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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ascential Plc | LSE:ASCL | London | Ordinary Share | GB00BYM8GJ06 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.00 | -0.32% | 313.40 | 312.80 | 313.40 | 314.40 | 312.00 | 312.00 | 2,170,812 | 16:35:06 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Public Relations Services | 586.3M | -191.3M | -0.4345 | -7.20 | 1.38B |
From Apr 2019 to Apr 2024
TIDMASCL
RNS Number : 8229D
Ascential PLC
24 February 2020
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATIONS
24 February 2020
Ascential plc
Audited results for the year ended 31 December 2019
Strong growth in revenue and adjusted profit
GBP120m share repurchase programme announced
London: Ascential plc (LSE: ASCL.L), the specialist information, data and analytics company, today announces results for the year ended 31 December 2019.
Operational highlights
-- Good delivery against our four key priorities for 2019: -- Focus on execution: Exceptional performances in Flywheel Digital and WGSN.
-- Edge: Continuing progress on the integration of Edge due to complete in H1 2020, significant Coca-Cola contract win and encouraging trading in early 2020 .
-- Marketing segment growth . -- Ascential operating model rolled out. -- Organic growth across all segments: -- Product Design: Organic revenue growth of 8% and successful launch of WGSN Beauty. -- Marketing: Organic revenue growth of 9%.
-- Sales: Organic revenue growth of 3% (Proforma 11%) with exceptional growth in Flywheel Digital ahead of plan and modest growth in Edge and Money20/20. Digital Commerce sub-segment revenues grew by 9% on an Organic basis and 21% on a Proforma basis.
-- Built Environment and Policy: 5% Organic revenue growth and expanded margins. -- Acquisition of eCommerce analytics business Yimian in China.
Financial highlights
-- Revenue of GBP416.2m (2018: GBP348.5m). -- Reported growth of 19.4%. Growth of 6.4% on an Organic basis, 9.0% on a Proforma basis. -- Adjusted EBITDA of GBP128.5m (2018: GBP108.4m). -- Reported growth of 18.5%. Growth of 6.2% on an Organic basis, 8.5% on a Proforma basis. -- Margin of 30.9% (2018: 31.1%).
-- Adjusted operating profit of GBP105.8m (2018: GBP92.2m). Reported operating profit of GBP19.9m reduced versus the prior year (2018: GBP41.4m) due to a GBP36.9m charge for deferred consideration for Flywheel Digital following its exceptional performance in 2019.
-- Strong growth in earnings per share: Adjusted diluted EPS of 18.5p up 20.9% (2018: 15.3p).
-- Continued good cash generation: Operating cash flow conversion of 88% (2018: 106%), resulting in closing net debt leverage of 1.4x (December 2018: 1.1x) allowing headroom for continued investment in organic growth, select acquisitions and shareholder returns.
-- Recommended final dividend of 4.0p, making a total dividend of 5.8p for the year (2018: 5.8p) with the prior year benefiting from earnings from discontinued operations.
-- Successful refinancing executed shortly after the year end with expanded GBP450m revolving credit facility, replacing our term loans.
-- Share repurchase programme announced of up to GBP120m commencing shortly.
Duncan Painter, Chief Executive Officer, commented:
"2019 was a satisfying and successful year for Ascential. We advanced our operating model to ensure our products further align with our customers' needs in fast paced growth markets and this was reflected in organic growth across all of our segments. We were particularly pleased with the strength of growth of the Marketing Segment and exceptional performances from WGSN and Flywheel Digital.
Looking forward, we believe we are well positioned to continue to drive strong performance in our scaled and structurally growing markets. In 2020, we expect to deliver strong Organic growth with Group revenue in the range of GBP425m-GBP455m (using current exchange rates) and adjusted EBITDA margins of between 30% and 32%."
Contacts
Ascential plc Duncan Painter Chief Executive Officer +44 (0)20 7516 5000 Mandy Gradden Chief Financial Officer Media enquiries Edward Bridges, Matt Dixon, Jamie Ricketts FTI Consulting LLP +44 (0)20 3727 1000
Ascential will host a presentation for analysts and investors at 9.00am on Monday 24 February 2020 at The Theatre, 1(st) Floor, The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.
The presentation will also be webcast live at 9.00am from www.ascential.com , allowing the slides to be viewed. A recording of the webcast will also be available on-demand from our website in due course.
About Ascential:
Ascential is a specialist information, data and analytics company that helps the world's most ambitious businesses win in the digital economy. Our information, insights, connections, data and digital tools solve customer problems in three principal disciplines:
-- Product Design via global trend forecasting service WGSN;
-- Marketing via global benchmarks for creative excellence and effectiveness, Cannes Lions and WARC, and strategic advisory firm MediaLink; and
-- Sales via eCommerce-driven data, insights and advisory firm Edge by Ascential, leading managed services provider for Amazon, Flywheel Digital, the world's premier payments and FinTech congress Money20/20, global retail industry summit World Retail Congress and Retail Week.
Ascential also powers political, construction and environmental intelligence product brands DeHavilland, Glenigan and Groundsure - together comprising the Built Environment and Policy Segment.
Cautionary statement
Certain statements in this announcement constitute, or may be deemed to constitute, forward-looking statements (including beliefs or opinions). Any statement in this announcement that is not a statement of historical fact including, without limitation those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement. As a result, you are cautioned not to place reliance on such forward-looking statements. Except as is required by the Listing Rules, Disclosure and Transparency Rules and applicable laws, no undertaking is given to update the forward-looking statements contained in this announcement, whether as a result of new information, future events or otherwise.
This announcement has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Ascential plc and its subsidiary undertakings when viewed as a whole.
Financial highlights - continuing operations
Hot Features
Premium
31 December Growth
2019 2018(1) Reported Organic Proforma
% %(2) %(2)
GBP'm GBP'm
Revenue
Product Design 86.5 77.8 11% 8% 8%
Marketing 135.9 116.3 17% 9% 9%
Sales 158.4 120.9 31% 3% 11%
Built Environment &
Policy 35.9 34.3 5% 5% 5%
Intercompany Sales (0.5) (0.8)
416.2 348.5 19.4% 6.4% 9.0%
-------- ------- -------- ------- --------
Adjusted EBITDA(2)
Product Design 36.0 29.9 20% 18% 18%
Marketing 50.7 40.5 25% 20% 19%
Sales 39.6 38.3 3% (24%) (14%)
Built Environment &
Policy 17.0 14.3 19% 19% 19%
Corporate Costs (14.8) (14.6) (1%) (2%) (1%)
-------- ------- -------- ------- --------
128.5 108.4 18.5% 6.2% 8.5%
-------- ------- -------- ------- --------
Group Margin (%) 30.9% 31.1%
Adjusted operating profit(2) 105.8 92.2
Operating profit 19.9 41.4
Profit before tax 10.2 28.9
Adjusted diluted continuing
earnings per share (pence)(2) 18.5p 15.3p
Total dividend per share
(pence) 5.8p 5.8p
Adjusted cash generated
from operations(2) 113.2 114.4
Operating cash flow
conversion (2) (%) 88% 106%
Net debt (2) 170.6 109.8
Leverage (2) 1.4x 1.1x
(1) Restated for application of IFRS 16 (see Note 7).
(2) Refer to the glossary of Alternative Performance Measures below.
Chief Executive's Statement
In 2019, we enjoyed a year of consolidation and progress. This follows a reshaping of our business in 2018 to support long-term growth, notably through the sale of the Exhibitions business, the acquisitions of WARC, BrandView and Flywheel Digital and the re-set of Cannes Lions and MediaLink's strategic re-alignment. We are pleased to report a successful performance in 2019, growing both revenue and profit and delivering well on the priorities we set out.
Strong organic growth and good cash generation
We delivered strong organic growth, with both revenue and Adjusted EBITDA up 6% and Adjusted diluted earnings per share up 21%. Our Adjusted EBITDA margin was in line with 2018, at 31%, with the planned investments made to position the Digital Commerce products in our Sales Segment as the number one platform in the market funded by strong operating leverage in our Product Design, Marketing and Built Environment and Policy Segments. This investment, along with acquisition payments and capex investment of GBP131.6m, was funded by good operational cash generation with operating cash flow conversion of 88% (2018: 106%).
Execution on key priorities for 2019
We have delivered well against the priorities we set for the year, in particular:
-- We are pleased with the levels of Execution demonstrated by our market-leading digital information products such as WGSN and Flywheel Digital and have built on the important initiatives that we have put in place to develop our cross-Ascential strategic client programme.
-- We have made progress with the integration of Edge, which commenced in the second half of 2018 and will run until the end of the first half of 2020. The major focus for the forthcoming year is to return the Edge business back to good billings growth in the second half.
-- Following the re-set for Cannes Lions and MediaLink's strategic re-alignment in 2018, Marketing Segment Growth was robust.
-- We have made progress in developing the Ascential operating model, with key changes implemented in our Finance, Marketing, Data Science and Product Development functions. These changes will drive efficiency and cross-sell and accelerate the development of our products.
Evolution of the operating model
In 2018, we adopted a new operating model, aligned to our strategy of serving customer needs in the functions of Product Design, Marketing and Sales. We have now further developed this model to highlight the particular specialisms within each of the segments in which we serve our customers.
After the year end, we have made some changes to the responsibilities of our key leaders to align our management structure more closely to our core segments of Product Design, Marketing and Sales, as well as Built Environment and Policy. Given the importance of returning the Edge business to strong growth, I shall be taking personal responsibility for leading the Digital Commerce sub-segment (within the Sales segment) in 2020.
Product Design
In another successful year for Product Design we achieved Organic growth of 8%, led by an exceptional performance from the advisory practice. This was supported by continuing solid growth from the core subscription business through a combination of high retention rates and successful product launches, with WGSN Beauty a recent example.
Marketing
Following re-sets for both Cannes Lions and MediaLink in 2018 the segment returned to strong Organic growth of 9% in 2019. For Cannes Lions, this was driven in part by the increasing participation of brands in the Festival, across all three revenue streams. For MediaLink the focus on brand-led business, both project-based and retainer, was successful in delivering a more sustainable business . The higher profile presence of MediaLink at the Cannes Lions festival also illustrated the benefit of collaboration and cross-selling initiatives that are an area of increased focus across Ascential. Continued growth of our digital revenue streams, such as The Work, together with that of WARC and the recent strategic investment in the media buying platform, Hudson MX, point to continuing diversification of the Marketing Segment's business model in favour of recurring and repeat revenues.
Sales
For the Sales Segment, following several key acquisitions and event launches in 2018, 2019 was a year of consolidation with growth of 3% on an Organic basis, or 11% Proforma including the contributions of Flywheel Digital and BrandView. The Digital Commerce brands within the Sales Segment (Edge, Flywheel Digital and Yimian) grew by 9% on an Organic basis, or 21% Proforma.
2019 was an important year for the integration of the four brands that comprise Edge. The initial phases of integration, covering organisational structure and CRM systems, were completed by June 2019. Progress has also been made on the underlying platform consolidation, with the phased roll-out of digital shelf catalogue systems to market share customers completed on schedule in December 2019 and the recent launch of the new market share platform. Reflecting our efforts to deepen our relationship with key customers it was pleasing that Edge was appointed as the preferred partner to Coca-Cola for its worldwide eCommerce operations.
In December, we also completed the acquisition of Chinese eCommerce analytics business Yimian that will provide a more holistic offering for Edge in China, with its sales and share expertise. Yimian's expertise in China provides an excellent fit with that of our Edge business across US and European marketplaces. Additionally, Yimian's capability in semantic analysis and record of innovation offers exciting opportunities for new product development.
Flywheel Digital had an outstanding year. Having joined the Group in 2018, it made significant strides, expanding its business into Europe, Australia and Japan, while also launching a service offering for Walmart in the US. Flywheel Digital enables us to not only report on the performance of our customers but also provide them with a real time trading platform to enable and drive actual sales growth.
Money20/20's modest performance reflected continuing strong growth from its European edition, offset by the competitive challenge in Singapore and a combination of adverse macro and local market factors that necessitated the deferral of the Chinese edition.
Built Environment & Policy
The Built Environment & Policy Segment continued to trade solidly, with Organic revenue growth of 5% and expansion of margin, despite testing conditions in its UK-based markets, a testament to the market leading products in this segment.
Jumpshot
In July 2019 we acquired a 35% stake in Avast's marketing analytics subsidiary Jumpshot. While Jumpshot's business model was attractive in its own right, we also benefitted from access to their high-quality information to refine and improve the product algorithms within the Edge business. This benefit persists, notwithstanding Avast's post year end decision to close Jumpshot, as it was no longer core to their mission. In January 2020, we sold our stake back to Avast recovering all of our investment and expenses.
Focused capital allocation and share repurchase programme
Consistently strong levels of cash flow conversion, combined with our disciplined capital allocation, has resulted in a net debt leverage ratio of 1.4x at the 2019 year-end. Furthermore, following the sale of the Jumpshot investment in January 2020, our proforma 31 December 2019 leverage ratio is 1.0x which is well below our historical norms.
While we have a pipeline of attractive bolt-on investment opportunities, we recognise that the delivery of shareholder value requires a return of cash to shareholders if M&A cash needs are not near-term and when our balance sheet is sufficiently strong to finance acquisitions should they arise earlier than expected. Having reviewed our capital allocation policy, the Board has decided to utilise part of its authority to make on-market purchases of our ordinary shares. We anticipate spending up to GBP120m in a share repurchase programme, which we will review on an ongoing basis based on the then competing opportunities for capital deployment.
Our dividend policy, which targets a 30% payout ratio of adjusted profit after tax, is unchanged.
Responsible business
This year, we launched our new Corporate Responsibility Framework, covering all elements of environmental, social and governance activities. This comprises solid foundations (such as health and safety), strategic issues (environmental sustainability and diversity and inclusion) and a signature focus on helping young people thrive in a digital world. This programme is designed to celebrate our existing activities, as well as provide inspiration for our people to launch new initiatives, and to enable Ascential to take a clear lead as a responsible business.
Coronavirus disease
The Board is actively monitoring the unfolding situation in respect of the Coronavirus outbreak. While China is an important, long-term, strategic growth market for Ascential, revenues from Chinese customers are today a relatively small part of the Group (less than 5% overall and with just 2% of attendees of Cannes Lions from China, for example) and we have not yet seen any material impact on trading from the situation. As a precaution, and to reflect travel difficulties in the region, we have previously communicated to participants that we have moved the date of Money20/20 Asia in Singapore from March to August 2020. We continue to monitor the potential impact of travel restrictions for Chinese delegates and sponsors to events in Europe (such as Retail Week Live in London in March). We are also mindful of the impact that Coronavirus might have on the business performance of our customer base in areas such as fashion but again have seen no significant impact to date. Our business continuity plans are enabling the majority of our approximately 200 staff in China to remain both safe and productive.
2020 priorities and outlook
As we enter 2020, we have four core objectives:
1. Increase the rate of Organic revenue growth in the Sales Segment by accelerating Money20/20 and by driving strong billings growth in Edge in the second half of 2020.
2. Focus on our service offering to further reduce customer churn.
3. Deliver product superiority across the Company allowing for further premium pricing for our highest quality products.
4. Deliver greater simplicity and efficiency throughout the business, including new systems and processes in our Finance, Marketing and Sales functions.
Over the coming year we will continue to utilise our unique insights and expertise to provide our customers with ever more relevant and critical information. With our product sets even more closely aligned to customer requirements, we believe we are well positioned to continue to drive strong performance in our scaled and structurally growing markets. In 2020, we expect to deliver strong Organic growth with Group revenue in the range of GBP425m-GBP455m (using current exchange rates) and adjusted EBITDA margins of between 30% and 32%.
Segmental Review
Product Design Segment
Year ended 31 December Growth (%)
(GBP'm)
2019 2018* Reported Organic Proforma
----------- --------- -------- ---------
Revenue 86.5 77.8 +11% +8% +8%
----------- ------------ --------- -------- ---------
Adjusted EBITDA 36.0 29.9 +20% +18% +18%
----------- ------------ --------- -------- ---------
Adjusted EBITDA
Margin 42% 38%
----------- ------------
*Restated for initial application of IFRS 16 (see Note 7)
2019 was a successful year for our Product Design Segment, with Organic revenue growth accelerating to 8%, driven by advisory revenues, continued strong retention and the launch of WGSN Beauty. Revenue and Adjusted EBITDA both grew well in the period, with margin expanding despite product launch investment.
Through our WGSN product, we are a leading global supplier of trend forecasts, market intelligence and insight to design-led businesses, helping them understand the future demands of their consumers and the underlying influences that shape the preferences of different consumer communities. We have around 6,500 customers in over 90 countries. Information is delivered primarily through digital subscriptions (c.90% of our revenue) with growing specialist advisory and colour services, through Mindset and Coloro respectively.
The Product Design Segment has seen continued take-up of products launched in recent years such as Insight (the broad consumer trends product), Barometer (brand sentiment tool) and Coloro (the colour system). These not only offer new growth opportunities within the existing customer base but have driven an expansion of the addressable market beyond apparel and into newer product categories, as with the launch of Beauty in April 2019. This offering, specifically for the beauty industry, serves product developers with trend information based on four key elements: Ingredients, Texture & Fragrance, Colour, and Packaging . We now have over 200 customers signed up to Beauty achieving more than double our original year one targets. Instock, our digital shelf product for apparel companies, continues to gain traction with Financial Services companies interested in utilising alternative data to inform their investment decisions and we are focusing our efforts on this end market.
We will continue to explore opportunities to enter new market segments where our expertise in trend forecasting can be adapted, with a new product in the Food & Beverage market targeted for launch later in 2020. We will also continue to use data from other Ascential products to inform forecasts and analysis including empirical innovations such as the Trend Curve, launched in September 2019.
These initiatives position us well for continued mid to high single digit revenue growth in this segment.
Marketing Segment
Year ended 31 December Growth (%)
(GBP'm)
2019 2018* Reported Organic Proforma
------------ --------- -------- ---------
Revenue 135.9 116.3 +17% +9% +9%
------------ ----------- --------- -------- ---------
Adjusted EBITDA 50.7 40.5 +25% +20% +19%
------------ ----------- --------- -------- ---------
Adjusted EBITDA
Margin 37% 35%
------------ -----------
*Restated for initial application of IFRS 16 (see Note 7)
One of our key objectives for 2019 was to re-establish the Marketing Segment as a pillar of sustainable growth after a re-set year in 2018 for its two largest businesses. We are therefore pleased to report 9% Organic revenue growth and 20% Organic Adjusted EBITDA growth for the year. Margin grew to 37% as a result.
Through Cannes Lions we are the globally recognised international benchmark for brand creativity, delivered via the festival platform in June and through year-round digital products and consultancy engagements. Following the changes implemented in 2018, including the new awards structure and re-focus into a shorter five-day period the festival returned to double-digit growth in 2019. Last year's changes to the festival's format continue to be extremely well received by participants, resulting in a 2019 NPS score of 69, the highest on record and
positioning Lions well for future growth. All three Cannes Lions revenue streams grew in 2019:
-- Award entries accounted for 36% of Lions revenue. We were pleased with the launch year performance of the Entertainment Lion for Sport and the Creative Strategy Lion while the Creative Effectiveness category continued to expand. The new points-based award for Creative Brand of the Year, won in 2019 by Burger King, helped drive growth in entries from brands.
-- Delegate passes accounted for 33% of the festival's revenue. We saw a good increase in the volume of delegates, driven in part by growing popularity of the Cannes Curated product for major brand groups.
-- Partnerships and digital revenues accounted for 31% of Lions' revenues, with The Work and Lions Digital Pass broadening engagement with the creative community beyond the physical environment of the city of Cannes. These Lions Intelligence services have further developed the Marketing segment's year-round digital revenue streams helped by the growth of the Lions Advisory offering of training programmes and consultancy services for brands and media platforms.
Through the MediaLink offering Ascential develops partnerships and strategy for customers operating at the intersection of the media, marketing, advertising, technology and entertainment industries. Over previous years we have refined the business in favour of project work, particularly for brands, rather than structurally weaker sectors such as digital publishing.
The first half of 2019, in particular, benefitted from several major agency reviews and strong performance from the programme of targeted content, curated experiences and hosted meetings at The Consumer Electronics Show (CES) and Cannes Lions festival, with more than 1,800 hosted meetings taking place (a record for the business). In particular, the new location in Cannes (a dedicated facility at the heart of the festival), proved extremely popular with customers. The most high-profile engagement this year was the global media agency review for Disney, the largest of its kind in the market in three years. Lastly, we were delighted to see MediaLink's founder and CEO, Michael Kassan, inducted into the 2019 American Advertising Federation's Hall of Fame in recognition of his and the business' work in the industry.
Through WARC's digital subscription-based information we help brands, agencies and media platforms measure marketing effectiveness across all channels. Revenue grew strongly with a significant focus on product, content and marketing enhancements. A notable development was the launch of operations in China, supported by a Shanghai based team delivering localised content in this increasingly important market. Other highlights included the relaunch of the Gunn report as 'WARC Rankings', a benchmark for excellence in marketing based on performance in the world's most prestigious industry awards.
One of our aims within the Marketing Segment is to further diversify our revenue streams and build ever more recurring and repeat revenues. To further that aim we have made a strategic investment in Hudson MX, a New York based company building a software platform that empowers buyers, agencies, and their partners to reduce the operational costs inherent in the media buying process.
2019's growth rate in the Marketing Segment clearly benefitted from the foundations laid in 2018 as well as the return of a key customer to Cannes Lions after a one-year hiatus. These foundations position us well for mid-single digit revenue growth in this segment.
Sales Segment
Year ended 31 December Growth (%)
(GBP'm)
2019 2018* Reported Organic Proforma
------------ --------- -------- ---------
Revenue 158.4 120.9 +31% +3% +11%
------------ ----------- --------- -------- ---------
Adjusted EBITDA 39.6 38.3 +3% (24%) (14%)
------------ ----------- --------- -------- ---------
Adjusted EBITDA
Margin 25% 32%
------------ -----------
*Restated for initial application of IFRS 16 (see Note 7)
Revenue in the Sales Segment grew by 3% on an Organic basis or, including the impact of 2018 acquisitions (principally Flywheel Digital) by 11%. The Organic and Proforma decline in EBITDA reflects high levels of investment in the Edge and Flywheel Digital products in the year as well as the expected decline in revenue from the smaller World Retail Congress and Retail Week.
Digital Commerce
The Digital Commerce element of the Sales Segment (comprising Edge by Ascential, Flywheel Digital and Yimian) grew revenues by 9% on an Organic basis and 21% on a Proforma basis.
Through Edge by Ascential we deliver eCommerce data, insights and advisory , comprising performance measurement, digital shelf optimisation, pricing & promotion and retail strategy expertise. As previously reported, following a period of rapid customer acquisition for each of its major products, in the second half of 2018 this business commenced an integration programme which will run until the first half of 2020. With a focus on unifying its go to market approach, Product Leadership, Innovation, Technology and Operations platforms, the programme will additionally scale the organisation, processes and systems required to manage significant numbers of global customers . With the initial phases, covering organisational structure and CRM systems, completed by June 2019, progress has also been made on the underlying platform consolidation, with the phased roll-out of digital shelf catalogue systems to market share customers completed on schedule in December 2019 and the launch of the new market share platform.
Edge acquired 89 new customers in 2019 (2018: 107), but, as previously reported, revenue growth rates reduced. This was due in part to the impact of our integration efforts, with cross-sell and upsell opportunities dependent partly on our phased transfer of customers to the new catalogue platform. However, we were encouraged by trading during the first month of 2020 which was ahead of plan which was especially notable as Edge renews 35% of its book of business in the month of January.
Through Flywheel Digital we provide managed retail and media services to brands on Amazon and more recently Walmart, Instacart and Kroger. Since acquisition in November 2018, we have established these services in Europe, Australia and Japan. The rate of revenue growth in 2019 has continued to be extremely strong against a backdrop of good US market conditions and Amazon's strong growth, including its best ever Black Friday in 2019 (online spend up by 16% over the Thanksgiving holiday weekend). All three revenue lines (retainer, retail commission and media commission) continued to grow strongly, benefiting from expanding markets and continued share gains, while 28 new customers were added in the year.
In 2019, we were also pleased to launch both our Spotlight operation in New York and our initial Walmart service offering, being selected among the first Walmart Advertising Partners. We invested heavily in scaling the overall business, while taking the lead in building Ascential's wider data science capabilities. Most recently, in February 2020, we have expanded into the active lifestyle category through the acquisition of Indigitous, an Amazon-focused managed service provider based in Seattle.
Finally, in this sub-segment, after an extensive search and considerable diligence, we were delighted to acquire the Chinese eCommerce analytics specialist Yimian. With around 100 staff based in Shenzhen and Shanghai, Yimian helps its customers, predominantly multi-national CPGs, optimise their sales on eCommerce platforms. Its principal offerings comprise insight on sales & share performance and pricing & promotion trends, together with analysis of ratings and reviews on both retail and social platforms.
Non-Digital Commerce
Through Money20/20 we are the leading hub worldwide for digital payments product strategy. Our congresses focus on the evolution of consumer payment and financial services through mobile, retail, marketing services, data and technology, and, despite a small decline for the Asia edition, achieved modest growth overall in the year, driven by the European event.
At the Asian event in Singapore over 3,000 attendees explored the future of money. After an outstanding launch edition in 2018 that was two years in the making, the 2019 event saw a small year over year revenue decline and we have spent significant time redesigning and relaunching the 2020 show.
Meanwhile, in its fourth year, the European congress in Amsterdam delivered strong growth, with increases in revenue and volumes for both delegates and sponsors, reflecting the quality of the product and location and the scale of the European market. The event attracted more than 6,000 attendees while the enlarged exhibition space in Amsterdam enabled an increase in net square meterage sold.
Now in its eighth year, the US event took place, in Las Vegas as usual, with good growth in both exhibitor and delegate volumes driven by a refreshed pricing strategy focusing on volume over yield. A revised venue layout offered delegates a more inclusive learning experience along with an improved networking experience via our App (delivering over 4,000 meetings) and we saw a strong improvement in NPS scores.
The planned second edition in China due to be held in December 2019, was deferred due to a hiatus for international companies in the Chinese FinTech market arising from a combination of macro-economic trends and changes in local market dynamics including significant changes in the Peer-to-Peer lending sector that had been an important revenue source in 2018. We intend to return the event to China in due course when market conditions improve.
The final and smallest element of the Sales Segment is delivered by the Retail Week and World Retail Congress products. These brands saw a revenue decline in the face of a highly challenged bricks and mortar retail environment particularly in the UK.
We are targeting high single digit growth in the Sales Segment going forward with that growth clearly skewed towards the Digital Commerce sub-segment.
Built Environment & Policy
Year ended 31 December Growth (%)
(GBP'm)
2019 2018* Reported Organic Proforma
----------- --------- -------- ---------
Revenue 35.9 34.3 +5% +5% +5%
----------- ------------ --------- -------- ---------
Adjusted EBITDA 17.0 14.3 +19% +19% +19%
----------- ------------ --------- -------- ---------
Adjusted EBITDA
Margin 47% 42%
----------- ------------
*Restated for initial application of IFRS 16 (see Note 7)
The Built Environment and Policy Segment comprises the Groundsure, Glenigan and DeHavilland digital information products. Revenue for the year grew by 5% to GBP35.9m, with all three products contributing growth.
Through Groundsure we are a leading provider of environmental risk data to the UK residential property market. The product grew well against a UK residential property market that declined, as it continued to lead on product innovation, with new products in the period focusing on Coal Mining and Energy & Transportation, together with the refresh of the Groundsure Homebuyers report. Shortly after the year end, we reinforced our commitment to product innovation with the acquisition of a small specialist data provider and consultant based in Cornwall, Mining Searches UK, through which we will add non-coal to our mining searches portfolio.
Through Glenigan, we provide construction project sales leads, industry data, analysis, forecasting and company intelligence. The business grew in the year and maintained good retention rates, against a challenging market backdrop. The bespoke research element of the product achieved good traction in the market throughout the year reflecting our high standing with customers.
Finally, through DeHavilland, we are a leading provider of political intelligence and monitoring services in the UK and EU. The business achieved good growth in the year, improving its retention rates, helped by the launch of a new data feed API which allows clients to receive political contact data directly into their CRM solutions. While Brexit undoubtedly drove some increased customer need throughout 2019, we expect that this will continue as the UK moves into the next demanding phase of its exit from the European Union.
We are targeting the Built Environment & Policy Segment to continue to grow at similar levels to 2019.
Financial review
2019 was another year of good Organic growth in revenue and Adjusted EBITDA. Solid cash generation resulted in closing net debt leverage of 1.4 x(1) , after continued investment in the business and M&A.
(1) Please refer to Alternative Performance Measures for definition
Overview
The results for the year are set out in the consolidated statement of profit or loss and show, for continuing operations, revenue of GBP 416.2 m (2018: GBP348.5m), a growth of 19.4% (or 6.4% on an Organic basis, and 9.0% on a Proforma basis), and operating profit of GBP19.9m down 51.9% (2018: GBP41.4m). Adjusted EBITDA was GBP128.5m (2018: GBP108.4m) representing Organic growth of 6.2% or 8.5% growth on a Proforma basis. We also delivered solid cash flow in 2019 with free cash flow from continuing operations after tax and capex of GBP91.5m (2018: GBP84.8m), an operating cash flow conversion of 88% and a free cash flow conversion of 71%.
A core KPI and strategic goal of the Company is Organic revenue growth rate. We believe that this is the most efficient method of growth, measures the underlying health of the business and is a key driver of shareholder value creation. Organic revenue growth rate eliminates the impact of acquisitions (counting them only once they have been owned for 12 months) and disposals and that element of growth which is driven by changes in foreign exchange rates. It is an Alternative Performance Measure and is discussed in more detail below. Proforma growth rate is measured in a similar way to Organic growth rate but assumes that the Group's acquisitions were all made on 1 January 2018 and is therefore a measure of the rate of growth of the brands owned today.
Adjusted EBITDA is also an Alternative Performance Measure and is used in the day-to-day management of the business to aid comparisons with peer companies, manage banking covenants and provide a reference point for assessing our operational cash generation. It eliminates items arising from portfolio investment and divestment decisions, and from changes to capital structure. Such items arise from events which are non-recurring or intermittent, and while they may generate substantial income statement amounts, do not relate to the ongoing operational performance that underpins long-term value generation.
Continuing operations
The results for the year ended 31 December 2019 are set out in the consolidated statement of profit or loss and summarised in the table below.
Reported Organic Proforma
growth growth growth
GBP'm 2019 2018* rate rate rate
----------------- ------ ------ --------- -------- ---------
Revenue 416.2 348.5 19.4% 6.4% 9.0%
Adjusted EBITDA 128.5 108.4 18.5% 6.2% 8.5%
Adjusted EBITDA
margin 30.9% 31.1%
----------------- ------ ------ --------- -------- ---------
*Restated for initial application of IFRS 16 (see Note 7)
Segmental results
Following the sale of the Exhibitions Business in July 2018, the Group changed from two to four reportable segments to align the operating model to the needs of the end customers we serve. The four reportable segments are Product Design, Marketing, Sales and Built Environment & Policy. Information regarding the results of each reportable segment is included below.
2019 Product Built Environment Corporate Continuing GBP'm Design Marketing Sales & Policy costs Operations -------------------- -------- ---------- ------ ------------------ ---------- ------------ Revenue 86.5 135.9 158.4 35.9 (0.5) 416.2 Organic growth 8% 9% 3% 5% 6.4% Proforma growth 8% 9% 11% 5% 9.0% Adjusted EBITDA 36.0 50.7 39.6 17.0 (14.8) 128.5 Organic growth 18% 20% (24%) 19% 6.2% Proforma growth 18% 19% (14%) 19% 8.5% Adjusted EBITDA margin 41.7% 37.3% 25.0% 47.2% 30.9% Depreciation and software amortisation (4.2) (7.5) (6.6) (0.9) (3.5) (22.7) -------------------- -------- ---------- ------ ------------------ ---------- ------------ Adjusted operating profit 31.8 43.2 33.0 16.1 (18.3) 105.8 -------------------- -------- ---------- ------ ------------------ ---------- ------------ 2018* GBP'm -------------------- -------- ---------- ------ ------------------ ---------- ------------ Revenue 77.8 116.3 120.9 34.3 (0.8) 348.5 Adjusted EBITDA 29.9 40.5 38.3 14.3 (14.6) 108.4 Adjusted EBITDA margin 38.4% 34.8% 31.7% 41.7% 31.1% Depreciation and software amortisation (4.0) (5.5) (3.0) (0.7) (3.0) (16.2) -------------------- -------- ---------- ------ ------------------ ---------- ------------ Adjusted operating profit 25.9 35.0 35.3 13.6 (17.6) 92.2 -------------------- -------- ---------- ------ ------------------ ---------- ------------
*Restated for initial application of IFRS 16 (see Note 7)
Revenue
The Company benefits from diverse revenue streams across its segments ranging from digital subscriptions to live events to advisory. Most of these revenue streams have recurring or repeat characteristics and benefit from our focus on customer retention, with over 80% of all revenue coming from recurring revenue types or repeat business.
Revenues from continuing operations grew to GBP416.2m (2018: GBP348.5m), an increase of GBP67.7m or 19.4%. Adjusting for currency impacts and acquisitions, Organic growth was 6.4% driven by the Marketing Segment and the Product Design Segment. Proforma revenue growth, which is a measure of how well the current portfolio of brands is growing, was 9.0 % and was driven by the Sales Segment.
Adjusted EBITDA
Adjusted EBITDA increased by 18.5% to GBP128.5m (2018: GBP108.4m) representing a 6.2% Organic growth rate, reflecting operational leverage and flow-through from revenue growth in the Marketing and Product Design segments in particular. Adjusted EBITDA margin remained in line with the prior year at 30.9% (2018: 31.1%), where declining margins in the Sales Segment as a result of investment in Edge and Flywheel Digital were offset by increases in all other segments' Adjusted EBITDA margins. We continue to see the evidence of the superior margin opportunities in scaled, mature, digital subscription businesses.
Reconciliation between Adjusted EBITDA and statutory operating profit
Adjusted EBITDA is reconciled to statutory operating profit as shown in the table below:
GBP'm 2019 2018* ---------------------------------------- ------- ------- Adjusted EBITDA 128.5 108.4 Depreciation and software amortisation (22.7) (16.2) ---------------------------------------- ------- ------- Adjusted operating profit 105.8 92.2 Amortisation (35.8) (30.6) Exceptional items (41.6) (14.0) Share based payments (8.5) (6.2) ---------------------------------------- ------- ------- Statutory operating profit 19.9 41.4 ---------------------------------------- ------- -------
*Restated for initial application of IFRS 16 (see Note 7)
Amortisation of acquired intangible assets
The amortisation charge of GBP35.8m (2018: GBP30.6m) on acquired intangible assets increased mainly due to full year charges for the acquired intangibles of Flywheel Digital and WARC, offset by the impact of fully amortised assets. The Company undertakes a periodic review of the carrying value of its intangible assets of GBP760.7m (2018: GBP786.0m) which are supported by value in use calculations. No impairments were identified in the current or prior year.
Exceptional items
The charge for exceptional items in 2019 totalled GBP41.6m (2018: GBP14.0m relating to continuing operations) as set out in the table below and further explained in Note 4 .
GBP'm 2019 2018 ------------------------------------------ ----- ----- Deferred contingent consideration 33.1 8.1 Other acquisition and disposal expenses 8.5 5.9 Exceptional items relating to continuing operations 41.6 14.0 ------------------------------------------ ----- -----
The charge for deferred contingent consideration relates to acquisition-related contingent employment costs on the acquisitions of Flywheel Digital, MediaLink, One Click Retail and Clavis which, absent the link to continued employment, would have been treated as consideration as well as the revaluation of initial estimates of deferred consideration. The substantial increase in charge in 2019 reflects the significant outperformance of Flywheel Digital in 2019 compared to our original expectations (a total charge of GBP36.9m).
Other acquisition and disposal expenses include GBP3.5m of costs relating to transaction costs (diligence and legal fees) with the remainder represented by integration costs offset by credits from the release of provisions in respect of historical disposals.
Share-based payments
The charge for share-based payments of GBP8.5m (2018: GBP6.2m) incorporates the Share Incentive Plan, the SAYE and the Performance Share Plan and the increase is driven partially by this being the first full three years since the IPO. As explained in the Alternative Performance Measures section, we treat share-based payments as an adjusting item because they are a significant non-cash charge driven by a valuation model that references Ascential's share price and so is subject to volatility rather than referencing operational activity.
Finance costs
The Adjusted net finance cost for the year was GBP10.3m (2018: GBP13.1m) as set out in the table below:
Adjusted net finance costs GBP'm 2019 2018* -------------------------------------------- ------- ------- Interest payable on external borrowings (6.8) (7.1) Interest receivable 0.9 0.6 Amortisation of loan arrangement fees (1.1) (1.2) Discount unwind on contingent and deferred consideration (5.5) (3.6) Discount unwind of lease liability (1.3) (1.2) Discount unwind of property provisions (0.1) - Net foreign exchange gain/(loss) 2.0 (0.6) Remeasurement of trade investments to fair value 1.6 - Adjusted net finance costs (10.3) (13.1) -------------------------------------------- ------- -------
*Restated for initial application of IFRS 16 (see Note 7)
The net interest expense on the Company's net debt was GBP5.9m (2018: GBP6.5m) with the decrease driven by the higher cash holdings throughout the year and particularly in the first half with the reduction in interest margin driven by reduced leverage offset by higher LIBOR.
Amortisation of loan arrangement fees relates to the unwind of fees capitalised in respect of the borrowing facility taken out in 2016. In January 2020, the Group entered into a new 5-year multi-currency revolving credit facility ("RCF") of GBP450m (see Liquidity section below for further details). Upon completion of the new agreement, capitalised arrangement fees of GBP1.2m relating to the previous facility will be written off in 2020 as exceptional costs. We expect fees of GBP3.9m to be capitalised as part of the new arrangements and these will be amortised over the expected life of the facility.
Discount unwind on contingent and deferred consideration of GBP5.5m reflects the full year impact of the discount unwind on the future expected consideration of the acquisition of Flywheel Digital. Net foreign exchange gain or loss includes credits arising on the revaluation of monetary items (particularly cash) in the year. Finally, our 2019 net finance cost was also reduced by positive revaluations of GBP1.6m on our equity investments in Hudson MX, Shoptalk and the WGSN China joint venture.
Taxation
A tax charge of GBP20.6m (2018: GBP17.8m) was incurred on continuing Adjusted profit before tax of GBP96.4m (2018: GBP79.7m) resulting in an Adjusted effective tax rate for the year of 21.4 % (2018: 22.3%) which compares to the effective tax rate of 20.6% on reported profits as can be seen in the table below.
Analysis of tax charge (GBP'm) 2019 2018 --------------------------------------- ------- ------- Adjusted PBT 96.4 79.7 Tax charge on Adjusted PBT (20.6) (17.8) Effective tax rate on Adjusted PBT 21.4% 22.3% Adjusting items (86.2) (50.8) Tax credit on Adjusting items 18.5 8.9 Effective tax rate on Adjusting items 21.5% 17.5% Reported PBT 10.2 28.9 Tax charge on reported PBT (2.1) (8.9) Effective tax rate on reported PBT 20.6% 30.8% --------------------------------------- ------- -------
Cash tax paid was GBP 3.2 m (2018: GBP12.2m) reflecting refunds of prior year overpayments. The Group benefited by GBP4.5m (2018: GBP3.1m) from the utilisation of historic tax losses in the UK and US, which are expected to continue to benefit the Group's cash flow over the medium term.
The Group has a total recognised deferred tax asset of GBP42.7m (2018: GBP43.1m) relating to UK and US losses, accelerated capital allowances, US acquired intangibles, and deferred and contingent consideration. The majority of this asset is expected to convert into cash savings over the next ten years with more than 75% being recovered over the next three years. Meanwhile, our deferred tax liability amounted to GBP22.9m (2018: GBP24.8m) and related to non-deductible acquired intangibles and is not expected to convert into cash.
Discontinued operations
There were no discontinued operations in 2019. Discontinued operations in 2018 relate to the trading of the Exhibitions business in the first six months of the year and its subsequent disposal. The overall result for discontinued operations was as follows:
Discontinued operations (GBP'm) 2019 2018 ---------------------------------------------- ------ ------ Revenue - 54.6 Adjusted EBITDA - 19.8 Depreciation and amortisation - (0.3) Amortisation of acquired intangibles - (3.1) Exceptional items including gain on disposal - 176.5 Share based payments - (0.3) ---------------------------------------------- ------ ------ Profit before tax - 192.6 ---------------------------------------------- ------ ------ Taxation - (3.4) ---------------------------------------------- ------ ------ Profit after tax - 189.2 ---------------------------------------------- ------ ------
Foreign currency translation impact
Ascential reports its results in Pounds Sterling and following US acquisitions and the significance of Cannes Lions (primarily Euro) and Money20/20 (primarily US Dollar and Euro) reported performance is sensitive to movements in the Euro and US Dollar against Pounds Sterling. For most of 2019, Sterling was in line with the 2018 average Euro and US Dollar exchange rates but strengthened after the December UK general election as can be seen in the table below:
Weighted average rate Year-end rate
Currency 2019 2018 Change 2019 2018 Change
----------- ------- ------ --------- ----- ----- -------
Euro 1.12 1.14 (1.8%) 1.18 1.12 5.4%
US Dollar 1.28 1.32 (3.0%) 1.32 1.28 3.1%
----------- ------- ------ --------- ----- ----- -------
When comparing 2019 and 2018, changes in currency exchange rates had a net favourable impact of GBP6.1m on revenue and GBP1.8m on Adjusted EBITDA. On a segmental basis, the favourable impact of changes in foreign currency exchange rates was as follows:
-- Product Design: GBP1.0m impact on revenue and GBPnil impact on Adjusted EBITDA. -- Marketing: GBP3.0m impact on revenue and GBP0.9m impact on Adjusted EBITDA. -- Sales: GBP2.1m impact on revenue and GBP0.9m impact on Adjusted EBITDA. -- Built Environment & Policy: GBPnil impact on revenue or Adjusted EBITDA.
For illustrative purposes, the table below provides details of the impact on revenue and Adjusted EBITDA if the actual reported results were restated for Sterling weakening by 1% against the USD and Euro rates in isolation.
2019 2018
2019 Adjusted 2018 Adjusted
GBP'm Revenue EBITDA Revenue EBITDA
-------------------------------- --------- ---------- --------- ----------
Increase in revenue/ Adjusted
EBITDA if:
Sterling weakens by 1% against
USD in isolation 1.9 0.8 1.5 0.7
Sterling weakens by 1% against
EUR in isolation 1.2 0.8 1.0 0.7
-------------------------------- --------- ---------- --------- ----------
Furthermore, each 1% movement in the Euro to pounds Sterling exchange rate has a GBP1.5m (2018: GBP1.5m) impact on the carrying value of borrowings. Each 1% movement in the US Dollar has a circa GBP0.7m impact on the carrying value of borrowings (2018: GBP0.8m).
Earnings per share
Continuing Adjusted diluted earnings per share of 18.5p per share is 20.9% ahead of the 15.3p per share recorded for 2018.
Continuing diluted earnings per share of 1.9p per share is below the prior year figure of 4.8p predominantly due to exceptional charges revaluing upwards the deferred consideration on Flywheel Digital following its better than expected performance. Total diluted earnings per share were 1.9p (2018: 51.4p), with the decline driven in large part by the gain on disposal of the Exhibitions business in 2018.
Acquisitions and disposals
We regularly assess opportunities to acquire high-growth products and capabilities to serve our key end markets of Product Design, Marketing and Sales, and in 2019 incurred initial cash consideration of GBP81.3 m for bolt-on investment opportunities. The cash consideration comprises GBP64.5m on investments and GBP16.8m on acquisition of businesses net of cash acquired, of which GBP18.7m is in relation to Yimian.
Jumpshot
In August 2019, we completed the acquisition of a 35% investment in Jumpshot, Inc., an analytics business providing market leading insights on digital consumer engagement. Cash consideration including subsequent working capital contribution and acquisition expenses totalled GBP56.2m of which GBP54.5m was paid prior to 31 December 2019. On 30 January 2020, we agreed to sell our 35% ownership interest in Jumpshot back to the majority owner, Avast plc for cash consideration equivalent to our cost of investment including expenses.
Yimian
In December 2019, we completed the acquisition of Shenzhen Yimian Network Technology Co., Ltd ("Yimian") for initial consideration of GBP19.5m with a further GBP8-10m expected to be paid as part of earnout consideration relating to 2019 to 2022 revenue targets. Yimian provides services to help clients optimise their digital marketing and sales on China's e-commerce platforms.
Hudson
Hudson MX is an advertising software business providing media buying and media accounting solutions through a cloud-based SaaS platform. In 2019 we invested GBP8.0m for a minor equity interest and, subject to certain growth targets, agreed to increase our future holding for further cash consideration of GBP8.0m. A gain of GBP0.9m was recognised within net finance costs reflecting the upwards revaluation of our equity investment based on third party participation in the transactions.
Infosum
In addition, t he Group made a minority equity investment of GBP2.0m in Infosum, a company that provides a decentralised environment to connect customer data, conduct analysis and drive more effective marketing campaigns, without any data exchange.
Deferred consideration
The Company's preferred structure for M&A is to enter into long-term earn out arrangements with the founders of acquired companies and to link the earnout to both the post-acquisition performance of the acquired company and the continuing employment of the founders. Accounting for the earnout is complex and requires considerable judgements to be made about the expected future performance of the acquired company at the point of acquisition - especially difficult in the type of high growth, early stage companies that Ascential acquires. The earnout is accounted for in three ways:
1. A liability for deferred consideration is established on the balance sheet at the point of acquisition based on that element of the earnout which is not dependent on the continuing employment of the founders. This amounted to GBP103.2m at December 2019 (2018: GBP96.7m). Any change in estimate is recorded as an exceptional item. This amounted to a charge of GBP13.0m in 2019 (2018: credit GBP5.2m) driven by the 2019 outperformance of Flywheel offset by the lower performance of One Click Retail.
2. This liability is discounted to present value with the reversal of this discount being recorded as Other finance costs within the interest charge. This amounted to a charge of GBP 5.5 m in 2019 (2018: GBP3.6m).
3. Finally, that element of the deferred consideration that is contingent on the continuing employment of the founders is charged to the income statement as an exceptional item over the service life of those founders (typically three years). This amounted to a charge of GBP20.1m in 2019 (2018: GBP13.3m), which was in addition to the charge for the revaluation of the earnout of GBP13.0m (2018: GBP5.2m credit).
In total, the Company expects to pay out deferred consideration of between GBP120m and GBP140m over the next three years for acquisitions to date. This is mainly contingent on the future performance of the acquired businesses which are estimated to grow their annual EBITDA by between approximately GBP23m and GBP33m between now and 2022.
Cash flow
Continuing operations
The Company generated Adjusted operating cash flow from continuing operations of GBP113.2m (2018: GBP114.4m), being an 88% operating cash flow conversion (2018: 106%). The reduction in operating cash flow conversion was driven mainly by the working capital impact of the very high growth of Flywheel business.
After continued investment in product development in our digital subscription products, internal productivity tools and property, capex remained consistent with the prior year at GBP18.5m (2018: GBP18.7m). Tax paid on profits from continuing operations decreased from GBP12.2m to GBP3.2m, driven by the shielding of current year charges by historic losses and refunds of overpayments in prior years. As a result, the Company generated free cash flow on continuing operations of GBP91.5m (2018: GBP84.8m) as shown in the table below.
GBP'm 2019 2018* ---------------------------------------------- ------- ------- Adjusted EBITDA 128.5 108.4 Working capital movements (15.3) 6.0 ---------------------------------------------- ------- ------- Adjusted operating cash flow from continuing operations 113.2 114.4 % operating cash flow conversion 88% 106% Capital expenditure (18.5) (18.7) Tax paid (3.2) (10.9) ---------------------------------------------- ------- ------- Free cash flow from continuing operations 91.5 84.8 % free cash flow conversion 71% 78% ---------------------------------------------- ------- -------
*Restated for initial application of IFRS 16 (see Note 7)
Discontinued operations
There were no significant free cash flows from discontinued operations in 2019 while 2018 included discontinued free cash flows relating to the Exhibitions business.
Total operations
The cash flow statement and net debt position is summarised below and includes significant proceeds from the Company's business disposals in 2018 totalling GBP290.0m, as well as deferred and initial consideration paid on the Company's current and prior years' acquisitions totalling GBP48.6m (2018: GBP156.4m).
GBP'm 2019 2018* ------------------------------------------------ -------- -------- Free cash flow from continuing operations 91.5 84.8 Free cash flow from discontinued operations - 2.1 ------------------------------------------------ -------- -------- Free cash flow from total operations 91.5 86.9 Acquisition of investments (64.5) (0.7) Acquisition of businesses net of cash acquired (16.8) (97.7) Deferred and contingent consideration cash paid in the year (20.3) (37.7) Exceptional costs paid - A cquisition-related contingent employment cost (11.5) (21.0) - Other (11.3) (12.4) Disposal proceeds received - Cash proceeds received net of cash disposed of - 296.4 - Disposal costs paid (2.3) (6.4) ------------------------------------------------ -------- -------- Cash flow before financing activities (35.2) 207.4 Net interest paid (6.2) (6.9) Dividends paid (22.9) (22.8) Lease liabilities paid (9.0) (7.7) Proceeds of issue of shares net of expenses 1.2 0.4 Debt repayment - (33.6) ------------------------------------------------ -------- -------- Net cash flow (72.1) 136.8 Opening cash balance 182.0 45.8 FX movements 1.8 (0.6) ------------------------------------------------ -------- -------- Closing cash balance 111.7 182.0 Borrowings (283.8) (294.1) Capitalised arrangement fees 1.2 2.3 Derivative financial instruments 0.3 - ------------------------------------------------ -------- -------- Net debt (170.6) (109.8) ------------------------------------------------ -------- --------
Restated for initial application of IFRS 16 (see Note 7)
Returns to shareholders
The Board targets a dividend payout ratio of 30% of Adjusted profit after tax. Consequently, the Board is recommending a final dividend of 4.0p per share payable on 11 June 2020 to shareholders on the register on 14 May 2020 which, together with the Company's interim dividend of 1.8p paid in September 2019, makes a total dividend for the 2019 financial year of 5.8p (2018: 5.8p) with the prior year benefiting from earnings from discontinued operations.
Consistently strong levels of cashflow conversion, combined with disciplined capital allocation, has resulted in a net debt leverage ratio of 1.4x at the 2019 year-end. Furthermore, following the sale of the Jumpshot investment in January 2020, our Proforma leverage is 1.0x which is well below historic levels. While we have a strong pipeline of attractive investment opportunities, we recognise that the delivery of shareholder value requires a balanced approach to investing in growth and returning excess capital to shareholders whilst maintaining a strong balance sheet. Having reviewed our capital allocation policy, the Board has decided to utilise part of its authority to make on market purchases of our ordinary shares. We anticipate spending up to GBP120m in a share repurchase programme, which we will review on an ongoing basis based on the competing opportunities for capital deployment.
Other financial matters
Accounting developments
IFRS 16, Leases, was effective from 1 January 2019 and we have taken the decision to apply this standard retrospectively. We have consequently adjusted our financial statements from the earliest point presented, 1 January 2018. The most significant impacts of the new accounting standard are the recognition of operating lease liabilities on the balance sheet and the reclassification of the lease charge from EBITDA to amortisation and interest. In relation to these leases we recognised GBP21.6m of right-of-use assets, GBP2.1m of investment property, and GBP26.8m lease liabilities as at 31 December 2019. We also recognised GBP7.3m (2018: GBP5.4m) of amortisation charges and GBP1.3m (2018: GBP1.2m) of interest costs from these leases instead of an operating lease expense.
Capital structure
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt to equity balance. The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to equity holders of the parent comprising capital, reserves and retained earnings. The Group's policy is to borrow centrally to meet anticipated funding requirements. These borrowings, together with cash generated from the operations, are on-lent or contributed as equity to subsidiaries at market-based interest rates and on commercial terms and conditions.
The Company's sources of funding comprise operating cash flow and access to substantial committed bank facilities from a range of banks. The Company maintains a capital structure appropriate for current and prospective trading over the medium term that allows a healthy mix of dividends and cash for investment in bolt-on acquisitions.
Liquidity
In January 2020, the Group entered into a new 5-year multi-currency revolving credit facility ("RCF") of GBP450m with an accordion of up to a further GBP120m or 150% of EBITDA. The maturity of the facility may be extended at the option of the Group for up to two further one-year terms subject to individual lender approval. The facility covenants include a maximum net leverage of 3.25x with the benefit of an additional 0.5x leverage spikes for relevant acquisitions and a minimum interest cover of 3.00x and are tested semi-annually.
The previous facility, which operated through the 2019 financial year, comprised term loan facilities of GBP66m, EUR171m and US$96m as well as an RCF of GBP95m. All were due to mature in February 2021 and at December 2019 were subject to interest at 1.50% over LIBOR. There was a leverage covenant limit of 3.5x which was measured semi-annually. As at 31 December 2019 and 2018, all of the term facilities, totalling GBP283.8m (2018:
GBP294.1m) had been drawn and none of the GBP95.0m of RCF had been drawn (2018: none).
Financial risk management
The Group is exposed to risks arising from the international nature of its operations and the financial instruments which fund them. These instruments include cash and borrowing and items such as trade receivables and trade payables which arise directly from operations. External borrowings are denominated 51% in Euros with the balance split between US Dollars (26%) and pounds Sterling (23%). The Company reviews and protects a proportion of its exposure to interest rate rises on the cost of borrowings through use of derivatives such as interest rate caps where appropriate. Principal risks (including strategic, operational, legal and other risks) are shown on in the full Annual Report.
Going concern
The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. Ascential's business activities, performance and position, together with the factors likely to affect its future development, are set out throughout this release and the full 2019 Annual Report. The financial risk management objectives, policies and processes in place for assessment, management and monitoring of risks, including the risks resulting from Brexit and the current outbreak of the Coronavirus, are also described more fully in the 2019 Annual Report.
The Directors believe that the Company is well placed to manage its business risks successfully and have assessed the Group's prospects and viability over a 3-year period. The long-term viability statement, which provides further detail of this assessment, can be found in the 2019 Annual Report. The Board's assessment of prospects and stress test scenarios, together with its review of principal risks and the effectiveness of risk management procedures, show that the Group has adequate resources to continue in operational existence for the foreseeable future, including the period exceeding 12 months from the date when the financial statements are approved. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements.
ALTERNATIVE PERFORMANCE MEASURES
Ascential aims to maximise shareholder value by optimising potential for return on capital through strategic investment and divestment, by ensuring the Company's capital structure is managed to support both strategic and operational requirements, and by delivering returns through a focus on organic growth and operational discipline. The Board considers it helpful to provide, where practicable, performance measures that distinguish between these different factors - these are also the measures that the Board uses to assess the performance of the Company, on which the strategic planning process is founded and on which management incentives are based. Accordingly, this report presents the following non-GAAP measures alongside standard accounting terms as prescribed by IFRS and the Companies Act, in order to provide this useful additional information.
Organic growth measures
To assess whether the Company is achieving its strategic goal of driving organic growth, it is helpful to compare like-for-like operational results between periods. Income statement measures, both Adjusted and Reported, can be significantly affected by the following factors which mask like-for-like comparability:
-- acquisitions and disposals of businesses lead to a lack of comparability between periods due to consolidation of only part of a year's results for these businesses;
-- changes in exchange rates used to record the results of non-sterling businesses result in a lack of comparability between periods as equivalent local currency amounts are recorded at different sterling amounts in different periods; and
-- event timing differences between periods.
Ascential therefore defines Organic growth measures, which are calculated with the following adjustments:
-- results of acquired and disposed businesses are excluded where the consolidated results include only part-year results in either current or prior periods;
-- prior year consolidated results are restated at current year exchange rates for non-sterling businesses; and
-- prior year results are adjusted such that comparative results of events that have been held at different times of year (if any) are included in the same period as the current year results.
Organic growth for continuing operations is calculated as follows:
2019 Corporate Continuing GBP'm Product Design Marketing Sales Built Environment & Policy Costs operations ----------------------- -------------- --------- ------ -------------------------- --------- ----------- Revenue 2019 - reported 86.5 135.9 158.4 35.9 (0.5) 416.2 Exclude acquisitions (1.5) (6.4) (33.8) - - (41.7) ----------------------- -------------- --------- ------ -------------------------- --------- ----------- 2019 - Organic basis 85.0 129.5 124.6 35.9 (0.5) 374.5 ----------------------- -------------- --------- ------ -------------------------- --------- ----------- Organic revenue growth 8% 9% 3% 5% 6.4% 2018 - reported 77.8 116.3 120.9 34.3 (0.8) 348.5 Exclude acquisitions - - (2.5) - - (2.5) Currency adjustment 1.0 3.0 2.1 - - 6.1 2018 - Organic basis 78.8 119.3 120.5 34.3 (0.8) 352.0 ----------------------- -------------- --------- ------ -------------------------- --------- ----------- Adjusted EBITDA 2019 - reported 36.0 50.7 39.6 17.0 (14.8) 128.5 Exclude acquisitions (0.6) (1.0) (9.8) - - (11.5) ----------------------- -------------- --------- ------ -------------------------- --------- ----------- 2019 - Organic basis 35.4 49.7 29.8 17.0 (14.8) 117.0 ----------------------- -------------- --------- ------ -------------------------- --------- ----------- Organic EBITDA growth 18% 20% (24%) 19% (2%) 6.2% 2018 - as restated* 29.9 40.5 38.3 14.3 (14.6) 108.4 Currency adjustment - 0.9 0.9 - - 1.8 2018 - Organic basis 29.9 41.4 39.2 14.3 (14.6) 110.2 ----------------------- -------------- --------- ------ -------------------------- --------- -----------
*Restated for initial application of IFRS 16 (see Note 7).
Proforma growth measures
Proforma growth is measured in a similar way to Organic growth but assumes that the Company's acquisitions or disposals were all made on the first day of the comparative accounting period and is a measure of the rate of growth of the brands owned today. Proforma growth is calculated as follows:
2019 Corporate Continuing GBP'm Product Design Marketing Sales Built Environment & Policy Costs operations ------------------------ -------------- --------- ----- -------------------------- --------- ----------- Revenue 2019 - reported 86.5 135.9 158.4 35.9 (0.5) 416.2 Include acquisitions 3.0 - 3.3 - - 6.3 ------------------------ -------------- --------- ----- -------------------------- --------- ----------- 2019 - Proforma basis 89.5 135.9 161.7 35.9 (0.5) 422.5 ------------------------ -------------- --------- ----- -------------------------- --------- ----------- Proforma revenue growth 8% 9% 11% 5% 9.0% 2018 - reported 77.8 116.3 120.9 34.3 (0.8) 348.5 Include acquisitions 4.3 5.6 24.6 - - 34.4 Exclude acquisitions - - (2.5) - - (2.5) Currency adjustment 1.1 3.2 2.9 - - 7.1 2018 - Proforma basis 83.2 125.0 145.8 34.3 (0.8) 387.5 ------------------------ -------------- --------- ----- -------------------------- --------- ----------- Adjusted EBITDA 2019 - reported 36.0 50.7 39.6 17.0 (14.8) 128.5 Include acquisitions 1.1 - - - - 1.1 ------------------------ -------------- --------- ----- -------------------------- --------- ----------- 2019 - Proforma basis 37.1 50.7 39.6 17.0 (14.8) 129.6 ------------------------ -------------- --------- ----- -------------------------- --------- ----------- Proforma EBITDA growth 18% 19% (14%) 19% (1%) 8.5% 2018 - as restated* 29.9 40.5 38.3 14.3 (14.6) 108.4 Include acquisitions 1.5 1.0 6.4 - - 8.8 Currency Adjustment 0.1 1.0 1.2 - - 2.2 2018 - Proforma basis 31.4 42.5 45.8 14.3 (14.6) 119.4 ------------------------ -------------- --------- ----- -------------------------- --------- -----------
*Restated for initial application of IFRS 16 (see Note 7).
Adjusted profit measures
Ascential uses Adjusted profit measures to assist readers in understanding underlying operational performance. These measures exclude income statement items arising from portfolio investment and divestment decisions, and from changes to capital structure. Such items arise from events which are non-recurring or intermittent, and while they may generate substantial income statement amounts, do not relate to the ongoing operational performance that underpins long-term value generation. The income statement items that are excluded from Adjusted profit measures are referred to as Adjusting items.
Both Adjusted profit measures and Adjusting items are presented together with statutory measures on the face of the income statement. In addition, the Company presents a non-GAAP profit measure, Adjusted EBITDA, in order to aid comparisons with peer group companies and provide a reference point for assessing operational cash generation. Adjusted EBITDA is defined as Adjusted Operating Profit before depreciation and amortisation. The Company measures operational profit margins with reference to Adjusted EBITDA.
Adjusting items
Adjusting items are not a defined term under IFRS, so may not be comparable to similar terminology used in other financial statements. Adjusting items include exceptional items, amortisation of acquired intangibles and share-based payment charges. These items are defined and explained in more details as follows:
Exceptional items
Exceptional items are recorded in accordance with the policy set out in the annual report. They arise from both portfolio investment and divestment decisions and from changes to the Group's capital structure, and so do not reflect current operational performance. These items are presented within a separate column on the face of the income statement, but within their relevant income statement caption to assist in the understanding of the performance and financial position as these types of cost do not form part of the underlying business.
Amortisation of intangible assets acquired through business combinations and interests in associates
Charges for amortisation of acquired intangibles arise from the purchase consideration of a number of separate acquisitions and interests in associates. These acquisitions are portfolio investment decisions that took place at different times over several years, and so the associated amortisation does not reflect current operational performance.
Share-based payments
Ascential runs a number of employee share schemes. Income statement charges are a significant non-cash charge and are driven by a valuation model which references Ascential share price and so is subject to volatility rather than referencing operational activity.
Tax related to adjusting items
The elements of the overall Company tax charge relating to the above Adjusting items are also treated as Adjusting. These elements of the tax charge are calculated with reference to the specific tax treatment of each individual Adjusting item, taking into account its tax deductibility, the tax jurisdiction concerned, and any previously recognised tax assets or liabilities.
Adjusted cash flow measures
The Company uses Adjusted cash flow measures for the same purpose as Adjusted profit measures, namely to assist readers of the accounts in understanding the ongoing operational performance of the Group. The two measures used are Adjusted Cash Generated from Operations, and Free Cash Flow. These are reconciled to IFRS measures as follows:
GBP'm 2019 2018* --------------------------------------------------- ------ ------ Cash generated from operations 90.4 84.4 Less: cash generated from discontinued operations - (3.4) Add back: acquisition-related contingent employment cash flow 11.5 21.0 Add back: other exceptional cash flow 11.3 12.4 --------------------------------------------------- ------ ------ Adjusted cash generated from operations 113.2 114.4 --------------------------------------------------- ------ ------
*Restated for initial application of IFRS 16 (see Note 7).
GBP'm 2019 2018* --------------------------------------------------- ------- ------- Net cash from operating activities 87.2 72.2 Less: cash generated from discontinued operations - (2.1) Add back: acquisition-related contingent employment cash flow 11.5 21.0 Add back: other exceptional cash flow 11.3 12.4 Less: capital expenditure (18.5) (18.7) --------------------------------------------------- ------- ------- Free cash flow 91.5 84.8 --------------------------------------------------- ------- -------
*Restated for initial application of IFRS 16 (see Note 7).
GBP'm 2019 2018* ----------------------------------------- ------ ------ Adjusted cash generated from operations 113.2 114.4 EBITDA 128.5 108.4 ----------------------------------------- ------ ------ Operating cash conversion 88% 106% ----------------------------------------- ------ ------
*Restated for initial application of IFRS 16 (see Note 7).
GBP'm 2019 2018* --------------------------- ------ ------ Free cash flow 91.5 84.8 EBITDA 128.5 108.4 --------------------------- ------ ------ Free cash flow conversion 71% 78% --------------------------- ------ ------
*Restated for initial application of IFRS 16 (see Note 7).
The Company monitors its operational balance sheet efficiency with reference to Operating Cash Conversion and Free Cash Flow.
Glossary of alternative performance measures
Term Description
Organic revenue growth Revenue growth on a like-for-like basis
-----------------------------------------------------
Organic EBITDA growth Adjusted EBITDA growth on a like-for-like
basis
-----------------------------------------------------
Proforma revenue Revenue growth on a like-for-like basis assuming
growth the Company's acquisitions or disposals were
all made on the first day of the comparative
accounting period
-----------------------------------------------------
Proforma EBITDA growth Adjusted EBITDA growth on a like-for-like
basis assuming the Company's acquisitions
or disposals were all made on the first day
of the comparative accounting period
-----------------------------------------------------
Exceptional items Items within Operating profit / (loss) separately
identified in accordance with Group accounting
policies
-----------------------------------------------------
Adjusting items Exceptional items, Amortisation of intangible
assets acquired through business combinations
and investments in associates, Share-based
payments, Gains and losses on disposal and
Tax related thereto
-----------------------------------------------------
Adjusted operating Operating profit / (loss) excluding Adjusting
profit / (loss) items
-----------------------------------------------------
Adjusted EBITDA Adjusted operating profit / (loss) excluding
depreciation and amortisation
-----------------------------------------------------
Adjusted EBITDA margin Adjusted EBITDA as a percentage of Revenue
-----------------------------------------------------
Adjusted profit / Profit / (loss) before tax excluding Adjusting
(loss) before tax items
-----------------------------------------------------
Adjusted tax charge Tax charge excluding Adjusting items
-----------------------------------------------------
Adjusted effective Adjusted tax charge expressed as a percentage
tax rate of Adjusted profit before tax
-----------------------------------------------------
Adjusted EPS EPS calculated with reference to Adjusted
Profit / (loss) for the period
-----------------------------------------------------
Adjusted cash generated Cash generated from operations with cash
from continuing operations generated from discontinued operations, acquisition
related contingent consideration and other
exceptional cash flows excluded.
-----------------------------------------------------
Operating cash conversion Adjusted cash generated from continuing operations
expressed as a percentage of Adjusted EBITDA.
-----------------------------------------------------
Free cash flow Net cash generated from operating activities
including capital expenditure. Net cash generated
from discontinued operations, acquisition-related
contingent consideration and other exceptional
cash flow are excluded.
-----------------------------------------------------
Leverage The ratio of Net debt to Adjusted EBITDA
before, in both cases, accounting for the
impact of IFRS 16
-----------------------------------------------------
Net debt Net debt comprises cash and cash equivalents
and external borrowings. Net debt excludes
lease liabilities.
-----------------------------------------------------
Consolidated Statement of Profit or Loss
For the year ended 31 December 2019
Restated*
-------------------------------
2019 2018
------------------------------------- ----- ------------------------------- -------------------------------
Adjusted Adjusting Adjusted Adjusting
(GBP million) Note results items Total results items Total
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Continuing operations
Revenue 3 416.2 - 416.2 348.5 - 348.5
Cost of sales (151.9) - (151.9) (125.2) - (125.2)
Sales, marketing and administrative
expenses (158.5) (85.9) (244.4) (131.1) (50.8) (181.9)
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Operating profit / (loss) 105.8 (85.9) 19.9 92.2 (50.8) 41.4
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Adjusted EBITDA 3 128.5 - 128.5 108.4 - 108.4
Depreciation and amortisation 3 (22.7) (35.8) (58.5) (16.2) (30.6) (46.8)
Exceptional items 4 - (41.6) (41.6) - (14.0) (14.0)
Share-based payments - (8.5) (8.5) - (6.2) (6.2)
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Operating profit / (loss) 105.8 (85.9) 19.9 92.2 (50.8) 41.4
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Share of the profit /
(loss) of associates and
joint ventures accounted
for using the equity method 8 0.9 (0.3) 0.6 0.6 - 0.6
Finance costs 5 (14.8) - (14.8) (13.7) - (13.7)
Finance income 5 4.5 - 4.5 0.6 - 0.6
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Profit / (loss) before
taxation 96.4 (86.2) 10.2 79.7 (50.8) 28.9
Taxation 6 (20.6) 18.5 (2.1) (17.8) 8.9 (8.9)
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Profit / (loss) from continuing
operations 75.8 (67.7) 8.1 61.9 (41.9) 20.0
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Discontinued operations
Profit from discontinued
operations, net of tax - - - 15.5 173.7 189.2
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Profit for the year 75.8 (67.7) 8.1 77.4 131.8 209.2
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Profit attributable to:
Owners of the company 75.6 (67.7) 7.9 77.4 131.8 209.2
Non-controlling interest 0.2 - 0.2 - - -
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
Earnings / (loss) per
share (pence)
Continuing operations
- Basic 10 18.8 (16.8) 2.0 15.5 (10.5) 5.0
- Diluted 10 18.5 (16.6) 1.9 15.3 (10.5) 4.8
Continuing and discontinued
operations
- Basic 10 18.8 (16.8) 2.0 19.3 32.9 52.2
- Diluted 10 18.5 (16.6) 1.9 19.1 32.3 51.4
------------------------------------- ----- --------- ---------- -------- --------- ---------- --------
*Restated for initial application of IFRS 16 (see Note 7).
Consolidated Statement of Other Comprehensive Income
For the year ended 31 December 2019
Restated*
---------------------------------
2019 2018
--------------------------------- --- ------------------------------- ---------------------------------
Adjusted Adjusting Adjusted Adjusting
(GBP million) results items Total results items Total
--------------------------------- --- --------- ---------- -------- --------- ---------- ------
Profit / (loss) for the
year 75.8 (67.7) 8.1 77.4 131.8 209.2
-------------------------------------- --------- ---------- -------- --------- ---------- ------
Other comprehensive (expense)
/ income
Items that may be reclassified
subsequently to profit
or loss:
Foreign exchange translation
differences recognised
in equity (8.2) - (8.2) 8.5 - 8.5
Cumulative currency translation
differences on disposals - - - - 2.4 2.4
-------------------------------------- --------- ---------- -------- --------- ---------- ------
Total other comprehensive
(expense) / income, net
of tax (8.2) - (8.2) 8.5 2.4 10.9
Total comprehensive income
/ (expense) for the year 67.6 (67.7) (0.1) 85.9 134.2 220.1
-------------------------------------- --------- ---------- -------- --------- ---------- ------ --------
*Restated for initial application of IFRS 16 (see Note 7).
Consolidated Statement of Financial Position
As at 31 December 2019
Restated*
----------
(GBP million) Note 2019 2018
------------------------------------------ ----- -------- ----------
Assets
Non-current assets
Goodwill 512.9 505.1
Intangible assets 247.8 280.9
Property, plant and equipment 8.4 9.2
Right of use assets 7 21.6 23.3
Investments 8 67.6 6.1
Investment property 7 2.1 2.7
Deferred tax assets 14 42.7 43.1
Other investments, including derivatives 0.3 -
903.4 870.4
Current assets
Inventories 4.1 3.9
Trade and other receivables 141.4 113.2
Other investments, including derivatives 1.4 -
Cash and cash equivalents 111.7 182.0
------------------------------------------ ----- -------- ----------
258.6 299.1
Total assets 1,162.0 1,169.5
------------------------------------------ ----- -------- ----------
Liabilities
Current liabilities
Trade and other payables 85.7 78.1
Deferred income 98.5 90.6
Deferred and contingent consideration 12 63.1 32.3
Lease liabilities 7 9.4 9.0
Current tax liabilities 6.1 6.0
Provisions 1.0 2.8
------------------------------------------ ----- -------- ----------
263.8 218.8
Non-current liabilities
Deferred income 0.7 0.6
Deferred and contingent consideration 40.1 64.4
Lease liabilities 12 17.4 20.4
External borrowings 13 282.6 291.8
Deferred tax liabilities 14 22.9 24.8
Provisions 2.4 3.2
------------------------------------------ ----- -------- ----------
366.1 405.2
------------------------------------------ ----- -------- ----------
Total liabilities 629.9 624.0
------------------------------------------ ----- -------- ----------
Net assets 532.1 545.5
------------------------------------------ ----- -------- ----------
Equity
Share capital 4.0 4.0
Share premium 1.7 0.5
Merger reserve 9.2 9.2
Group restructure reserve 157.9 157.9
Translation reserve (35.2) (27.0)
Treasury share reserve (0.1) (0.1)
Retained earnings 394.0 401.0
Non-controlling interest 0.6 -
Total equity 532.1 545.5
------------------------------------------ ----- -------- ----------
* Restated for initial application of IFRS 16 (see Note 7).
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Attributable to owners of the Company
Group Treasury
Share Share Merger restructure Translation share Retained Non-controlling Total
(GBP million) capital premium reserve reserve reserve reserve earnings* interest Equity
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
At 1 January
2018 4.0 0.1 9.2 157.9 (37.9) (0.1) 209.8 - 343.0
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
Adjustment on
initial
application
of IFRS 16, net
of tax - - - - - - (1.3) - (1.3)
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
Restated balance
at 1 January
2018 4.0 0.1 9.2 157.9 (37.9) (0.1) 208.5 - 341.7
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
Profit for the
year - - - - - - 209.2 - 209.2
Other
comprehensive
income - - - - 10.9 - - - 10.9
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
Total
comprehensive
income - - - - 10.9 - 209.2 - 220.1
Issue of shares - 0.4 - - - - - - 0.4
Share-based
payments - - - - - - 5.7 - 5.7
Taxation on
share-based
payments - - - - - - 0.4 - 0.4
Dividends paid - - - - - - (22.8) - (22.8)
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
At 31 December
2018 4.0 0.5 9.2 157.9 (27.0) (0.1) 401.0 - 545.5
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
Profit for the
year - - - - - - 7.9 0.2 8.1
Other
comprehensive
income - - - - (8.2) - - - (8.2)
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
Total
comprehensive
income - - - - (8.2) - 7.9 0.2 (0.1)
Issue of shares - 1.2 - - - - - - 1.2
Acquisition of
subsidiary with
non-controlling
interest - - - - - - - 0.4 0.4
Share-based
payments - - - - - - 7.7 - 7.7
Taxation on
share-based
payments - - - - - - 0.3 - 0.3
Dividends paid - - - - - - (22.9) - (22.9)
---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- ------- At 31 December 2019 4.0 1.7 9.2 157.9 (35.2) (0.1) 394.0 0.6 532.1 ---------------- ------- -------- -------- ----------- ----------- -------- --------- --------------- -------
*Restated for initial application of IFRS 16 (see Note 7).
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Restated*
----------
(GBP million) Note 2019 2018
--------------------------------------------------------- ----- -------- ----------
Cash flow from operating activities
Profit before taxation on continuing operations 10.2 28.9
Profit before taxation on discontinued operations - 192.6
Adjustments for:
Amortisation of acquired intangible assets 35.8 33.7
Amortisation of software intangible assets 11.6 7.6
Amortisation of right of use asset 7 7.3 5.4
Depreciation of property, plant and equipment 3.8 3.5
Gain on disposal of business operations and investments - (180.6)
Acquisition-related employment costs and revaluation
of contingent consideration 12 33.1 8.1
Share-based payments 8.5 6.5
Share of the profit of associates and joint ventures
accounted for using the equity method (0.6) (0.6)
Net finance costs 5 10.3 13.1
--------------------------------------------------------- ----- -------- ----------
Cash generated from operations before changes in
working capital and provisions 120.0 118.2
--------------------------------------------------------- ----- -------- ----------
Changes in:
Inventories (0.3) 2.6
Trade and other receivables (25.2) (8.6)
Trade and other payables, net of interest payable (1.3) (26.7)
Provisions (2.8) (1.1)
--------------------------------------------------------- ----- -------- ----------
Cash generated from operations 90.4 84.4
--------------------------------------------------------- ----- -------- ----------
Cash generated from operations before exceptional
operating items 113.2 114.4
Cash inflows for discontinued operations - 3.4
Cash outflows for acquisition-related contingent
employment cost 12 (11.5) (21.0)
Cash flows for other exceptional operating items (11.3) (12.4)
--------------------------------------------------------- ----- -------- ----------
Cash generated from operations 90.4 84.4
--------------------------------------------------------- ----- -------- ----------
Tax paid (3.2) (12.2)
--------------------------------------------------------- ----- -------- ----------
Net cash generated from operating activities 87.2 72.2
--------------------------------------------------------- ----- -------- ----------
Cash flow from investing activities
Acquisition of businesses net of cash acquired 11 (16.8) (97.7)
Deferred and contingent consideration cash paid
in the year 12 (20.3) (37.7)
Acquisition of investments 8 (64.5) (0.7)
Acquisition of software intangibles and property,
plant and equipment (18.5) (18.7)
Disposal of businesses net of cash disposed of (2.3) 290.0
--------------------------------------------------------- ----- -------- ----------
Net cash used in investing activities (122.4) 135.2
--------------------------------------------------------- ----- -------- ----------
Cash flow from financing activities
Proceeds from external borrowings - 32.4
Repayment of external borrowings - (66.0)
Proceeds from issue of shares 1.2 0.4
Interest paid (6.2) (6.9)
Lease liabilities paid 7 (9.0) (7.7)
Dividends paid to shareholders 9 (22.9) (22.8)
--------------------------------------------------------- ----- -------- ----------
Net cash used in financing activities (36.9) (70.6)
--------------------------------------------------------- ----- -------- ----------
Net (decrease) / increase in cash and cash equivalents (72.1) 136.8
Cash and cash equivalents at 1 January 182.0 45.8
Effect of exchange rate changes 1.8 (0.6)
--------------------------------------------------------- ----- -------- ----------
Cash and cash equivalents at 31 December 111.7 182.0
--------------------------------------------------------- ----- -------- ----------
*Restated for initial application of IFRS 16 (see Note 7).
Notes to the Financial Statements
For the year ended 31 December 2019
1. Basis of preparation and accounting policies
Basis of preparation
The preliminary announcement for the year ended 31 December 2019, which is an abridged statement of the full Annual Report and Accounts, has been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board and interpretations issued by the IFRS Interpretations Committee, as adopted by the EU, and the Companies Act 2006 applicable to companies reporting under IFRS.
Ascential plc (the "Company") is a public limited company, which is listed on the London Stock Exchange and incorporated in the United Kingdom. The registered office is located at The Prow, 1 Wilder Walk, London, W1B 5AP.
The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 December 2019. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements are presented in pounds sterling which is the Company's functional currency and have been rounded in millions to the nearest one decimal place except where otherwise indicated.
The Directors are confident that on the basis of current financial projections and facilities available, and after considering sensitivities, the Group has sufficient resources for its operational needs and will remain in compliance with the financial covenants in its bank facilities for the foreseeable future.
The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, with the exception of items that are required by IFRS to be measured at fair value, principally certain financial instruments. The consolidated financial statements have been prepared using consistent accounting policies with those of the previous financial year, with new standards applied in the year as set out below.
Accounting developments and changes
IFRS 16 is effective from 1 January 2019. The impact is described below.
IFRS 16 "Leases"
The Group has adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right of use of assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. The Group has applied IFRS 16 fully and retrospectively. The results for the year ended 31 December 2018 have been restated for the initial application of IFRS 16. The impact of IFRS 16 on consolidated financial statements is shown in Note 7. The standard includes an exemption for leases of low-value assets and short-term leases. The Group has elected to take both exemptions.
The details of changes in accounting policies as a result of IFRS 16 are as follows.
Definition of a lease
Previously, the Group determined at contract inception whether an arrangement contained a lease under IFRIC 4. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions were leases and applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as a lease under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.
As a lessee
The Group leases commercial office space and photocopiers. The Group has elected not to recognise right of use assets and lease liabilities for some leases of low-value (photocopiers). The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group presents right of use assets that do not meet the definition of investment property as a separate line item on the consolidated statement of financial position.
The Group recognises a right of use asset and lease liability at the lease commencement date.
The right of use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date and are discounted using the Group's incremental borrowing rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
The Group has applied judgement to determine the lease term for some lease contracts that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right of use assets recognised.
The Group has applied the exemption not to recognise right of use assets and liabilities for leases with less than twelve months of lease term.
As a lessor
The Group sub-leases some of its properties. Under IAS 17, the head lease and sub lease contracts were classified as operating leases. On transition to IFRS 16, the right-of use assets recognised from the head lease are presented in investment property and measured at fair value on transition to IFRS 16. The sub-lease contracts are classified as operating leases under IFRS 16.
Impacts for the year
The impact of initially applying IFRS 16 is shown in Note 7 and segmental information is shown in Note 3.
No depreciation is recognised for the right of use assets that meet the definition of investment property.
2. Critical accounting judgements and estimates
The preparation of these financial statements requires management to exercise judgement in applying the Group's accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The actual future outcomes may differ from these estimates and give rise to material adjustments to the reported results and financial position of the Group. Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the year in which the estimates are revised and in any future periods affected.
The areas involving a higher degree of judgement or complexity and assumptions or estimation are set out below and in more detail in the related notes.
Critical accounting judgements
Alternative Performance Measures
The Group uses alternative performance measures which are not defined or specified under IFRS and removes adjusting items to present an adjusted result. Adjusting items include amortisation and impairment of acquired intangibles, share-based payments and exceptional items. The classification of exceptional items requires significant management judgement to determine the nature and presentation of such transactions. Exceptional items are those which are considered significant by virtue of their nature, size or incidence. These items are presented as a separate column on the face of the income statement but within their relevant income statement caption. The Board view this as a relevant analysis to assist the reader in their understanding of the underlying performance and financial results of the Group. Note 4 provides an analysis of exceptional items.
Key sources of estimation
Business combinations
Initial recognition of goodwill and intangible assets (Note 11)
Accounting for a business acquisition requires an assessment of the existence, fair value and expected useful economic lives of separable intangible assets such as brands, customer relationships and technology assets at the date of acquisition. The fair value of identifiable assets acquired and liabilities assumed on acquisition is based on a number of estimates, including estimates of future performance of related businesses, as is determining the expected useful economic life of assets acquired. The value attributed to these separable assets affects the amount of goodwill recognised and the value, together with the assessment of useful economic lives, determines future amortisation charges.
Acquired brands are valued using the relief-from-royalty method which requires estimation of future revenues and estimation of a royalty rate that an acquirer would pay in an arm's length licencing arrangement to secure access to the same rights. The theoretical royalty payments are discounted to obtain the cash flows to determine the asset value, which also requires estimation of an appropriate discount rate. A tax amortisation benefit is then applied.
Acquired customer relationships are valued using the multi-period excess earnings method ("MEEM approach") which starts with the total expected income streams for a business or group of assets as a whole and then deducts charges for all the other assets used to generate income. Residual income streams are discounted and a tax amortisation benefit is applied. The method requires estimation of future forecasts of the business and an appropriate discount rate.
Content and technology assets are valued using a depreciated replacement cost method, which requires an estimate of all the costs a typical market participant would incur to generate an exact replica of the intangibles asset in the context of the acquired business. The depreciated replacement cost method takes into account factors including economic and technological obsolescence.
In establishing the fair value and useful economic lives, the Group considers, for each acquisition and each asset or liability, the complexity of the calculations, the sources of estimation uncertainty and the risk of such estimations resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Details of those estimations that have a significant risk and the at-risk assets/ liabilities are disclosed as appropriate in Note 11; the significance of the risk will depend on the size of the acquisition. Such sources of estimation uncertainty include estimation of future cash flows, the determined weighted average cost of capital and estimated useful lives.
Valuation of contingent consideration and acquisition-related employment costs (Note 12)
Where a business combination agreement provides for an adjustment to the consideration, contingent on future performance over the contractual earn-out period, the Group accrues the fair value, based of the estimated additional consideration payable as a liability at acquisition date. To the extent that deferred contingent consideration is payable as part of the acquisition cost and is payable after one year from the acquisition date, the deferred consideration is discounted at an appropriate discount rate and carried at net present value in the consolidated balance sheet. The liability is measured against the contractually agreed performance targets at each subsequent reporting date with any adjustments recognised in the consolidated income statement.
Acquisition-related employment costs are contingent on both the future performance of the acquired business and also linked to continued employment of the founders over the contractual agreed period. They are treated as an expense and recognised as such in the consolidated income statement.
The estimation of the likely liability requires the Group to make judgements concerning the future performance of related business over both the deferred contingent consideration period and the period of employment.
Deferred tax (Note 14)
Deferred tax assets are recognised to the extent that their utilisation is probable. The utilisation of deferred tax assets will depend on the judgement whether it is more likely than not that the Group will generate sufficient and suitable taxable income of the correct type and jurisdiction in the future, taking into account any restrictions on the length of the loss-carry forward period. Various factors are used to assess the probability of the future utilisation of deferred tax assets, including past operating results, operational plans and loss-carry forward periods. In particular, utilisation of our US tax losses is subject to a limitation triggered by change of control rules in the US and this limitation is driven by the valuation of the US business at the point of change in control. This is a key judgement area which remains uncertain until it is agreed with the tax authorities.
Non-financial assets recoverable amount
Recoverable amount is the higher of value in use or fair value less costs of disposal. Determination of these amounts is based upon multiple judgements and estimates, including a forecast of future cash flows and judgements surrounding the appropriate discount rates to apply, terminal growth rates or potential transaction multiples.
3. Operating Segments
The Group has four reportable segments that are used to present information to the Board (Chief Operating Decision Maker) on a monthly basis. End market risk and opportunities vary and capital allocation decisions are made on the basis of four reportable segments. The four reportable segments are Product Design, Marketing, Sales and Built Environment & Policy. The reportable segments offer different products and services, and are managed separately as a result of different capabilities, technology, marketing strategies and end market risks and opportunities. The following summary describes the operations in each of the Group's reportable segments:
-- Product Design: Global trend forecasting and insight (WGSN)
-- Marketing: Global creative benchmark, effectiveness measurement and strategic advisory (Cannes Lions, WARC, MediaLink)
-- Sales: Global ecommerce data, analytics and managed services, Fintech and retail intelligence (Edge, Flywheel Digital, Money20/20, Retail Week and World Retail Congress, Yimian)
-- Built Environment & Policy: Political, construction and environment intelligence brands (Groundsure, Glenigan, DeHavilland)
In addition, the discontinued operations reported in the 2018 comparatives represent the Exhibitions business, which was sold on 17 July 2018.
Information regarding the results of each reportable segment is included below and restated for prior periods to enhance comparability. Reportable segment profits are measured at an adjusted operating profit level, representing reportable segment Adjusted EBITDA, less depreciation costs and amortisation in respect of software intangibles, without allocation of Corporate costs as reported in the internal management reports that are reviewed by the Board. Reportable segment Adjusted EBITDA and reportable segment Adjusted operating profit are used to measure performance as management believes that such information is the most relevant in evaluating the results of the reportable segments relative to other comparable entities. Total assets and liabilities for each reportable segment are not disclosed because they are not provided to the Board on a regular basis. Total assets and liabilities are internally reviewed on a Group basis.
Year ended 31 December 2019
Built Continuing
Product Environment Corporate operations
(GBP million) Design Marketing Sales & Policy costs* total
---------------------------- -------- --------- ------ ------------ --------- ------------
Revenue 86.5 135.9 158.4 35.9 (0.5) 416.2
---------------------------- -------- --------- ------ ------------ --------- ------------
Adjusted EBITDA 36.0 50.7 39.6 17.0 (14.8) 128.5
Depreciation and software
amortisation (4.2) (7.5) (6.6) (0.9) (3.5) (22.7)
---------------------------- -------- --------- ------ ------------ --------- ------------
Adjusted operating profit 31.8 43.2 33.0 16.1 (18.3) 105.8
---------------------------- -------- --------- ------ ------------ --------- ------------
Amortisation of acquired
intangible assets (35.8)
Exceptional items (41.6)
Share-based payments (8.5)
---------------------------- ------------
Operating profit 19.9
Share of net profit in
equity-accounted investee 0.6
Finance costs (14.8)
Finance income 4.5
---------------------------- ------------
Profit before tax 10.2
---------------------------- ------------
* Corporate costs include a GBP0.5m elimination for intercompany trading.
Year ended 31 December 2018, restated*
Built Continuing
Product Environment Corporate operations Discontinued
(GBP million) Design Marketing Sales & Policy costs** total operations Total
----------------------- ------- --------- ----- ------------ --------- ----------- ------------ ------
Revenue 77.8 116.3 120.9 34.3 (0.8) 348.5 54.6 403.1
Adjusted EBITDA
as reported 28.1 38.9 36.9 14.0 (16.1) 101.8 19.8 121.6
IFRS 16 application 1.8 1.6 1.4 0.3 1.5 6.6 - 6.6
Adjusted EBITDA
as restated 29.9 40.5 38.3 14.3 (14.6) 108.4 19.8 128.2
Depreciation and
software amortisation
as reported (1.8) (4.1) (2.1) (0.5) (2.3) (10.8) (0.3) (11.1)
IFRS 16 application
of amortisation
of right of use
asset (2.2) (1.4) (0.9) (0.2) (0.7) (5.4) - (5.4)
----------------------- ------- --------- ----- ------------ --------- ----------- ------------ ------
Adjusted operating
profit 25.9 35.0 35.3 13.6 (17.6) 92.2 19.5 111.7
----------------------- ------- --------- ----- ------------ ---------
Amortisation of
acquired intangible
assets (30.6) (3.1) (33.7)
Exceptional items (14.0) 176.5 162.5
Share-based payments (6.2) (0.3) (6.5)
----------------------- ----------- ------------ ------
Operating profit 41.4 192.6 234.0
Share of net profit
in equity-accounted
investee 0.6 - 0.6
Finance costs (13.7) - (13.7)
Finance income 0.6 - 0.6
----------------------- ----------- ------------ ------
Profit before
tax 28.9 192.6 221.5
----------------------- ----------- ------------ ------
* Restated for initial application of IFRS 16 (see Note 7) .
** Corporate costs include a GBP0.8m elimination for intercompany trading.
Exceptional items of GBP41.6m (2018: GBP14.0m) include GBPnil (2018: GBP0.3m), GBP3.5m income (2018: GBP1.3m), GBP37.3m (2018: GBP14.7m), GBP0.6m (2018: GBP0.3m) and GBP0.2m (2018: GBPnil) which are attributable to Product Design, Marketing, Sales, Built Environment & Policy and Corporate costs respectively. Finance costs, finance income, share of net profit in equity accounted investees and share-based payments are not allocated to segments, as these types of activity are driven by the Group corporate function.
Revenue and non-current assets by location
The revenue analysis is based on the location of customers. Non-current assets analysis (excluding deferred tax and financial instruments) is based on geographical location of the business.
The Group does not have any customers from whom revenue exceeds 10% of total revenue. Included in revenue is barter revenue arising from the exchange of goods or services of GBP2.6m for the year ended 31 December 2019 (2018: GBP0.9m).
Non-current
Revenue assets*
(GBP million) 2019 2018 2019 2018
-------------------------- ------ ------ ------ ------
United Kingdom 90.5 81.0 413.7 390.1
Other Europe 65.4 56.1 95.9 106.7
United States and Canada 191.7 149.0 320.9 322.7
Asia Pacific 44.3 40.1 27.9 5.9
Middle East and Africa 8.8 8.4 - -
Latin America 15.5 13.9 2.3 1.9
-------------------------- ------ ------ ------ ------
Total 416.2 348.5 860.7 827.3
-------------------------- ------ ------ ------ ------
*Non-current assets exclude deferred tax assets of GBP42.7m (2018: GBP43.1m) and other investments, including derivatives of GBP0.3m (2018: GBPnil). Restated for initial application of IFRS 16 (see Note 7) .
Additional segmental information on revenue
The Group's revenue is derived from contracts with customers, and the nature and effect of initially applying IFRS 15 is disclosed in Note 1.
Disaggregation of revenue
The following table shows revenue disaggregated by major service lines, and the timing of revenue recognition :
Timing of revenue
(GBP million) recognition 2019 2018**
------------------------ -------------------- ------------ -------------
Subscriptions Over time 77.5 70.6
Advisory Over time 6.7 4.6
Transactions Point in time 2.3 2.6
Product Design 86.5 77.8
---------------------------------------------- ------------ -------------
Event related revenues* Point in time 70.7 60.0
Subscriptions Over time 15.4 8.7
Advisory Over time 49.8 47.6
Marketing 135.9 116.3
---------------------------------------------- ------------ -------------
Event related revenues* Point in time 66.3 67.5
Subscriptions Over time 62.2 45.6
Transactions Point in time 24.7 3.5
Advisory Over time 5.2 4.3
Sales 158.4 120.9
---------------------------------------------- ------------ -------------
Subscriptions Over time 15.2 14.3
Advisory Over time 0.5 1.0
Transactions Point in time 20.2 19.0
Built Environment and Policy 35.9 34.3
---------------------------------------------- ------------ -------------
Intercompany sales (0.5) (0.8)
---------------------------------------------- ------------ -------------
Revenue from continuing operations 416.2 348.5
---------------------------------------------- ------------ -------------
*Event related revenues include Delegate fees, Stand Space, Sponsorship and Award entries.
**Restated for initial application of IFRS 16 (see Note 7) .
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
(GBP million) Note 2019 2018 ------------------------------------------------------------------ ------------ ----- ----- Receivables, which are included in "Trade and other receivables" 74.3 64.2 Contract assets - accrued income 4.7 7.4 Contract liabilities - deferred income 99.2 91.2 -------------------------------------------------------------------------------- ----- -----
Seasonality of operations
The Group's results of operations are impacted by seasonality. Marketing revenue is particularly seasonal, with revenue typically reaching its highest levels during the first half of each calendar year when Cannes Lions take place. Product Design primarily generates subscription revenue which is recognised over the life of the subscription contract. Consequently, there is less seasonal fluctuation in the revenue of this reportable segment.
4. Adjusting items
Adjusting items are those which are considered significant by virtue of their nature, size or incidence and are presented separately in the consolidated statement of profit and loss to enable a full understanding of the Group's financial performance. Adjusting items are not a defined term under IFRS and include the share-based payment charge, amortisation of intangibles acquired through business combinations and exceptional items such as costs incurred for acquisitions and disposals, integration, non-recurring business restructuring and capital restructuring.
Adjusting items included in continuing operating profit are:
(GBP million) Note 2019 2018 ------------------------------------------------ ----- ----- ----- Acquisition-related expenses 12 33.1 8.1 Acquisition transaction and integration costs 8.5 5.9 ------------------------------------------------ ----- ----- ----- Exceptional items 41.6 14.0 Amortisation of acquired intangible assets 35.8 30.6 Share-based payments 8.5 6.2 ------------------------------------------------ ----- ----- ----- Adjusting items in continuing operating profit 85.9 50.8 ------------------------------------------------ ----- ----- -----
Acquisition-related expenses include payments for deferred consideration agreed as part of the acquisition but linked to ongoing employment of GBP20.1m (2018: GBP13.3m) and a revaluation of contingent consideration of GBP13.0m (2018: GBP5.2m revaluation credit). Acquisition-related employment costs relate primarily to the acquisitions of One Click Retail, MediaLink, Clavis and Flywheel Digital, which, absent the link to continued employment, would have been treated as consideration. Under the sale and purchase agreements between 25% and 50% of deferred payments are contingent on both (i) the results of the business in the post-acquisition period and (ii) the continued employment of the founders.
As part of the overall strategy of managing the Group's portfolio, costs incurred as part of the acquisition and integration of acquired businesses are considered to be material. Acquisition transaction costs include directly linked transaction costs such as legal and diligence fees as well as stamp duty where applicable. Integration spend is in relation to transferring acquired businesses onto the Group's IT and revenue platforms, merging of products and rebranding.
5. Finance costs and finance income
Restated*
----------
(GBP million) Note 2019 2018
---------------------------------------------------------- ----- ------- ----------
Interest on bank deposits 0.9 0.6
Foreign exchange gain on borrowings 0.1 -
Remeasurement of trade investments to fair value 1.6 -
Foreign exchange gain on cash and cash equivalents 1.9 -
Finance income 4.5 0.6
---------------------------------------------------------- ----- ------- ----------
Interest payable on external borrowings (6.8) (7.1)
Amortisation of loan arrangement fees (1.1) (1.2)
Foreign exchange loss on cash and cash equivalents - (0.6)
Discount unwind on contingent and deferred consideration 12 (5.5) (3.6)
Discount unwind of lease liability 7 (1.3) (1.2)
Discount unwind of property provisions (0.1) -
---------------------------------------------------------- ----- ------- ----------
Finance costs (14.8) (13.7)
---------------------------------------------------------- ----- ------- ----------
Net finance costs from continuing operations (10.3) (13.1)
---------------------------------------------------------- ----- ------- ----------
*Restated for initial application of IFRS 16 (see Note 7).
6. Tax on profit on ordinary activities
The tax charge has been calculated by applying the full year rate to the results for the year, with specific tax adjustments for adjusting items (amortisation of acquired intangible assets, share based payments and exceptional items). The tax charge for the year comprises:
Restated*
----------
(GBP million) 2019 2018
------------------------------------------------------- ------ ----------
Current tax
UK current tax charge on income for the year at 19.0% 6.7 6.5
Overseas current tax charge on income for the year 2.3 2.2
Adjustments in respect of prior years (2.6) (1.9)
------------------------------------------------------- ------ ----------
Total current tax charge 6.4 6.8
------------------------------------------------------- ------ ----------
Deferred tax
Current year (3.2) 1.2
Adjustments in respect of prior years (1.1) 0.9
Total deferred tax (credit) / charge (4.3) 2.1
------------------------------------------------------- ------ ----------
Total tax charge from continuing operations 2.1 8.9
------------------------------------------------------- ------ ----------
Total effective tax rate 21% 31%
------------------------------------------------------- ------ ----------
*Restated for initial application of IFRS 16 (see Note 7).
The effective tax rate on adjusted continuing profit before tax for the year to 31 December 2019 was 21% (2018: 22%). A tax credit of GBP18.5m was recorded in relation to adjusting items in 2019 (2018: GBP8.9m). During 2019 the following was recognised in equity relating to share-based payments.
(GBP million) 2019 2018 ----------------------------------- ------ ----- Current tax credit 0.5 - Deferred tax (charge) / credit (0.2) 0.4 Total credit recognised in equity 0.3 0.4 ----------------------------------- ------ -----
The difference between the tax as credited in the consolidated income statement for the continuing operations and tax at the UK standard rate is reconciled below:
2019 2018
--------------------------------- -------------------------------------
Adjusted Total Adjusted Adjusting
profit Adjusting profit profit items Total profit/
(GBP million) / tax items/tax / tax / tax / tax tax
------------------------------- --------- ------------ -------- --------- ---------- --------------
Profit before tax 96.4 (86.2) 10.2 79.7 (50.8) 28.9
Expected tax charge
/ (credit) at the UK
standard rate of 19.0% 18.3 (16.4) 1.9 15.1 (9.7) 5.4
------------------------------- --------- ------------ -------- --------- ---------- --------------
Principal differences
due to:
Impact of higher overseas
tax rates 3.4 (3.2) 0.2 3.3 (1.6) 1.7
Trading losses not recognised
for deferred tax purposes 5.3 - 5.3 1.1 - 1.1
Recognition of previously
unrecognised trading
losses - - - (1.5) - (1.5)
Non-deductible legal,
professional and M&A
costs - 0.4 0.4 0.8 1.4 2.2
Non-deductible share-based
payments expense - 0.7 0.7 - 0.4 0.4
Non-taxable/deductible
exchange (gains)/losses (2.7) - (2.7) 0.6 - 0.6
Adjustments in respect
of prior years (3.7) - (3.7) (1.6) 0.6 (1.0)
------------------------------- --------- ------------ -------- --------- ---------- --------------
Total tax charge / (credit)
for the year 20.6 (18.5) 2.1 17.8 (8.9) 8.9
------------------------------- --------- ------------ -------- --------- ---------- --------------
Effective tax rate 21% 21% 21% 22% 18% 31%
------------------------------- --------- ------------ -------- --------- ---------- --------------
The Group's effective tax rate is higher than the UK's statutory tax rate mainly due to its mix of profits coming from the US.
The Group is subject to many different forms of taxation including, but not limited to, income and corporation tax, withholding tax and value added and sales taxes. The Group has operations in 15 countries and multiple states in the US and sells its products and services into more than 100 countries. Furthermore, the Group renders and receives cross-border supplies and services in respect of affiliated entities which exposes the Group to tax risk due to transfer pricing rules that apply in many jurisdictions.
Tax law and administration is complex and often requires subjective determinations. In addition, tax audits by their nature, can take a significant period of time to be agreed with the tax authorities. Therefore, management is required to apply judgement to determine the level of provisions required in respect of its tax liabilities. The Directors' estimates of the level of risk arising from tax audit may change in the next year as a result of changes in legislation or tax authority practice or correspondence with tax authorities during specific tax audits. It is not possible to quantify the impact that such future developments may have on the Group's tax positions. Actual outcomes and settlements may differ from the estimates recorded in these consolidated financial statements. The Group currently anticipates that the outcome of these uncertainties will only be resolved after more than one year. However even where uncertainties may not be resolved within one year, material adjustments may arise as a result of a reappraisal of the assets or liabilities within the next year.
7. Leases
The results for the year ending 31 December 2018 have been restated for the initial application of IFRS 16. The impact of on the continuing consolidated financial statements is shown below. Discontinued operations have not been restated for the impact of IFRS 16.
(GBP million) 2019 2018 ------------------------------------------------------------------------------------- ---------- ------- Consolidated Statement of Financial Position Non-current assets Right of use assets 21.6 23.3 Deferred tax assets 0.3 0.3 Investment property 2.1 2.7 Current assets Trade and other receivables (0.9) (1.2) Current liabilities Trade and other payables 2.3 3.0 Lease liabilities (9.4) (9.0) Non-current liabilities Lease liabilities (17.4) (20.4) ------------------------------------------------------------------------------------- ---------- ------- Net liability and adjustment to Retained Earnings on initial application of IFRS 16 (1.4) (1.3) ------------------------------------------------------------------------------------- ---------- ------- (GBP million) 2019 2018 ------------------------------------------------------------------------------------- ---------- ------- Operating profit 8.5 6.6 Depreciation (7.3) (5.4) Finance costs (1.3) (1.2) Loss for the year (0.1) - ------------------------------------------------------------------------------------- ---------- ------- Cash generated from operations 9.0 7.7 Cash flow from financing activities (9.0) (7.7) ------------------------------------------------------------------------------------- ---------- ------- Net change in cash and cash equivalents - - ------------------------------------------------------------------------------------- ---------- -------
Leases as lessee
The Group leases commercial office space and photocopiers. Previously, theses leases were classified as operating leases under IAS 17. Information about leases for which the Group is a lessee is presented below.
Right-of-use assets
Right of use assets are presented as a separate line item on the statement of financial position and tabulated below.
Reconciliation of carrying amount
Right-of-use
(GBP million) assets
----------------------------------------------------------- -------------
Cost
At 1 January 2019 -
Recognition of right-of-use assets on initial application
of IFRS 16 43.1
----------------------------------------------------------- -------------
Adjusted balance at 1 January 2019 43.1
Additions 6.8
De-recognition of right-of-use assets (0.9)
Effect of movements in exchange rates (1.0)
----------------------------------------------------------- -------------
At 31 December 2019 48.0
----------------------------------------------------------- -------------
Depreciation
At 1 January 2019 -
Recognition of right-of-use assets on initial application
of IFRS 16 (19.9)
----------------------------------------------------------- -------------
Adjusted balance at 1 January 2019 (19.9)
Depreciation (7.3)
De-recognition of right-of-use assets 0.3
Effect of movements in exchange rates 0.5
----------------------------------------------------------- ------------- At 31 December 2019 (26.4) ----------------------------------------------------------- ------------- Net book value At 31 December 2019 21.6 ----------------------------------------------------------- ------------- At 31 December 2018 - ----------------------------------------------------------- -------------
*Derecognition of the right-of-use assets during 2019 is as a result of negotiating an early termination of a contract.
Extension options
Some property leases contain extension options after the non-cancellable contract period. The Group assesses at lease commencement date whether it is reasonably certain to exercise these options, and if so, the optional period is included within the lease term and therefore the calculation of the lease liability. The Group reassesses whether is it reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control.
The Group has estimated that the potential future lease payments, should it exercise all the extension options, would result in an increase in lease liability of GBP5.0m.
Leases as lessor
On transition to IFRS 16, the Group has reassessed the classification of sub-leases of certain properties which were all classified as operating leases under IAS 17 and they have been classified as finance leases. The Group has therefore recognised the net investment in the sub-lease within investment property. The following table sets out a maturity analysis of the lease receivables, showing the undiscounted lease payments to be received after the reporting date.
(GBP million) 2019 2018 -------------------------------------- ------ ------ Less than one year 1.1 1.0 One to two years 1.0 1.1 Two to three years 0.2 0.9 Three to four years - 0.2 Total undiscounted leases receivable 2.3 3.2 --------------------------------------- ------ ------ Unearned finance income (0.2) (0.5) --------------------------------------- ------ ------ Net investment in the leases 2.1 2.7 --------------------------------------- ------ ------
The net investment in the lease is presented within Investment property in the statement of financial position. The following presents the reconciliation of the investment property:
(GBP million) 2019 2018 ----------------------------------------------- ------ ------ Balance at 1 January 2.7 - Recognition of investment property on initial application of IFRS 16 - 3.2 ------------------------------------------------ ------ ------ Adjusted balance at 1 January 2.7 3.2 Additions - 0.2 Payments (0.7) (1.0) Interest 0.1 0.3 ------------------------------------------------ ------ ------ Balance at 31 December 2.1 2.7 ------------------------------------------------ ------ ------ 8. Investments (GBP million) 2019 2018 At 1 January 6.1 5.1 Acquisition of investments cash flow 64.5 0.7 Remeasurement of trade investments to fair value 1.6 - Share of the profit of associates and joint ventures accounted for using the equity method 0.6 0.6 Transaction costs capitalised 1.8 - Dividends received from joint ventures (0.5) - Disposal of investments (1.6) (0.2) Write-off - (0.1) Effect of movements in exchange rates (4.9) - At 31 December 67.6 6.1 ------------------------------------------------------ ------ ------
Investments as at 31 December 2019 are made up as follows:
(GBP million) 2019 2018 --------------------------------------------------------- ----- ----- Trade investments measured at fair value through profit or loss 12.3 0.8 Associates and joint ventures accounted for using the equity method 53.3 0.9 Convertible Loan* 2.0 4.4 At 31 December 2018 67.6 6.1 ---------------------------------------------------------- ----- -----
*The option to convert the loan into equity in a new associated company was exercised in part in the second half of 2019. The remaining balance of the loan is expected to be exercised in the first half of 2020.
On 30 August 2019, the group acquired an initial 35% ownership interest in Jumpshot Inc, the marketing analytics subsidiary of Avast plc, a leading global cybersecurity provider. Subject to certain conditions, and no sooner than January 2021, the group also had an option to take a majority ownership position in Jumpshot. At 31 December 2019 the options for majority ownership remained executory contracts. On 30 January 2020, we agreed to sell our 35% ownership interest in Jumpshot back to the majority owner, Avast plc for cash consideration equivalent to the cost of investment as disclosed in Note 15.
On 1 September 2019, the group increased its shareholding from 49% to 51% in CTIC WGSN China Limited and gained a majority voting rights at the Board of directors. The joint venture interest was revalued to fair value resulting in step acquisition gain of GBP0.8m and then de-recognised. The group consolidated the 51% controlling interest on 1st September 2019 and recognised a 49% non-controlling interest. A GBP0.5m dividend from CTIC WGSN China Limited was declared prior to acquisition and received shortly thereafter. The following table summarises the financial information of the Group's associates.
(GBP million)
-------------------------------------------------------------- ---------
Jumpshot
Inc
---------------------------------------------------- ------- ----------
Nature of investment Associate
---------------------------------------------------- ------- ----------
31 August
Acquisition date 2019
---------------------------------------------------- ------- ----------
Country of incorporation USA
---------------------------------------------------- ------- ----------
Percentage ownership interest 35.2%
------------------------------------------------------------- ----------
Non-current assets 7.2
Current assets 14.6
Non-current liabilities (13.9)
Current liabilities (0.3)
------------------------------------------------------------- ----------
Net assets (100%) 7.6
------------------------------------------------------------- ----------
Group's share of net assets 2.7
Goodwill and acquired intangible assets 48.6
------------------------------------------------------------- ----------
Carrying amount of interest in investment 51.3
------------------------------------------------------------- ----------
Revenue 10.6
Depreciation and amortisation (0.3)
Profit and total comprehensive income (100%) (1.4)
------------------------------------------------------------- ----------
Group's share of loss and total comprehensive loss (0.5)
------------------------------------------------------------- ----------
Dividends received by the Group -
------------------------------------------------------------- ----------
9. Dividends
Amounts recognised and paid as distributions to ordinary shareholders in the year comprise:
2019 2018
---------------------------------- ---------------------------------------- ----------------------------------------
GBP million Pence per share GBP million Pence per share
---------------------------------- ----------------- --------------------- ----------------- ---------------------
Amounts recognised as
distributions to equity
shareholders
Final dividend for the year-ended
31 December 2017 - - 15.2 3.8
Interim dividend for the
year-ended 31 December 2018 - - 7.6 1.9
Final dividend for the year ended
31 December 2018 15.7 3.9 - -
Interim dividend for the year ended 31 December 2019 7.2 1.8 - - ---------------------------------- ----------------- --------------------- ----------------- --------------------- Dividend paid 22.9 5.7 22.8 5.7 ---------------------------------- ----------------- --------------------- ----------------- ---------------------
After the reporting date, the Board recommended, subject to shareholder approval, a final dividend of 4.0 pence per ordinary share from distributable reserves. The final dividend is not included in the condensed consolidated statement of financial position as a liability at 31 December 2019.
10. Earnings per share
Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.
2019 2018
----------------------------- ----------------------------- -----------------------------
Adjusted Adjusting Adjusted Adjusting
results items Total results items Total
----------------------------- --------- ---------- ------ --------- ---------- ------
Profit attributable to
equity shareholders of
the Parent (GBP million)
Profit for the year -
continuing operations 75.6 (67.7) 7.9 61.9 (41.9) 20.0
Profit for the year -
discontinued operations - - - 15.5 173.7 189.2
----------------------------- --------- ---------- ------ --------- ---------- ------
Profit for the year 75.6 (67.7) 7.9 77.4 131.8 209.2
----------------------------- --------- ---------- ------ --------- ---------- ------
Share number (million)
Basic weighted average
number of shares 401.4 401.4 401.4 400.3 400.3 400.3
Dilutive potential ordinary
shares 6.2 6.2 6.2 5.2 5.2 5.2
----------------------------- --------- ---------- ------ --------- ---------- ------
Diluted weighted average
number of shares 407.6 407.6 407.6 405.5 405.5 405.5
----------------------------- --------- ---------- ------ --------- ---------- ------
Earnings per share (pence)
Continuing operations
Basic earnings per share 18.8 (16.8) 2.0 15.5 (10.5) 5.0
Diluted earnings per
share 18.5 (16.6) 1.9 15.3 (10.5) 4.8
Discontinued operations
Basic earnings per share - - - 3.8 43.4 47.2
Diluted earnings per
share - - - 3.8 42.8 46.6
Continuing and discontinued
operations
Basic earnings per share 18.8 (16.8) 2.0 19.3 32.9 52.2
Diluted earnings per
share 18.5 (16.6) 1.9 19.1 32.3 51.4
----------------------------- --------- ---------- ------ --------- ---------- ------
11. Business combinations
Shenzhen Yimian Network Technology Co., Ltd
In December 2019, the Group acquired 100% of Shenzhen Yimian Network Technology Co., Ltd ("Yimian") , a limited liability company established under the laws of the People's Republic of China. The Group paid cash consideration of GBP19.5m upfront and consolidated GBP0.8m of cash on acquisition, resulting in a net GBP18.7m cash outflow on acquisition. There is a four-year revenue-linked earn-out estimated to total between GBP8-10m based on the Board approved acquisition case. Maximum total consideration is capped at GBP70m. Half of the earn-out is effectively linked to the ongoing employment of the founders and therefore recognised over the life of the earn-out.
The acquisition-related employment cost is being accrued over the period in which the related services are being received, recorded as exceptional costs. To determine the estimated contingent consideration and the acquisition-related employment cost figures, the Directors are required to make an estimate regarding the future results. Any subsequent revaluations to contingent consideration as a result of changes in such estimations are recognised in the consolidated income statement and disclosed in Note 12.
CTIC WGSN China Limited
On 1 September 2019, the shareholding in CTIC WGSN China Limited ("WGSN China") increased from 49% to 51% and the Group gained a majority of voting rights at the Board of directors. The existing shareholding was revalued to fair value resulting in step acquisition gain of GBP0.8m and then de-recognised. The Group consolidated the 51% controlling interest on 1 September 2019 and recognised a 49% non-controlling interest.
The fair values of the identifiable assets purchased and liabilities assumed of the acquired companies as at the date of acquisition were as follows:
Product
GBP million Sales Segment** Design Segment** Other* Total
---------------------------------- ---------------- ------------------ ------- ------
Customer relationships 2.8 - - 2.8
Technology 2.2 - - 2.2
Deferred tax liability (1.3) - - (1.3)
Property, plant and equipment 0.3 - - 0.3
Other investments 1.7 - - 1.7
Trade and other receivables 1.8 4.5 0.2 6.5
Cash 0.8 2.4 0.1 3.3
Trade and other payables (1.6) (1.7) 1.3 (2.0)
Deferred income - (3.7) - (3.7)
Total identifiable net assets
at fair value 6.7 1.5 1.6 9.8
---------------------------------- ---------------- ------------------ ------- ------
Initial cash consideration 19.5 - 0.6 20.1
Contingent consideration payable
in 2020 - 2023 3.3 - - 3.3
Fair value of previously held
equity interest - 1.6 - 1.6
Non-controlling interest - 0.8 - 0.8
Total consideration 22.8 2.4 0.6 25.8
---------------------------------- ---------------- ------------------ ------- ------
Goodwill on acquisition 16.1 0.9 (1.0) 16.0
---------------------------------- ---------------- ------------------ ------- ------
Acquisition of businesses (net
of cash acquired) 18.7 (2.4) 0.5 16.8
---------------------------------- ---------------- ------------------ ------- ------
*Other includes working capital settlements in relation to prior year acquisitions, an acquisition within the Built Environment and Policy Segment and the finalisation of the provisional fair values presented in the 2018 annual report in relation to Flywheel Digital. All other fair values in relation to Flywheel Digital remain unchanged.
**The fair values provided for Yimian and WGSN China are provisional figures, being the best estimates currently available due to the proximity of the acquisition date to year end.
Of the GBP16.0m (2018: GBP72.5m) of goodwill acquired during the period, none (2018: GBP39.4m) is expected to be deductible for tax purposes. The goodwill of GBP16.0m arising on acquisitions is attributable to workforce in place and know-how within the business.
From the date of acquisition, the businesses acquired in 2019 GBP2.0m revenue and GBP1.0m of EBITDA. If the acquisitions had taken place at the beginning of the year, the business would have contributed GBP8.3m revenue and GBP2.1m of EBITDA.
The details of the prior year acquisitions are set out in the 2018 Annual Report.
12. Deferred and contingent consideration
The Group has liabilities in respect of deferred and contingent consideration payments under various business acquisition contracts.
Level
(GBP million) Note Total 3
At 1 January 2018 97.9 59.4
---------------------------------------------------------- ----- ------- -------
Additions 43.4 33.8
Acquisition-related employment costs accrued in
the year 4 13.3 -
Revaluation of contingent consideration recognised
in the continuing consolidated income statement 4 (5.2) (5.2)
Revaluation of contingent consideration recognised
in the discontinuing consolidated income statement 0.3 0.3
Discount unwind on contingent and deferred consideration 5 3.6 3.6
Acquisition-related employment cash paid in year (21.0) -
Deferred and contingent consideration cash paid
in the year (37.7) (33.4)
Effect of movements in exchange rates 2.3 1.4
Disposal of business (0.2) (0.2)
---------------------------------------------------------- ----- ------- -------
At 1 January 2019 96.7 59.7
---------------------------------------------------------- ----- ------- -------
Additions 3.3 3.3
Acquisition-related employment costs accrued in
the year 20.1 -
Revaluation of contingent consideration recognised
in the consolidated income statement 13.0 12.8
Discount unwind on contingent and deferred consideration 5.5 5.5
Acquisition-related employment cash paid in year (11.5) -
Deferred and contingent consideration cash paid
in the year (20.3) (10.6)
Effect of movements in exchange rates (3.6) (2.3)
At 31 December 2019 103.2 68.4
---------------------------------------------------------- ----- ------- -------
(GBP million) 2019 2018
--------------- ------ -----
Current 63.1 32.3
Non-current 40.1 64.4
Total 103.2 96.7
--------------- ------ -----
The total deferred and contingent consideration balance of GBP103.2m (2018: GBP96.7m) includes GBP68.4m (2018: GBP59.7m) which is categorised as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurements are the determined weighted average cost of capital and the forecast future profits, billings or revenue of the acquired businesses. The Group plan used to forecast future profits is approved by the board and assessed against market consensus on a regular basis. For details of deferred and contingent consideration on current and comparative year acquisitions refer to Note 11.
The Directors consider that the carrying amount of deferred and contingent consideration of GBP103.2m (2018: GBP96.7m) approximate their fair value.
13. Borrowings
The maturity profile of the Group's borrowings, all of which are secured loans, was as follows:
(GBP million) 2019 2018 ------------------ ------ ------ Non-current One to two years 282.6 291.8 Total borrowings 282.6 291.8 ------------------ ------ ------
Borrowings are shown net of unamortised issue costs of GBP1.2m (2018: GBP2.3m). The carrying amounts of borrowings approximate their fair value. The Group's borrowings at 31 December 2019 were GBP66.0m, $96.0m and EUR171.0m.
Reconciliation of movement in net debt
Interest
Cash Short-term rate Net
(GBP million) Cash in transit deposits cap Borrowings debt*
------------------------- ------ ------------ ----------- --------- ----------- --------
At 1 January 2018 26.7 2.4 16.7 0.1 (317.4) (271.5)
------------------------- ------ ------------ ----------- --------- ----------- --------
Exchange differences (0.4) - (0.2) - (6.9) (7.5)
External debt drawdown - - - - 66.0 66.0
External debt repayment - - - - (32.4) (32.4)
Non-cash movements - - - (0.1) (1.1) (1.2)
Net cash movement 23.1 4.8 108.9 - - 136.8
------------------------- ------ ------------ ----------- --------- ----------- --------
At 1 January 2019 49.4 7.2 125.4 - (291.8) (109.8)
------------------------- ------ ------------ ----------- --------- ----------- --------
Exchange differences 1.7 - 0.1 - 10.4 12.2
Non-cash movements - - - 0.3 (1.2) (0.9)
Net cash movement 27.9 (6.0) (94.0) - - (72.1)
At 31 December 2019 79.0 1.2 31.5 0.3 (282.6) (170.6)
------------------------- ------ ------------ ----------- --------- ----------- --------
* Refer to the Glossary of Alternative Performance Measures for the definition of Net Debt.
14. Deferred tax assets and liabilities
The deferred tax balances shown in the consolidated balance sheet are analysed as follows:
Restated*
----------
(GBP million) 2019 2018
-------------------------- ------- ----------
Deferred tax assets 42.7 43.1
Deferred tax liabilities (22.9) (24.8)
Total 19.8 18.3
-------------------------- ------- ----------
* Restated for initial application of IFRS 16 (see Note 7).
The major deferred tax assets and liabilities recognised by the Group, and the movements in the year, are set out below:
Non-deductible US deductible Property,
intangible intangible Share-based plant
(GBP million) assets assets payments and equipment Tax losses Other Total
--------------------------- -------------- ------------- ----------- -------------- ---------- ----- -----
At 1 January 2018* (31.3) 13.6 0.9 9.0 23.5 0.1 15.8
Adjustment on initial
application of IFRS
16 - - - - - 0.3 0.3
Credit/(charge) to the
consolidated income
statement for the year 3.6 (2.8) 0.8 (0.9) (1.6) - (0.9)
Credit to equity - - 0.4 - - - 0.4
Adjustments in respect
of prior years (0.6) - 0.1 (0.2) (1.3) 1.0 (1.0)
Acquisitions (6.8) - - - - - (6.8)
Disposals 10.1 - (0.1) (0.7) - - 9.3
Foreign exchange movements 0.2 0.2 - - 0.8 - 1.2
--------------------------- -------------- ------------- ----------- -------------- ---------- ----- -----
At 1 January 2019 (24.8) 11.0 2.1 7.2 21.4 1.4 18.3
--------------------------- -------------- ------------- ----------- -------------- ---------- ----- -----
Credit/(charge) to the
consolidated income
statement for the year* 3.0 6.6 0.5 (0.6) (7.0) 0.7 3.2
Debit to equity - - (0.2) - - (0.3) (0.5)
Adjustments in respect
of prior years - - - (0.1) 0.4 0.8 1.1
Acquisitions (1.2) - - - - - (1.2)
Foreign exchange movements 0.1 (0.3) (0.1) - (0.5) (0.3) (1.1)
--------------------------- -------------- ------------- ----------- -------------- ---------- ----- -----
At 31 December 2019 (22.9) 17.3 2.3 6.5 14.3 2.3 19.8
--------------------------- -------------- ------------- ----------- -------------- ---------- ----- -----
* Restated for initial application of IFRS 16 (see Note 7).
The above deferred tax balances are expected to reverse as follows:
Non-deductible US deductible Property
intangible intangible Share-based plant
(GBP million) assets assets payments and equipment Tax losses Other Total
----------------- -------------- ------------- ----------- -------------- ---------- ----- -----
Within 12 months (3.1) 4.9 (0.2) 1.0 4.5 0.1 7.2
After 12 months (19.8) 12.4 2.5 5.5 9.8 2.2 12.6
----------------- -------------- ------------- ----------- -------------- ---------- ----- -----
Total (22.9) 17.3 2.3 6.5 14.3 2.3 19.8
----------------- -------------- ------------- ----------- -------------- ---------- ----- -----
In presenting its deferred tax balances, the Group does not offset assets and liabilities as the Group has no legally enforceable right to set off the arising current tax liabilities and assets when those deferred tax balances reverse. No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries and joint ventures as, where tax would arise on the realisation of those temporary differences, the Group is in a position to control the timing of their reversal and it is probably that such differences will not reverse in the foreseeable future.
Following the UK General Election in December 2019, the UK Prime Minister announced his intention to reverse the enacted reduction in UK corporation tax rates. This would have seen the rate fall from 19% to 17% from 1 April 2020. The proposed changes had not been enacted by the balance sheet date and therefore our deferred tax balances remain valued at those rates currently enacted (i.e. at 17% for UK items scheduled to unwind after 1 April 2020). If this proposal becomes law, this would result in a deferred tax charge to P&L of GBP0.5m, comprising an increase in the value of the deferred tax liability on consolidated intangibles of GBP2.1m offset by an increase in the value of deferred tax assets of GBP1.6m.
Non-deductible intangibles represent the value of the deferred tax liability which arises on the fair value of acquired intangibles which are not deductible for tax purposes. The liability is valued at the tax rate applicable to the jurisdiction where the intangibles are located.
US deductible intangible assets represent the value of deferred tax assets on US tax deductible intangibles and deferred consideration. These deferred tax assets are recognised at a US Federal and State tax rate averaging 26%.
Deferred tax assets have been recognised on the basis that sufficient taxable profits are forecast to be available in the future to enable them to be utilised.
At 31 December 2019, the Group has the following tax losses:
Recognised Recognised Unrecognised Unrecognised Total Total
(GBP million) 2019 2018 2019 2018 2019 2018
------------------------ ---------- ---------- ------------ ------------ ----- -----
US net operating losses 49.9 71.3 102.5 127.0 152.4 198.3
UK non-trading losses 22.7 36.3 - - 22.7 36.3
Irish trading losses - - 44.5 18.3 44.5 18.3
UK capital losses - - 114.9 114.9 114.9 114.9
Other Rest of World
losses - - 6.2 3.9 6.2 3.9
------------------------ ---------- ---------- ------------ ------------ ----- -----
Total 72.6 107.6 268.1 264.1 340.7 371.7
------------------------ ---------- ---------- ------------ ------------ ----- -----
The above losses represent the following value at tax rates applicable at the balance sheet date:
Recognised Recognised Unrecognised Unrecognised Total Total
(GBP million) 2019 2018 2019 2018 2019 2018
------------------------ ---------- ---------- ------------ ------------ ----- -----
US net operating losses 10.5 15.0 25.6 26.7 36.1 41.7
UK non-trading losses 3.7 6.4 - - 3.7 6.4
Irish trading losses - - 5.6 2.3 5.6 2.3
UK capital losses - - 19.5 19.5 19.5 19.5
Other Rest of World
losses - - - 1.1 - 1.1
------------------------ ---------- ---------- ------------ ------------ ----- -----
Total 14.2 21.4 50.7 49.6 64.9 71.0
------------------------ ---------- ---------- ------------ ------------ ----- -----
The Group has tax losses in the US totalling GBP152.4m (2018: GBP198.3m). The movement from prior year arises as a result of expiry of losses which can be carried forward for only 20 years. It has been agreed with the US tax authorities that these losses are available to offset against taxable profits subject to a restriction following the change of ownership that was deemed to have occurred upon listing of Ascential plc in 2016. In line with the US tax rules, the restriction of losses is, to a large extent, based on the valuation of the US tax group at the change of control date and this will be agreed with the US tax authorities in due course. The valuation of the US tax group is therefore a source of estimation and the recognised deferred tax asset is sensitive to a change in this valuation. The Board expects the deferred tax asset to be recovered over a number of years and considers it to be unlikely that there will be a consequential change in the estimates made that would lead to a material movement in the asset in the next 12 months. In prior years, our forecasting of the future available losses, and so value of the associated deferred tax asset, had been driven by this limitation and so the valuation was a key source of estimation. Following additional earnout payments in the US and a change to mix of profits, this is no longer the case. Our ability to utilise losses in future years is primarily driven by the level of taxable profits arising in the US as the increased earnout payments give rise to tax deductions which displace the loss utilisation. As a result, we have revised downwards our estimate of future utilised losses which accounts for GBP2.6m of the current year adjustment of the deferred tax asset in respect of losses.
15. Events after the reporting date
There were three non-adjusting reportable events since the year end of 31 December 2019.
Refinancing
On 14 January 2020, the Group entered into a new 5-year multi-currency revolving credit facility ("RCF") of GBP450m with an accordion of up to a further GBP120m or 150% of EBITDA. The maturity of the facility may be extended at the option of the Group for up to two further one-year terms subject to individual lender approval. The facility covenants include a maximum net leverage of 3.25x with the benefit of an additional 0.5x leverage spikes for relevant acquisitions and a minimum interest cover of 3.00x and are tested semi-annually. Upon completion of the new agreement, capitalised arrangement fees of GBP1.2m relating to the previous facility will be written off in 2020 as exceptional costs. We expect fees of GBP3.9m to be capitalised as part of the new arrangements and these shall be amortised over the expected life of the facility.
Jumpshot
In August 2019, we completed the acquisition of a 35% investment in Jumpshot, Inc., a marketing analytics business. Cash consideration including subsequent working capital contribution and acquisition expenses totalled GBP56.2m. On 30 January 2020, we agreed to sell our 35% ownership interest in Jumpshot back to the majority owner, Avast plc, for cash consideration equivalent to our cost of investment including expenses.
Share repurchase programme
On 21 February 2020, the Board approved a share repurchase programme of up to GBP120 million.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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