-wide targets. The scheme was previously settled in cash. The Group has recognised a charge of GBP0.4 million (2016: GBPnil) in respect of this scheme in the 2017 financial year.
viii) Warrants
Zoopla Limited has entered into agreements with a number of estate agent partners whereby the partners agree to pay annual fees for advertising on ZPG's property websites over a five year period in exchange for a fixed number of warrants over Ordinary Shares. The warrants are issued annually over the five year term of the agreements at an exercise price equal to the nominal value of each share (GBP0.001). Some or all of the warrants are forfeited if service agreements are terminated before the end of the term.
The Group holds shares in treasury to settle future warrant exercises. At 30 September 2017 135,317 shares were held in treasury (2016: 162,789).
The total charge recognised for the year ended 30 September 2017 in respect of warrants was GBP0.5 million (2016: GBP0.4 million).
2017 2016
------------------- -------------------
Weighted Weighted
average average
exercise exercise
price price
Number GBP Number GBP
-------------------------------------- -------- --------- -------- ---------
Outstanding warrants at the beginning
of the year 231,319 0.001 114,009 0.001
Issued during the year 334,677 0.001 142,861 0.001
Exercised during the year (27,472) 0.001 (25,551) 0.001
-------------------------------------- -------- --------- -------- ---------
Outstanding warrants at the end
of the year 538,524 0.001 231,319 0.001
-------------------------------------- -------- --------- -------- ---------
The number of warrants outstanding at 30 September 2017 was 538,524 (2016: 231,319). The warrants had a weighted average exercise price of GBP0.001 and a weighted average remaining contractual life of 4.5 years (2016: 3.9 years).
The number of warrants issuable over shares in ZPG Plc under existing partner contracts is 721,000 (2016: 1,055,000). The warrants will be issued with an exercise price of GBP0.001 over the lives of the contracts.
ix) National Insurance Contributions (NIC)
National Insurance Contributions are payable in respect of certain share-based payment schemes. These contributions are treated as cash-settled transactions and are accrued at a rate of 13.8%. The total NIC charge relating to share-based payment schemes was GBP1.6 million (2016: GBP0.9 million).
x) The Employee Benefit Trust and Share Incentive Plan Trust
Employee Benefit Trust (EBT)
The Group has established an Employee Benefit Trust which is constituted by a trust deed entered into between the Company and Equiniti Trust (Jersey) Limited. The Trust held 2,690,159 Ordinary Shares in ZPG Plc at 30 September 2017 (2016: 3,838,636). These shares are held to satisfy future exercises under the Group's share-based payment schemes. Shares are allocated by the Trust when the awards are exercised. The Trust waives its right to any dividends. The market value of the shares held in the Trust at 30 September 2017 was GBP9.7 million (2016: GBP14.6 million). The cost of the shares has been deducted from equity.
Share Incentive Plan Trust (SIP Trust)
The Group has established a Share Incentive Plan Trust which is constituted by a trust deed which was entered into between the Company and Equiniti Share Plan Trustees Limited. The Trust held 625,853 Ordinary Shares in ZPG Plc at 30 September 2017 (2016: 602,817). These shares are held to satisfy future Free Share and Partnership and Matching Share exercises. Shares are allocated by the Trust when the awards are exercised. Dividends paid on shares held in the Trust are passed to the employees when the shares are allocated. The market value of the shares held in the Trust at 30 September 2017 was GBP2.3 million (2016: GBP2.0 million). The cost of the shares has been deducted from equity.
25. Related party transactions
a) Key Management personnel
The Chairman and the Directors are considered to be the Key Management Personnel of the Group along with the Managing Directors of Property and Comparison. Details of remuneration for Key Management Personnel are shown in Note 7.
No share options were exercised by key Management personnel in the period.
Further information on the remuneration of the Chairman and the Directors can be found in the Directors' remuneration report in Annual Report 2017
b) Other Group companies
Details of transactions with subsidiaries are outlined in the Company financial statements. Transactions with other Group companies have been eliminated on consolidation.
c) Other related parties
At 30 September 2017 Daily Mail & General Trust Plc owned 29.8% of the share capital of ZPG Plc through its subsidiary DMGZ Limited (2016: 31.3%)
There are no other material related party transactions.
26. Financial instruments
Carrying amount and fair value of financial assets and liabilities
The Group has shareholdings and commercial arrangements with a number of other entities. Where these holdings do not give the Group significant influence over the entity the holdings are classified as Available for sale financial assets. Details for available for sale financial assets are included in Note 16. The valuation of all available for sale financial assets are based on level 2 inputs. The Group uses publicly available financial information to determine the fair value of its shareholding and any warrants held. The fair value of these assets is equal to their carrying value.
All other financial assets, including cash and cash equivalents, are designated as "Loans and receivables" and are held at amortised cost. All financial liabilities are classified as "Other liabilities" and are measured at amortised cost. The Directors consider that the carrying amounts of financial assets and liabilities recorded at amortised cost in the consolidated financial statements are approximate to their fair values.
Financial risk management
The Group is exposed to the following risks from financial instruments:
-- credit risk; -- market risk; and -- liquidity risk.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or bank ("counterparty") fails to meet its contractual obligations resulting in financial loss to the Group. The Group's maximum exposure to credit risk at the end of each period was equal to the carrying amount of financial assets recorded in the consolidated financial statements. The exposure to credit risk is influenced by the individual characteristics of each counterparty.
The potential for customer default varies between the Group's two divisions. The customer base of the Property division is large, so there is no significant concentration of credit risk. The Comparison division operates in a market with a small number of customers, which creates a concentration of debtor balances, and from time to time the amounts due from one or a number of suppliers may be material. However, customers within this market are often large energy and telecommunications organisations with high credit ratings and access to significant funds. The Group's largest customer contributed to 10% (2016: 18%) of the Group's trade receivables balance.
The Group manages counterparty risk on its trade receivables through strict credit control quality measures and regular aged debt monitoring procedures. The Group reserves the right to charge interest on overdue receivables, although it does not hold collateral over any trade receivable balances. Overdue amounts are regularly reviewed and impairment provisions are created where necessary. This provision is reviewed regularly in conjunction with a detailed analysis of ageing profile, historical payment profiles and past default experience. The Group has long-standing relationships with its key customers and extremely low historical levels of customer credit defaults.
The ageing of trade receivables at the period end is as follows:
2017 2016
------------------ ------------------
Gross Provision Gross Provision
GBP000 GBP000 GBP000 GBP000
----------- ------- --------- ------- ---------
0-30 days 12,926 - 4,634 -
31-60 days 1,760 (37) 3,154 (104)
61-90 days 805 (519) 721 (151)
91+ days 419 (354) 767 (125)
----------- ------- --------- ------- ---------
Total 15,910 (910) 9,276 (380)
----------- ------- --------- ------- ---------
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was granted up to the period end date.
Receivables written off during the year to 30 September 2017 was GBP415,000 (2016: GBP470,000). As at 30 September 2017 receivables of GBP1,447,000 were past due but not impaired (2016: GBP1,386,000).
The credit risk associated with bank and deposit balances is mitigated by the use of banks with good credit ratings.
Market risk
Market risk is the risk that changes in foreign exchange and interest rates will affect the income and financial management of the Group. The Group is not exposed to any significant currency risk and there is a minimal interest rate risk on cash and bank balances. However, the Group has borrowings subject to an interest rate calculated with reference to Libor. Changes in interest rates therefore impact the financial results of the Group. The Directors actively monitor interest rate risk and note that interest rates remain at a historical low. The Directors believe that any reasonable increase in the Libor rate would not significantly impact the Group. Therefore, the Group does not hedge its interest rate risk at this time. At 30 September 2017 borrowings of GBP269 million were subject to floating interest rates (2016: GBP151.5 million).
At 30 September 2017 if Libor were to have increased by 1% throughout the year with all other variables held constant profit before tax would decrease by GBP2.0 million (2016: GBP1.2 million) as a result of additional interest incurred. Therefore, the Directors are comfortable that any sensitivity to fluctuations in interest or exchange rates would not have a material impact on the results of the Group.
Liquidity risk
Liquidity risk refers to the ability of the Group to meet the obligations associated with its financial liabilities that are settled in cash as they fall due. Management regularly reviews performance against budgets and forecasts to ensure sufficient cash funds are available to meet its contractual obligations.
The Group's activities are highly cash generative allowing it to effectively service working capital requirements. At 30 September 2017 the Group held total cash and cash equivalents of GBP75.4 million (2016: GBP3.4 million) and net debt of GBP191.5 million (2016: GBP146.3 million).
The Group has access to a GBP200.0 million revolving credit facility (RCF), of which GBP144 million was drawn down at 30 September 2017. The remaining GBP56 million undrawn facility allows the Group to secure additional external financing should it be required. The total facility requires the Group to meet certain covenants based on the Group's interest cover and net debt to Adjusted EBITDA ratio. Exceeding the covenants would result in the Group being in breach of the facility, which may lead to the facility being withdrawn. Management regularly monitors and models covenant compliance and prepares detailed forecasts to ensure that sufficient headroom is available. The Directors are satisfied that there is reasonable headroom on each of the Group's debt covenant ratios.
In addition to the GBP200 million RCF the Company increased its total facility in the period by GBP125 million with the draw down of two term loans of GBP75 million and GBP50 million to fund the acquisitions of Hometrack and Money respectively. The GBP75 million is subject to two bullet payments of GBP10 million in March 2018 and March 2019 with the remaining balance falling due on April 2020 at the end of the term facility.
The following tables detail the Group's remaining contractual maturities for undiscounted financial liabilities, including interest. The contractual maturity is based on the earliest date on which the Group may be required to settle. Where interest rates are variable the undiscounted amount is derived from interest rate curves at 30 September 2017.
Total
Effective Within 1 to 2 2 to 5 More than contractual
interest 1 year years years 5 years amount
rate GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- ------- ------- ------- --------- ------------
At 30 September 2017
Revolving Credit Facility
Trade payables 10,425 - - - 10,425
Borrowings(1) 3.00% 4,023 4,375 146,653 - 155,051
Term Debt Facility
Borrowings(2) 2.74% 13,164 13,469 107,121 - 133,754
-------------------------- --------- ------- ------- ------- --------- ------------
Total 27,612 17,844 253,774 - 299,230
-------------------------- --------- ------- ------- ------- --------- ------------
At 30 September 2016
Revolving Credit Facility
Trade payables 7,618 - - - 7,618
Borrowings(1) 2.90% 4,096 4,535 158,927 - 167,558
-------------------------- --------- ------- ------- ------- --------- ------------
Total 11,714 4,535 158,927 - 175,176
-------------------------- --------- ------- ------- ------- --------- ------------
1 Interest on the revolving credit facility assumes that the Group makes no further capital repayments until maturity in 2020.
2 Term repayments of GBP10 million are due in 2018 and 2019 with no further repayments due until maturity of the term facility in 2020.
Treasury and capital risk management
The Group's policy is to actively manage its cash and capital structure to ensure that it complies with its current debt covenant ratios, maintains its current dividend policy and minimises the Group's interest payments by paying down its debt where possible. The Group is not subject to any externally imposed capital requirements
Management will consider the use of excess cash, including the payment of special dividends to shareholders and M&A activity, based on the risks and opportunities of the Group at that time.
The Directors can manage the Group's capital structure through the issue or redemption of either debt or equity instruments and by adjustment of the Group's dividend paid to equity holders. The Directors believe that the current debt to equity ratio remains appropriate but continue to monitor the efficiency of the capital structure on an ongoing basis.
27. Operating lease commitments
At the statement of financial position date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
2017 2016
GBP000 GBP000
-------------------------------------- ------- -------
Within one year 4,094 3,267
In the second to fifth year inclusive 13,420 13,067
After five years 23,791 27,214
-------------------------------------- ------- -------
41,305 43,548
-------------------------------------- ------- -------
All operating lease commitments are in respect of property leases held by the Group.
28. Subsequent events
On 1 October 2017 ZPG completed its acquisition of 100% of the issued share capital of Dot Zinc Holdings Limited ("Money") for initial consideration of GBP80 million and earn out consideration of up to a maximum of GBP60 million based on performance targets for the twelve-month periods ending 31 October 2017 and 30 September 2018.
For the year ended 31 October 2016 Dot Zinc Holdings Limited generated revenue and consolidated profit for the year of GBP24.7 million and GBP5.3 million respectively and had gross assets of GBP14.1 million.
As of the date of this report Management has not completed its purchase price allocation exercise . Full details of the fair value of assets and liabilities acquired will be provided in the Group's interim results for the period to 31 March 2018.
As at the date of this report the Company is well advanced in its acquisition of automated property valuations and statistical market analysis provider Calcasa B.V ("Calcasa") for initial consideration of EUR30 million and earn out consideration of up to EUR50 million. The acquisition is expected to complete on 1 December 2017 and will be financed through a combination of cash resources and an extension to the Company's existing credit facilities.
For the year ended 31 December 2016 Calcasa generated profit for the year of EUR4.2 million and had gross assets of EUR6.2 million.
There have been no other reportable subsequent events between 30 September 2017 and the date of signing of this report.
29. Ultimate controlling party
The Directors are of the opinion that there was no ultimate controlling party in either period presented.
Company statement of financial position
As at 30 September 2017
2017 2016
Notes GBP000 GBP000
-------------------------------------- ----- ------- -------
Assets
Non-current assets
Investment in subsidiaries 4 421,089 250,790
Intangible assets 335 128
Property, plant and equipment 5 5,738 5,315
Trade and other receivables 6 28,245 74,698
Deferred tax assets 11 1,168 600
-------------------------------------- ----- ------- -------
456,575 331,531
-------------------------------------- ----- ------- -------
Current assets
Trade and other receivables 6 5,084 9,092
Cash and cash equivalents 62,405 414
-------------------------------------- ----- ------- -------
67,489 9,506
-------------------------------------- ----- ------- -------
Total assets 524,064 341,037
-------------------------------------- ----- ------- -------
Liabilities
Current liabilities
Trade and other payables 7 17,605 27,732
Deferred and contingent consideration 8 8,601 28,143
-------------------------------------- ----- ------- -------
26,206 55,875
-------------------------------------- ----- ------- -------
Non-current liabilities
Loans and borrowings 9 266,865 149,696
Deferred and contingent consideration 8 13,268 2,533
Provisions 10 1,375 1,375
-------------------------------------- ----- ------- -------
Total liabilities 307,714 209,479
-------------------------------------- ----- ------- -------
Net assets 216,350 131,558
-------------------------------------- ----- ------- -------
Equity
Share capital 11 439 418
Share premium reserve 74,304 50
Other reserves 11 90,151 90,137
Retained earnings 51,456 40,953
-------------------------------------- ----- ------- -------
Total equity 216,350 131,558
-------------------------------------- ----- ------- -------
The financial statements of ZPG Plc (company number 09005884) were approved and authorised for issue by the Board of Directors and were signed on its behalf by:
A Chesterman A Botha Director Director 28 November 2017 28 November 2017
Company statement of cash flows
For the year ended 30 September 2017
2017 2016
GBP000 GBP000
----------------------------------------------------- --------- --------
Cash flows from operating activities
Profit before tax 27,615 33,649
Adjustments for:
Depreciation of property, plant and equipment 587 -
Amortisation of intangible assets 89 -
Finance income (1,501) (1,615)
Finance costs 5,576 3,559
Dividend income received (49,000) (47,000)
Movement in contingent and deferred consideration 11,122 7,075
----------------------------------------------------- --------- --------
Operating cash flow before changes in working
capital (5,512) (4,332)
Decrease in trade and other receivables 3,020 21,093
(Decrease)/Increase in trade and other payables (10,223) 4,984
----------------------------------------------------- --------- --------
Net cash flows from operating activities (12,715) 21,745
----------------------------------------------------- --------- --------
Cash flows (used in)/from investing activities
Acquisition of subsidiaries, net of cash acquired (110,351) (48,636)
Settlement of deferred and contingent consideration (32,722) (37,042)
Amounts paid into escrow in relation to deferred
and contingent consideration 6,341 (2,448)
Purchase of property, plant and equipment (1,010) (3,441)
Purchase and development of intangible assets (296) -
Interest income received 1,501 1,615
Dividend income received 49,000 47,000
----------------------------------------------------- --------- --------
Net cash flows used in investing activities (87,537) (42,952)
----------------------------------------------------- --------- --------
Cash flows from/(used in) financing activities
Proceeds on issue of shares, net of issue costs 74,275 -
Proceeds on issue of debt, net of issue costs 215,000 89,358
Repayment of debt (97,500) (52,500)
Interest paid (5,811) (2,937)
Shares purchased by trusts (112) -
Treasury shares purchased - (414)
Dividends paid (23,609) (16,554)
----------------------------------------------------- --------- --------
Net cash flows from financing activities 162,243 16,953
----------------------------------------------------- --------- --------
Net increase/(decrease) in cash and cash equivalents 61,991 (4,254)
Cash and cash equivalents at beginning of period 414 4,668
----------------------------------------------------- --------- --------
Cash and cash equivalents at end of period 62,405 414
----------------------------------------------------- --------- --------
Company statement of changes in equity
For the year ended 30 September 2017
Other Reserves
-----------------------------
Share
Share premium Treasury Shares Merger Retained Total
capital reserve shares in trust reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- -------- -------- --------- -------- --------- --------
At 1 October 2016 418 50 (358) - 90,495 40,953 131,558
Profit and total comprehensive
income for the period - - - - - 28,183 28,183
Transactions with owners
recorded directly in
equity:
Share issuance 21 74,254 - - - - 74,275
Share-based payments - - - - - 6,055 6,055
Treasury shares released - - 60 - - (60) -
Shares purchased by
trusts - - - (112) - - (112)
Shares released from
trusts - - - 66 - (66) -
Dividends paid - - - - - (23,609) (23,609)
------------------------------- -------- -------- -------- --------- -------- --------- --------
At 30 September 2017 439 74,304 (298) (46) 90,495 51,456 216,350
------------------------------- -------- -------- -------- --------- -------- --------- --------
Other Reserves
-----------------------------
Share
Share premium Treasury Shares Merger Retained Total
capital reserve shares in trust reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- -------- -------- --------- -------- --------- --------
At 1 October 2015 418 50 - - 90,495 19,507 110,470
Profit and total comprehensive
income for the period - - - - - 34,066 34,066
Transactions with owners
recorded directly in
equity:
Share-based payments - - - - - 3,990 3,990
Treasury shares purchased - - (414) - - - (414)
Treasury shares released - - 56 - - (56) -
Dividends paid - - - - - (16,554) (16,554)
At 30 September 2016 418 50 (358) - 90,495 40,953 131,558
------------------------------- -------- -------- -------- --------- -------- --------- --------
Notes to the Company financial statements
1. Accounting policies and basis of accounting
The Directors have applied International Financial Reporting Standards (IFRS) as adopted by the European Union.
The accounting policies and the financial risk management policies, where relevant to the Company, are consistent with those of the consolidated Group as set out in Notes 1 to 29 of the consolidated financial statements.
The statement of cash flows has been represented in the prior year to move transaction costs on acquisitions of GBP1.3 million to operating cash flows. The impact was to reduce net cash flows from operating activities and the net cash flows used in investing activities by GBP1.3 million.
Statement of comprehensive income
The Company has taken advantage of the exemption available under section 408 of the Companies Act 2006 and has not presented a statement of comprehensive income. The profit for the period ended 30 September 2017 was GBP28.2 million (2016: GBP34.1 million).
2. Auditor's remuneration
The Company incurred a cost of GBP140,000 (2016: GBP65,000) for statutory audit services for the period ended 30 September 2017. The Company incurred a cost of GBP40,000 (2016: GBP28,000) in relation to non-audit fees provided by the statutory auditor.
3. Employee costs and Directors' remuneration
The Company has no employees other than the Directors of the Company. Remuneration paid to the Directors was accounted for and paid by the Company's subsidiary, Zoopla Limited. Details of Directors' remuneration are set out in the Directors' Remuneration Report in the Annual Report 2017.
4. Investments in subsidiaries
Investments in subsidiaries are valued at cost less any provision for impairment. The investment in subsidiaries balance of GBP421.1 million represents the Company's 100% shareholding in Zoopla Limited, uSwitch Limited, Property Software Holdings Limited and Hometrack.co.uk Limited as set out in Note 12 to the consolidated financial statements. Property Software Holdings Limited was acquired on 28 April 2016 as detailed in Note 13 to the consolidated financial statements.
During the year ZPG Plc successfully completed a restructuring of the uSwitch entities within the Group. All uSwitch trade and assets were transferred into the entity uSwitch Limited at nil gain or loss. The entire share capital of uSwitch Limited was then sold by uSwitch Digital Limited to ZPG Plc at the carrying value of assets and liabilities acquired. Subsequent to the transaction, Ulysses Enterprises Limited and its subsidiaries are dormant with strike off applications in progress. Intercompany loans including these due to the Company from subsidiaries were settled prior to the restructuring or were capitalised through the issuance of ordinary share capital. The restructuring led to a net increase in the investment of GBP9.4 million due to the capitalisation of existing intercompany loans.
During the year the Company recognised an increase in the investment in Zoopla Limited, uSwitch Limited and Hometrack.co.uk Limited in respect of the Group's employee share schemes. Consistent with the Group accounting policies outlined in Note 1.20 to the consolidated financial statements, equity-settled share options granted directly to a subsidiary's employees are treated as a capital contribution to the subsidiary. The capital contribution is measured by reference to the consolidated share-based payments charge and is recognised as an increase in the cost of investment with a corresponding credit to retained earnings.
Property
Ulysses Software
Zoopla uSwitch Enterprises Hometrack.co.uk Holdings
Limited Limited Limited Limited Limited Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- -------- -------- ------------ --------------- --------- -------
At 1 October 2016 96,683 - 107,783 - 46,324 250,790
Acquisition of Hometrack - - - 116,269 - 116,269
Investment in uSwitch
Limited - 9,432 - - 9,432
Share issue in Ulysses
Enterprises Limited - - 38,543 - - 38,543
Transfer of investment
in uSwitch Group - 146,326 (146,326) - - -
Share-based payment
- Capital contribution 5,122 904 - 29 - 6,055
------------------------- -------- -------- ------------ --------------- --------- -------
At 30 September
2017 101,805 156,662 - 116,298 46,324 421,089
------------------------- -------- -------- ------------ --------------- --------- -------
At 1 October 2015 93,053 - 107,425 - - 200,478
Acquisition of Property
Software Group - - - - 46,324 46,324
Share-based payment
- Capital contribution 3,630 - 358 - - 3,988
------------------------- -------- -------- ------------ --------------- --------- -------
At 30 September
2016 96,683 - 107,783 - 46,324 250,790
------------------------- -------- -------- ------------ --------------- --------- -------
5. Property, plant and equipment
Fixtures Computer Leasehold
and fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 October 2016 545 440 4,330 5,315
Additions 278 583 149 1,010
At 30 September 2017 823 1,023 4,479 6,325
-------------------------- ---------------------- ------------ ------------- ---------------
At 1 October 2015 - - - -
Additions 545 440 4,330 5,315
At 30 September 2016 545 440 4,330 5,315
-------------------------- ---------------------- ------------ ------------- ---------------
Accumulated depreciation
At 1 October 2016 - - - -
Charge for the year 151 141 295 587
At 30 September 2017 151 141 295 587
-------------------------- ---------------------- ------------ ------------- ---------------
At 1 October 2015 - - - -
Charge for the year - - - -
At 30 September 2016 - - - -
-------------------------- ---------------------- ------------ ------------- ---------------
Net book value
At 30 September 2017 672 882 4,184 5,738
-------------------------- ---------------------- ------------ ------------- ---------------
At 30 September 2016 545 440 4,330 5,315
6. Trade and other receivables
2017 2016
GBP000 GBP000
------------------------------------------ ---------------- -------
Loan balances due from Group companies 28,245 71,436
Trading balances due from Group companies 773 1,969
Prepayments 768 501
Amounts held in escrow 3,543 9,884
------------------------------------------ ---------------- -------
33,329 83,790
------------------------------------------ ---------------- -------
Non-current 28,245 74,698
Current 5,084 9,092
------------------------------------------ ---------------- -------
33,329 83,790
------------------------------------------ ---------------- -------
The Directors consider that the carrying value of trade and other receivables are approximate to their fair value.
Amounts held in escrow are held for the settlement of deferred consideration due on the acquisition of uSwitch.
The Company has a receivable of GBP20.8 million due from Property Software Holdings Limited, GBP6.3 million from Hometrack.co.uk Limited and GBP1.1 million due from uSwitch Limited. The amounts are designated as unsecured, intercompany loans. The loans accrue interest at Libor + 2% and have no fixed repayment dates. A trading balance of GBP0.8 million is due from uSwitch Limited. No interest is receivable on the balance. The Company is comfortable that these amounts are recoverable in full.
7. Trade and other payables
2017 2016
GBP000 GBP000
----------------------------------- ------------- -------
Trade payables 1,411 270
Accruals 12,545 5,964
Amounts payable to Group companies 3,649 21,498
----------------------------------- ------------- -------
17,605 27,732
----------------------------------- ------------- -------
At 30 September 2017 a trading balance of GBP3.6 million was due to Zoopla Limited. No interest is payable on the balance.
The Directors consider that the carrying value of trade and other payables are approximate to their fair value. All trade and other payables are classified as current liabilities.
Details of the Group's exposure to liquidity risk are given in Note 26 to the consolidated financial statements.
8. Deferred and contingent consideration
The Company recognised a total of GBP13.0 million in respect of deferred payments due on acquisitions made in the period, in relation to the acquisition of Hometrack.co.uk Limited.
A further GBP11.1 million was recognised through the income statement in relation to payments to continuing Management shareholders. GBP2.8 million was recognised in respect of uSwitch, GBP5.3 million of Hometrack and GBP3.0 million of Property Software Group.
During the year the Company also made settlements of GBP33.0 million to settle amounts due in respect of uSwitch, Property Software Group and Hometrack. The GBP6.6 million paid to Management shareholders of uSwitch was held in escrow. Of the GBP32.7 million recorded on the statement of cash flows, GBP9.7 million of deferred and contingent consideration settled during the year was conditional on continued employment of Management (2016: GBP2.9 million).
There have been no changes to the expected outcome of ongoing contingent consideration requirements made during the period outside of the finalisation of the acquisition accounting for entities acquired in the year set out in Note 13 of the consolidated financial statements. The Company's liabilities in respect of deferred and contingent consideration arising on acquisitions are set out below:
Contingent
----------------------------------------------
Deferred consideration
consideration Earn-out Total
GBP000 GBP000 GBP000
---------------------------------------------- --------------- ---------------- --------------
At 1 October 2016 28,859 1,817 30,676
Recognised on acquisition of Hometrack 1,218 11,813 13,031
Charge in the period for amounts conditional
on the continued employment of Management 10,330 792 11,122
uSwitch settlement (4,710) (1,870) (6,580) Property Software Group settlement (25,097) - (25,097) Hometrack settlement (1,283) - (1,283) At 30 September 2017 9,317 12,552 21,869 ---------------------------------------------- --------------- ---------------- -------------- Current 7,426 1,175 8,601 Non-current 1,891 11,377 13,268 ---------------------------------------------- --------------- ---------------- -------------- At 1 October 2015 11,976 26,156 38,132 Recognised on acquisition of Property Software Group 22,511 - 22,511 Charge in the period for amounts conditional on the continued employment of Management 4,412 2,663 7,075 uSwitch settlement (10,040) (27,002) (37,042) At 30 September 2016 28,859 1,817 30,676 ---------------------------------------------- --------------- ---------------- -------------- Current 26,813 1,330 28,143 Non-current 2,046 487 2,533 ---------------------------------------------- --------------- ---------------- --------------
9. Loans and borrowings
Details of loans and borrowings are given in Note 21 to the consolidated financial statements.
10. Provisions
The Company's dilapidation provisions relate to Management's best estimation of costs to make good the Company's leasehold property at the end of the lease term. The carrying provision represents expected exit costs on completion of the Company's property lease.
Dilapidation
--------------------------
provisions
GBP000
-------------------------- -------------
At 1 October 2016 1,375
Recognised in the period -
At 30 September 2017 1,375
At 1 October 2015 -
Recognised in the period 1,375
At 30 September 2016 1,375
11. Deferred Tax
Property,
plant Long term
and equipment Bonus Plans Total
GBP000 GBP000 GBP000
------------- ----------- -------
Deferred tax (liability) / asset
at 1 October 2016 (158) 758 600
(Credit) / charge to profit or loss (51) 646 595
Prior year adjustment - (27) (27)
Deferred tax (liability) / asset
at 30 September 2017 (209) 1,377 1,168
12. Equity
Share capital
Details of the Company's share capital are included in Note 23 to the consolidated financial statements.
Other reserves - merger reserve
The merger reserve represents the difference between the investment recognised in ZPG Limited on restructuring in 2014 of GBP90.9 million and the value of the shares issued of GBP0.4 million.
Other reserves - treasury shares
Between 11 February 2016 and 17 February 2016 the Group acquired 188,340 of its own shares at a weighted average price of 220.0 pence in order to settle the exercise of outstanding warrants. As at 30 September 2017 53,023 of the shares had been released from treasury to satisfy warrant exercises leaving 135,317 shares in treasury with a weighted average price of 220.0 pence and a total cost of GBP298,000 as at 30 September 2017.
Distributable reserves
As 30 September 2017 the Company has distributable reserves of GBP40.3 million (2016: GBP34.8 million). The Directors are comfortable that the Company has sufficient reserves to cover the proposed year end dividend of 3.8 pence per share and the expected 2018 interim dividend.
13. Financial instruments
Financial Instruments disclosures, where relevant to the Company, are consistent with those of the Group as set out in Note 26 to the consolidated financial statements.
14. Related parties
a) Key Management personnel
There are no employees of the Company. The Directors are employed and/or remunerated by the Company's subsidiary, ZPG Limited. There were no transactions during the year between the Directors and the Company other than the issue of shares and share options as outlined in the Directors' Remuneration Report in the Annual Report 2017.
b) Subsidiaries
Transactions with subsidiaries
On 31 January 2017 the Company acquired Hometrack.co.uk Limited and its subsidiaries as set out in Note 13 to the consolidated financial statements. The transaction included ZPG Plc assuming and discharging external debt of GBP16.0 million through an intercompany loan with Hometrack.co.uk Limited. During the period to 30 September 2017 Hometrack.co.uk Limited repaid GBP10.1 million of this balance to the Company.
During the year to 30 September 2017 Property Software Group Limited repaid GBP2.5 million in respect of the intercompany loan with the Company.
During the year to 30 September 2017 Ulysses Enterprises Limited made a drawdown of GBP21.4 million and repaid GBP69.9 million in respect of the intercompany loan with the Company. The intercompany loan balance at 30 September 2017 is GBPnil.
During the year Ulysses Enterprises Limited paid interest on intercompany loans of GBP0.8 million to the Company.
During the year Property Software Group Limited paid interest on intercompany loans of GBP0.6 million to the Company.
During the year Hometrack.co.uk Limited paid interest on intercompany loans of GBP0.1 million to the Company.
During the year Zoopla Limited paid dividends of GBP20.0 million (2016: GBP33.0 million) to the Company.
During the year Ulysses Enterprises Limited paid dividends of GBP16.0 million (2016: GBP14.0 million) to the Company.
During the year uSwitch Limited paid dividends of GBP13.0 million (2016: GBPnil) to the Company.
The Company issues shares to employees and estate agent partners of its subsidiaries as part of the Group's share-based payment and warrant schemes as set out in Note 24 to the consolidated financial statements.
There have been no other transactions with the Company's subsidiaries during the year.
Year end balances with subsidiaries
At 30 September 2017 GBP20.8 million of the intercompany loan due from Property Software Holdings Limited was outstanding. Interest at Libor + 2% per annum is due on the outstanding balance.
At 30 September 2017 GBP6.3 million of the intercompany loan due from Hometrack.co.uk Limited was outstanding. Interest at Libor + 2% per annum is due on the outstanding balance.
At 30 September 2017 GBP1.1 million of the intercompany loan due from uSwitch Limited was outstanding. Interest at Libor + 2% per annum is due on the outstanding balance.
At 30 September 2017 a trading balance of GBP0.7 million is due from uSwitch Limited. No interest is receivable on the balance.
At 30 September 2017 a trading balance of GBP0.1 million is due from Hometrack.co.uk Limited. No interest is receivable on the balance.
At 30 September 2017 a trading balance of GBP3.6 million is due to Zoopla Limited. No interest is payable on the balance.
There were no other related party transactions in the period.
c) Other related parties
There were no transactions between the Company and any other related parties.
15. Subsequent events
On 1 October 2017 ZPG completed its acquisition of 100% of the issued share capital of price comparison website Dot Zinc Holdings Limited ("Money") for initial consideration of GBP80 million and earn-out consideration of up to GBP60 million based on performance targets for the twelve-month periods ending 31 October 2017 and 30 September 2018.
For the year ended 31 October 2016 Money generated revenue and consolidated profit for the year of GBP24.7 million and GBP5.3 million respectively and had gross assets of GBP14.1 million.
As at the date of this report the Company is well advanced in its acquisition of automated property valuations and statistical market analysis provider Calcasa B.V ("Calcasa") for initial consideration of EUR30 million and earn out consideration of up to EUR50 million. The acquisition is expected to complete on 1 December 2017 and will be financed through a combination of cash resources and an extension to the Company's existing credit facilities.
For the year ended 31 December 2016 Calcasa generated profit for the year of EUR4.2 million and had gross assets of EUR6.2 million.
There have been no other reportable subsequent events between 30 September 2017 and the date of signing of this report.
16. Ultimate controlling party
The Directors are of the opinion that there was no ultimate controlling party in either period presented.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
November 29, 2017 02:01 ET (07:01 GMT)
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