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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
M&c Saatchi Plc | LSE:SAA | London | Ordinary Share | GB00B01F7T14 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 184.00 | 182.00 | 184.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Advertising Agencies | 462.53M | 90k | 0.0007 | 2,628.57 | 224.95M |
TIDMSAA
RNS Number : 4183N
M&C Saatchi PLC
24 September 2019
M&C SAATCHI PLC
INTERIM RESULTS
SIX MONTHSED
30 JUNE 2019
24 September 2019
M&C SAATCHI PLC
Interim results for the six months
ended 30 June 2019
24 September 2019
Statutory - 30 June Headline - 30 June GBP'm 2019 2018 Restated 2018 2019 2018 Restated 2018 ------------------------ ------ -------------- ----------- ------- ------ -------------- -------- ------ Billings 280.7 289.2 -3.0% 289.2 280.7 289.2 -3.0% 289.2 Revenue 214.2 212.8 0.7% 215.4 214.2 212.8 0.7% 215.4 Net Revenue 117.9 123.0 -4.1% 127.2 117.9 123.0 -4.1% 127.2 Operating profit 0.3 4.9 -93.0% 11.3 4.8 9.4 -48.9% 15.8 Profit before taxation 9.4 5.0 87.7% 11.4 3.4 10.3 -66.9% 16.7 Profit for the period 9.0 2.9 208.8% 7.6 2.5 7.7 -67.4% 12.8 Earnings 8.5 1.5 460.5% 6.2 1.1 5.6 -80.0% 10.7 EPS 9.59p 1.84p 421.2% 7.6p 1.26p 6.80p -81.5% 13.0p Interim dividend 2.45p 2.45p maintained 2.45p Operating profit margin 0.2% 2.3% -2.1pts 5.25% 2.2% 4.4% -2.2pts 7.3% Tax rate 3.8% 41.5% -37.7pts 30.40% 26.4% 25.2% +1.2pts 23.2% ------------------------ ------ -------------- ----------- ------- ------ -------------- -------- ------
See note on next page for definition of headline.
2018 Restated. See note 4 for details of the restatement, as well as comments below.
Highlights
-- Increase in Statutory profit due to GBP11.6m profit on disposal of remaining 24.9% share in Walker Media Ltd for GBP25m in February 2019
-- As previously communicated, year-on-year decline in Headline revenue and profits due to larger number of loss-making entities, particularly start-ups, and the impact of the timing of revenues in 2019 which are expected to fall into the second half
-- Independent accounting review by PwC ongoing, expected to conclude by November 2019. The Board expects this to lead to a restatement of 2018 results; H1 2018 results have been restated to reflect misstatements already identified. The specific items result in a net charge of GBP5.1m
-- Solid balance sheet with net cash of GBP9.5m (GBP2.2m net debt at 31(st) December 2018) -- Interim dividend maintained at 2.45p
-- Full year operating profit and profit before tax forecast to be 5%-10% below expectations (before the impact of exceptional items including office refurbishment costs of GBP1.4m)
-- Full Year earnings and EPS are projected to show a relatively greater decline than operating profits as a result of the changing composition of profits, with a greater share of Group profits currently being made by those companies with a higher proportion of non-controlling interests and operating in higher tax rate jurisdictions
Commenting on the results, David Kershaw, Chief Executive, said:
"Our results in the first half of 2019 have been impacted by the number of new businesses in the Group as well as the weighting of revenues shifting towards the second half of the year.
"Whilst this has had a short term impact on our results, we remain confident in and committed to our strategy of winning new business and investing in new, fast-growing businesses. Looking to the second half, our pipeline of new business is strong across the network, and our newest businesses are performing well and expected to start making a meaningful contribution to the Group."
For further information please call:
M&C Saatchi +44 (0)20-7543-4500
David Kershaw
Tulchan Communications +44 (0)20-7353-4200
Tom Murray
Numis Securities +44 (0)20-7260-1000
Nick Westlake, Hugo Rubinstein, NOMAD
Charles Farquhar, Corporate Broking
Notes to Editors
Headline results
The term headline is not a defined term in IFRS. The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill and acquired intangibles, but excluding software) acquired in business combinations; changes to deferred and contingent consideration and other acquisition related charges taken to the income statement; impairment of investment in associate; profit and loss on disposal of associates; revaluation of investment and their related costs and income statement impact of put option accounting (whether accounted under IFRS2 or IFRS 9). See Note 6 for reconciliation between the Group's statutory results and the headline results.
Like-for-like
The like-for-like revenue comparisons referred to in this report are stated after excluding the impact of foreign currency movements, corporate acquisitions and disposals and incorporate restated 2018 results (see note 4).
Operating margin
Operating margin refers to the percentage calculated through dividing operating profit by revenue.
Net Cash
Net Cash refers to cash and cash equivalents less external borrowings at the end of the period, exclusive of expected future cash outflows relating to lease agreements.
Periods compared
This report comments on the unaudited consolidated income statement of M&C Saatchi plc (the "Group") for the six months to 30 June 2019 compared with the restated unaudited consolidated income statement for the same period in 2018 (see note 4 for details of the restatement).
SUMMARY OF RESULTS
Factors impacting these results
As stated in the trading update announced on 16(th) August 2019, two key factors have impacted the Group's results in the first six months of 2019 when compared to the same period in 2018 and prior years.
First, M&C Saatchi has continued to invest in new, start-up businesses which we consider will deliver long term growth. That is reflected in the higher proportion of losses from such ventures in H1 19 compared to H1 18, amounting to a negative impact on profit of GBP2.6m in H1 19 vs H1 18. Ours is a network of best-in-class entrepreneurs motivated to succeed by holding meaningful minority equity holdings in their businesses. In 2019 the fastest growing businesses in the network and those making the greatest contribution to operating profits have larger minority shareholdings than in prior years and also operate in higher tax rate jurisdictions creating a disproportionate drag on earnings and earnings per share when compared to operating profit.
Second, the timing of a considerable proportion of revenues committed and expected to be delivered in 2019, including recent client wins and additional projects, is such that operating profit will be much more heavily weighted to the second half of the year. This also reflects a more prudent approach to revenue recognition.
Although there were regional changes to net revenues caused by exchange rate movements, at the Group level currency had negligible effect on net revenues.
The first six months of 2019 saw revenues increase by 0.7% compared to H1 2018 (restated). The increased cost of sales due to higher production costs recognised in the period has resulted in a GBP5 million or 4% reduction in net revenue compared to H1 2018 (restated), leading to a GBP4.6m or 49% decline in operating profit.
Expectations for the second half and full year
We have seen a shift in the timing of revenues in 2019 away from the first half of the year and expect an increased proportion of profits to be made in the second half of the year. Trading in the second half has been solid, with a strong pipeline of client revenues through to the end of the year expected to convert to improved revenues and profits. As a result, we expect like for like full year operating profit to be 5%-10% below full year 2019 expectations. This is before the impact of any exceptional items including office refurbishment costs of GBP1.4m. With a change in the composition of those companies in the Group contributing to profits, that is those companies with higher minority shareholdings, and which operate in higher tax rate jurisdictions generating a greater share of operating profit, earnings and EPS are expected to fall by a relatively greater margin than operating profit.
The largest contribution to Group profits in the remainder of the year is expected to come from the following divisions:
-- Performance - slow start to the year but has since picked up and has been operating on a monthly run rate consistent with its record of last year
-- Australia - heavily skewed towards retail clients with focus on advertising and promotions during the final quarter of the year.
-- SS+K - significant project with Commonwealth Bank in the second half of the year -- World Services - significant media activities in the second half of the year -- South Africa - win of Standard Bank with all of this year's revenue in the second half -- China - move from associate to subsidiary in the second half
In addition, and as announced in the Company's 12(th) August statement, as part of the ongoing assessment of the Group's assets, we have decided to take an exceptional cost of GBP1.4m in the second half of 2019 in respect of property-related assets arising from the UK office refurbishment which is currently taking place.
UK
The UK posted an increase in net revenue of 3% (2019, GBP43.6million; 2018, GBP42.3million). Headline operating profit was up 108% (2019, GBP3.0million, 2018, GBP1.4million), with headline operating costs increasing 5% (all comparisons are against restated 2018 numbers).
Growth was driven by World Services and the Talent Group, which has benefited from the acquisition of Red Hare and Grey Whippet on 29 June 2018, have traded strongly. M&C Saatchi S&E continues to trade well, winning Heineken, Beko & Ovo Energy.
The UK Group businesses have strengthened compared to H1 2018 and continues to do so winning a New Home Office contract, LNER, Alpro, Vodafone, Revolution Beauty, OPPO, Durasein, Olympia London, McCormick, Trinity College, Cetaphil, Forex.com, Expedia, the Football Association, Foxtons, GambleAware, Heineken, Legal & General, Powerade and Twinings.
Our Talent agencies signed up John Amaechi (OBE), as well as having three contestants performing in Strictly 2019 (Alex Scott (MBE), James Cracknell (OBE) and Saffron Barker) along with other projects.
Performance media spending slowed in H1 during a period of contract renewals. They have however since resumed at 2018 levels.
We made significant investment in start-ups, including in excess of GBP1million in Send Me A Sample in the first half of the year.
Europe
Like for like net revenues in Europe declined by 16% (2019, GBP14.2million ; 2018, GBP17.1million). Headline operating profit was down 84% (2019, GBP0.4million; 2018, GBP2.6million), with headline operating costs reducing 5% (all comparisons are against restated 2018 numbers).
France had a poor first half with the loss of La Banque Postale and Mini contributing heavily to reduced performance in Europe. However, the office continued to win business which will translate to much improved second half trading, winning work with Compté, Picard, LVMH, Celio, Lansay, IZI by EF, GERLINEA, Focal, Le Bourget and Ipsos.
Spain and Sweden had a slow start to the year, but stronger H2 results are expected, particularly in Sweden which is becoming a regional hub winning Adidas Euro 2020 (Sweden), Reebok (Norway, Sweden and Denmark), KLM (Norway, Sweden, Denmark and Finland) and Zound Industries (Sweden).
Italy continues to trade strongly with wins including Delonghi and fashion retailers OVS.
Germany had a number of new clients including ING (Banking), Falke (Socks), Vattenfall (Energy) and Uniqfeel (Sports Apparel).
Middle East and Africa
Like for like net revenue in the Middle East and Africa was down 4% (2019, GBP7.5million; 2018, GBP7.8million). Headline operating profit was down 85% (2019, GBP0.1million; 2018, GBP0.5million), with headline operating costs reducing 2% (all comparisons are against restated 2018 numbers).
The South African business had client losses of Nedbank and SARB impacting H1 2019. This has been countered by winning Standard Bank in the first half, with the work starting in the second half and will be that office's largest ever client.
Asia and Australia
In Asia and Australia, like for like net revenues have increased by 1% (2019, GBP32.8million; 2018, GBP32.6million). Headline operating profit was down 48% (2019, GBP2.3million; 2018, GBP4.6million), with headline operating costs increasing 6% (all comparisons are against restated 2018 numbers).
Start up investments in Jakarta, Hong Kong and Singapore resulted in H1 losses of GBP0.8m. This is expected to turn around in H2.
Non-recurring income in Australia for H1 2018 has resulted in lower comparative profits in H1 2019. Spend in H2 2019 is expected to increase due to the strong retail-driven client base (Woolworths, Optus, Lexus, Cricket Australia and Tab).
Clients won in 2019 by the Australian group include AHC (Division of Unilever), SUMO Power, FlexiGroup, Uniting (NSW ACT), Sony Music, AVEO Group, Respiri, Racing Victoria, Plush, Yourtown, Ethos Urban, UNSW, Bill Care and SMEG.
Americas
Like for like net revenues have decreased by 14% (2019, GBP19.9million; 2018, GBP23.1million). Headline operating profit was down 50% (2019, GBP1.3million; 2018, GBP2.7million), with headline operating costs reducing 5% (all comparisons are against restated 2018 numbers).
The Los Angeles office had a poor first half. The office has experienced client reductions, including Epson and Fox Restaurant Concepts, materially impacting our results. Subsequently however the office has won projects for Amazon Music and Origin Hotel.
Performance media spending slowed in H1 during a period of contract renewals. They have however since resumed at 2018 levels.
Investment in start-ups in Mexico & NY (LIDA) has further impacted H1 2019 results.
SS+K continues to trade in line with 2018, with the Commonwealth Bank project generating revenue in H2 2019.
Notable client wins for the region in 2019 which will beneficially impact H2 include Locktons, VIZIO + Apple and Copperstate Farms.
Balance sheet and cash
Net cash at the half-year was GBP9.5m, which compares with GBP2.5m of net debt at 2018 year end and GBP4.5m net cash at the same stage last year. Working capital outflows during the first half year were GBP3.8 million which compares to a GBP11.8 million working capital outflow in the 12 months of 2018 (restated). The disposal of Walker Media Ltd generated GBP23.2m of cash in the first half and this has been absorbed in repaying bank loans and in investing activities.
Opening reserves have been reduced by GBP6.5m due to the adoption of IFRS16 Leases. This accounting charge will reverse over the life of the leases (see note 5). Initial findings from the ongoing independent accounting review lead us to conclude a restatement of prior year results is necessary, reducing opening reserves by GBP5.1m (see note 4)
Accounting review
The Group announced in August that we would be taking an exceptional charge of GBP6.4 million to the Group's 2019 results as result of an internal review of specific subsidiaries in the UK (this comprised of GBP4.9m of specifically identified items and a contingency of GBP1.5 million for further items that may subsequently be identified). We have since engaged PwC to conduct an independent accounting review of the whole Group which is expected to be completed by November 2019. Initial indications are that this review will result in the restatement of prior year results (rather than an exceptional charge in 2019). Further analysis has been undertaken and the specific issues identified relate to:
-- Overstated accrued income: GBP2.6m -- Irrecoverable receivables: GBP1.7m -- Prepayments: GBP0.9m -- Other debtors: GBP0.5m -- Impairment of intangible assets: GBP0.7m -- The above items to be offset by corporation tax receivable: GBP1.2m
Further detail is included in Note 4 and we will make a further announcement to the market once the findings are confirmed.
Since these issues came to light, our recently appointed Group Finance Director, Mickey Kalifa, has appointed a new Finance Director for the UK division and is in the process of hiring additional senior finance staff.
Note Six months Six months Year ended ended 30 June ended 30 June 31 December 2019 2018(#) 2018(#) GBP000 GBP000 GBP000 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- Billings 280,667 289,219 609,610 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Revenue 214,221 212,835 419,844 Third party cost of sales (96,304) (89,876) (168,710) Overheads (26,988) (29,218) (59,814) Operating charges (123,292) (123,292) (119,094) (119,094) (228,524) (228,524) ---------- ---------- ---------- Staff costs (90,959) (89,269) (182,536) Other gains 371 400 1,584 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- Operating profit 341 4,872 10,368 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Share of results of associates and joint ventures (115) 1,264 2,825 Gain on disposal of associate 11 11,617 - - Finance income 8 200 182 273 Finance costs 8 (2,693) (1,337) (2,268) ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- Profit before taxation 9,350 4,981 11,198 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Taxation (354) (2,068) (5,362)
----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Profit for the period 8,996 2,913 5,836 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Attributable to: Equity shareholders of the Group 8,509 1,518 3,128 Non-controlling interests 487 1,395 2,708 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Profit for the period 8,996 2,913 5,836 ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share Basic (pence) 6 9.59p 1.84p 3.71p Diluted (pence) 6 9.13p 1.71p 3.47p ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ---------- Headline results Revenue 214,221 212,835 419,844 Third party cost of sales (96,304) (89,876) (168,710) Net revenue 117,917 122,959 251,134 ---------- ---------- Operating profit 6 4,806 9,412 23,927 Profit before tax 6 3,406 10,289 25,897 Profit after tax attributable to equity shareholders of the Group 6 1,118 5,600 15,969 Basic earnings per share (pence) 6 1.26p 6.80p 18.93p Diluted earnings per share (pence) 6 1.20p 6.29p 17.69p ----------------------------------- ----- ---------- ---------- ---------- ---------- ---------- ----------
(#) restated (note 4)
Six months Six months Year ended ended ended 31 December 30 June 30 June 2018(#) 2019 2018(#) GBP000 GBP000 GBP000 ----------------------------------------- ----------- ----------- ------------- Profit for the period 8,996 2,913 5,836 -------------------------------------------- ----------- ----------- ------------- Other comprehensive income* Exchange differences on translating foreign operations before tax (841) (64) 1,000 -------------------------------------------- ----------- ----------- ------------- Other comprehensive income for the period net of tax (841) (64) 1,000 Total comprehensive income for the period 8,155 2,849 6,836 -------------------------------------------- ----------- ----------- ------------- Total comprehensive income attributable to: Equity shareholders of the Group 7,668 1,454 4,128 Non-controlling interests 487 1,395 2,708 -------------------------------------------- ----------- ----------- ------------- Total comprehensive income for the period 8,155 2,849 6,836 -------------------------------------------- ----------- ----------- -------------
(#) restated (note 4)
*All items in the consolidated statement of comprehensive income will be reclassified to the income statement
Six months Six months Year ended ended 30 ended 30 31 December June 2019 June 2018(#) 2018(#) Note GBP000 GBP000 GBP000 --------------------------------------- ------ --------------- -------------- ------------- Non-current assets Intangible assets 47,867 50,813 49,124 Investments in associates and JV 7,940 20,781 9,483 Plant and equipment 12,470 11,663 13,274 Right-of-use assets 30,614 - - Other non-current assets 6,749 3,747 4,248 Deferred tax assets 7,830 5,369 5,687 Financial assets at fair value through profit or loss 13,469 9,486 12,958 ---------- -------------- ------------- 126,939 101,859 94,774 ---------------------------------------------- --- ---------- -------------- ------------- Current assets Trade and other receivables 128,174 138,506 145,197 Current tax assets 4,718 6,217 2,241 Cash and cash equivalents 50,438 36,267 50,065 Non-current assets classified as Held-for-sale 11 - - 13,106 ---------- -------------- 183,330 180,990 210,609 ---------------------------------------------- --- ---------- -------------- ------------- Current liabilities Trade and other payables (120,809) (136,016) (142,627) Current tax liabilities (746) (6,671) (3,318) Borrowings (17,636) (3,666) (14,060) Lease liabilities (10,658) - - Deferred and contingent consideration (675) (348) (752) Minority shareholder put option liabilities (22,120) (12,593) (12,327) ------------------------------------------------ --- ---------- -------------- ------------- (172,644) (159,294) (173,084) ---------------------------------------------- --- ---------- -------------- ------------- Net current assets 10,686 21,696 37,525 ------------------------------------------------ --- ---------- -------------- ------------- Total assets less current liabilities 137,625 123,555 132,299 ------------------------------------------------ --- ---------- -------------- ------------- Non-current liabilities Deferred tax liabilities (1,560) (861) (1,444) Borrowings (23,291) (28,767) (38,541) Lease liabilities (30,271) - - Contingent consideration (411) (765) (514) Minority shareholder put option liabilities (3,773) (7,363) (6,063) Other non-current liabilities (1,784) (2,613) (1,944) ------------------------------------------------ --- ---------- -------------- ------------- (61,090) (40,369) (48,506) ---------------------------------------------- --- ---------- -------------- ------------- Total net assets 76,535 83,186 83,793 ------------------------------------------------ --- ---------- -------------- -------------
(#) restated (note 4)
Six months Six months Year ended ended 30 ended 30 June 31 December June 2019 2018(#) 2018(#) GBP000 GBP000 GBP000 -------------------------------------- ----------- --------------- ------------- Equity Share capital 906 866 876 Share premium 46,667 44,770 46,667 Merger reserve 31,592 31,592 31,592 Treasury reserve (560) (792) (792) Minority interest put option reserve (19,240) (13,935) (12,954) Non-controlling interest acquired (22,463) (21,317) (22,464) Foreign exchange reserve 3,752 3,529 4,593 Retained earnings 30,568 32,265 29,068 ---------------------------------------- ----------- --------------- ------------- Equity attributable to shareholders of the Group 71,222 76,978 76,586 ---------------------------------------- ----------- --------------- ------------- Non-controlling interest 5,313 6,208 7,207 ---------------------------------------- ----------- --------------- ------------- Total equity 76,535 83,186 83,793 ---------------------------------------- ----------- --------------- -------------
(#) restated (note 4)
MI put Non-controlling Foreign Non-controlling Share Share Merger Treasury option interest exchange Retained interest capital premium reserve reserve reserve acquired reserves earnings Subtotal in equity Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 --------------- -------- -------- -------- --------- --------- ---------------- --------- ---------- --------- ---------------- -------- At 31 December 2018 876 46,667 31,592 (792) (12,954) (22,464) 4,593 29,068(#) 76,586 7,207 83,793 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ---------- --------- ---------------- -------- Adjustment on initial application of IFRS 16 - - - - - - - (6,030) (6,030) (531) (6,561) ---------------- Adjusted balance at 1 January 2019 876 46,667 31,592 (792) (12,954) (22,464) 4,593 23,038 70,556 6,676 77,232 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ---------- --------- ---------------- -------- Acquisitions - - - - - - - - 0 0 0 Acquisitions of minority interest - - - - (6,288) - - - (6,288) 0 (6,288) Exercise of put options 30 - - 232 - - - (2,991) (2,729) 0 (2,729) Exchange rate movements - - - - 2 1 - - 3 5 8 Deferred consideration - - - - - - - - 0 0 0 Issue of shares to minorities - - - - - - - - 0 (66) (66) Share option charge - - - - - - - 2,012 2,012 0 2,012 Dividends - - - - - - - 0 0 (1,789) (1,789) ---------------- -------- -------- -------- --------- --------- ---------------- --------- ---------- --------- ---------------- -------- Total transactions with owners 30 0 0 232 (6,286) 1 0 (979) (7,002) (1,850) (8,852) Total comprehensive income for the period 0 0 0 0 0 0 (841) 8,509 7,668 487 8,155 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ---------- --------- ---------------- -------- At 30 June 2019 906 46,667 31,592 (560) (19,240) (22,463) 3,752 30,568 71,222 5,313 76,535 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ---------- --------- ---------------- --------
(#) restated (note 4)
MI put Non-controlling Foreign Non-controlling Share Share Merger Treasury option interest exchange Retained interest capital premium reserve reserve reserve acquired reserves earnings(#) Subtotal in equity Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 --------------- --- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- -------- At 31 December 2017 813 32,095 31,592 (792) (13,958) (21,040) 3,593 25,235 57,538 6,532 64,070 --------------- --- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- -------- Adjustment on initial application of IFRS 15 - - - - - - - 28 28 - 28 Adjustment on initial application of IFRS 9 - - - - - - - 2,971 2,971 - 2,971 Adjusted balance at 1 January 2018 813 32,095 31,592 (792) (13,958) (21,040) 3,593 28,234 60,537 6,532 67,069 --------------- --- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- -------- Acquisitions 13 17 6,749 - - - (265) - - 6,501 71 6,572 Acquisitions - - - - - - - - - - - of minority interest Exercise of put options 24 36 5,926 - - - - - (21) 5,941 - 5,941 Exchange rate movements - - - - 23 (12) - - 11 (25) (14) Deferred - - - - - - - - - - - consideration Issue of - - - - - - - - - - - shares to minorities Share option charge 25 - - - - - - - 2,534 2,534 0 2,534 Dividends 12 - - - - - - - - - (1,765) (1,765) --------------- --- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- -------- Total transactions with owners 53 12,675 - - 23 (277) - 2,513 14,987 (1,719) 13,268 Total comprehensive income for the period - - - - - - (64) 1,518 1,454 1,395 2,849 --------------- --- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- -------- At 30 June 2018 866 44,770 31,592 (792) (13,935) (21,317) 3,529 32,265 76,978 6,208 83,186 --------------- --- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- --------
(#) restated (note 4)
MI put Non-controlling Foreign Non-controlling Share Share Merger Treasury option interest exchange Retained interest capital premium reserve reserve reserve acquired reserves earnings(#) Subtotal in equity Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 --------------- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- --------- At 31 December 2017 813 32,095 31,592 (792) (13,958) (21,040) 3,593 25,235 57,538 6,532 64,070 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- --------- Adjustment on initial application of IFRS 15 - - - - - - - 28 28 - 28 Adjustment on initial application of IFRS 9 - - - - - - - 2,971 2,971 - 2,971 Adjusted balance at 1 January 2018 813 32,095 31,592 (792) (13,958) (21,040) 3,593 28,234 60,537 6,532 67,069 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- --------- Acquisitions 18 6,484 - - - - - - 6,502 - 6,502 Acquisitions of minority interest - - - - - (319) - - (319) - (319) Exercise of put options 44 7,630 - - 973 (973) - (20) 7,654 - 7,654 Exchange rate movements - - - - 31 (132) - - (101) 24 (77) Deferred consideration 1 458 - - - - - - 459 - 459 Issue of shares to minorities - - - - - - - - - 551 551 Share option charge - - - - - - - 6,104 6,104 - 6,104 Dividends - - - - - - - (8,378) (8,378) (2,608) (10,986) ---------------- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- --------- Total transactions with owners 63 14,572 - - 1,004 (1,424) - (2,294) 11,921 (2,033) 9,888 Total comprehensive income for the year - - - - - - 1,000 3,128 4,128 2,708 6,836 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- --------- At 31 December 2018 876 46,667 31,592 (792) (12,954) (22,464) 4,593 29,068 76,586 7,207 83,793 ---------------- -------- -------- -------- --------- --------- ---------------- --------- ------------ --------- ---------------- ---------
(#) restated (note 4)
Six months Six months Year ended ended 30 ended 30 31 December June 2019 June 2018(#) 2018(#) Note GBP000 GBP000 GBP000 ------------------------------------------------------ ------ ----------- -------------- ------------- Net revenue 117,917 122,959 251,134 Overheads (26,988) (29,218) (59,814) Staff costs (90,959) (89,269) (182,536) Other gains 371 400 1,584 -------------------------------------------------------------- ----------- -------------- ------------- Operating profit 341 4,872 10,368 -------------------------------------------------------------- ----------- -------------- ------------- Adjustments for: Depreciation of plant and equipment and Right-of-use assets 6,609 1,705 3,558 Loss on sale of plant and equipment 11 52 75 Loss on sale of software intangibles 49 60 9 Decrease / (Increase) in financial assets at FVTPL (371) (400) (1,584) Impairment and amortisation of acquired intangible assets 1,350 2,007 4,427 Impairment of associate and investments - - 674 Impairment of goodwill and other intangibles - - 2,195 Amortisation of capitalised software intangible assets 168 731 959 Equity settled share based payment expenses 2,012 2,534 6,104 -------------------------------------------------------------- ----------- -------------- ------------- Operating cash before movements in working capital 10,169 11,561 26,785 -------------------------------------------------------------- ----------- -------------- ------------- Decrease / (Increase) in trade and other receivables 9,150 (2,208) (19,487) Decrease / (Increase) in contract assets (1,653) (16,398) (679) Increase / (Decrease) in trade and other payables (2,276) 928 153 Increase / (Decrease) in contract liabilities (8,480) 5,396 8,240 -------------------------------------------------------------- ----------- -------------- ------------- Cash generated from operations 6,910 (721) 15,012 Tax paid (4,017) (2,256) (6,018) -------------------------------------------------------------- ----------- -------------- ------------- Net cash from operating activities 2,893 (2,977) 8,994 -------------------------------------------------------------- ----------- -------------- ------------- Investing activities Acquisitions of subsidiaries equity net of cash acquired (2,978) 1,149 441 Net proceeds from sale of associates 23,284 - - Acquisitions of associates - - (904) Acquisitions of unlisted investments (714) (355) (780) Proceeds from sale of plant and equipment 32 13 77 Purchase of plant and equipment (1,302) (1,083) (4,597) Purchase of capitalised software (23) (6) (1,046) Dividends received from associates (49) (59) 428 Interest received 194 182 273 -------------------------------------------------------------- ----------- -------------- ------------- Net cash consumed investing activities 18,444 (159) (6,108) -------------------------------------------------------------- ----------- -------------- ------------- Net cash from operating and investing activities 21,337 (3,136) 2,886 -------------------------------------------------------------- ----------- -------------- -------------
(#) Restated (note 4)
Six months Six months Year ended ended 30 ended 30 31 December June 2019 June 2018(#) 2018(#) Note GBP000 GBP000 GBP000 -------------------------------------------------- ------ ----------- -------------- ------------- Net cash from operating and investing activities 21,337 (3,136) 2,886 ---------------------------------------------------------- ----------- -------------- ------------- Financing activities Dividends paid to equity holders of the Company - - (8,378) Dividends paid to non-controlling interest (1,789) (1,727) (2,608) Proceeds / (payments) of own shares (110) 34 85 Repayment of finance leases (14) (45) Payment of lease liabilities (5,834) - - Proceeds / (Repayment) of invoice discounting (2,001) (843) (914) Proceeds from bank loans 734 387 9,100 Repayment of bank loans (15,734) (9,442) (9,462) Interest paid (577) (569) (1,355) Interest paid on leases (897) - - -------------------------------------------------- ------ ----------- -------------- ------------- Net cash consumed by financing activities (26,208) (12,174) (13,577) ---------------------------------------------------------- ----------- -------------- ------------- Net (decrease)/increase in cash and cash equivalents (4,871) (15,310) (10,691) ---------------------------------------------------------- ----------- -------------- ------------- Effect of exchange rate fluctuations on cash held (84) (426) 45 Cash and cash equivalents at the beginning of the year 38,311 48,957 48,957 ---------------------------------------------------------- ----------- -------------- ------------- Total cash and cash equivalents at the end of period 33,356 33,221 38,311 ---------------------------------------------------------- ----------- -------------- ------------- Cash and cash equivalents 50,438 36,267 50,065 Bank Overdrafts (17,082) (3,046) (11,754) ---------------------------------------------------------- ----------- -------------- ------------- Total cash and cash equivalents at the end of period 33,356 33,221 38,311 ---------------------------------------------------------- ----------- -------------- ------------- Bank loans and borrowings (23,845) (29,387) (40,818) ---------------------------------------------------------- ----------- -------------- ------------- Net cash 9,511 3,834 (2,507) ---------------------------------------------------------- ----------- -------------- -------------
(#) Restated (note 4)
1. GENERAL INFORMATION
The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 36 Golden Square, London W1F 9EE.
The Company has its primary listing on the AIM market of the London Stock Exchange.
This consolidated half-yearly financial information was approved for issue on 23 September 2019.
These results do not constitute the Group's statutory accounts. The information presented in relation to 31 December 2018 is extracted from the statutory financial statements for the year then ended, which have been delivered to the Registrar of Companies, except for the amendments detailed in Note 4. The auditor's report on the statutory financial statements for the year ended 31 December 2018 was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.
2. BASIS OF PREPARATION
This consolidated half-yearly financial information for the half-year ended 30 June 2019 has been prepared in accordance with the AIM Rules for companies. The half-yearly consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2018.
3. USE OF JUDGEMENTS AND ESTIMATES
In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements, except for new significant judgements and key sources of estimation uncertainty related to the application of IFRS 16, which are described in Note 5.
4. Restatement
As announced on 12 August 2019 the Group has conducted an internal accounting review of several of the UK subsidiaries. Subsequent to the commencement of the internal review, under the oversight of the Audit Committee, PwC were engaged to perform a separate targeted independent forensic review of the entire Group, including the UK subsidiaries that formed part of the internal accounting review. At the date of publication of these Interim financial statements the external review is ongoing.
As a result of these investigations the Board are currently of the belief that there are a number misstatements relating to 2018 which need to be addressed. This is subject to confirmation by the conclusion of all investigations which is expected in November 2019. As at the date of publication of the Interim statement it is impracticable to ascertain definitively whether the corrections, on an individual basis, relate to 2018 or potentially earlier. At this point in time, however the indications point to the corrections relating to 2018, and as such the identified misstatements have been incorporated within the 6 month financial period ending 30 June 2018 in accordance with the requirements of IAS 8.44.
The GBP6.4 million of adjustments comprise the following corrections: overstatement of revenue of GBP2.6million, understatement of costs of GBP3.1million and an inappropriate recognition of intangible assets valued at GBP0.7million. After the effect of tax, these resulted in an overstatement of equity of GBP5.1million. These adjustments are restricted to four UK trading entities and the UK shared services company. The precise basis as to how these errors arose is expected to be identified in PwC's review and we will update the market in due course.
Description of misstatements
(1) - Two of the affected entities under review were noted as having recognised GBP2.6million of accrued income which under the requirements of IFRS 15 should not have been recognised based on the profile of completion of the related performance obligations as at the end of 2018.
(2) - GBP1.7million of adjustments relate to a mis-estimation of project progress and estimated costs to completion.
(3) - GBP0.9million of prepayments held as at the end of 2018 that we now believe had expired during the second half of 2018 have been eliminated from the Balance sheet.
(4) - A balance of GBP0.5million of Other Debtors as at 31 December 2018 was identified as being unsupportable and requiring to be written out.
(5) - Impairment of intangible assets - GBP0.7million of intangible assets with no future economic benefits were identified and consequently impaired.
(6) - The impact of the above adjustments in reducing profit previously recognised for 2018 by GBP6.4million, has resulted in a reduction of corporation tax of GBP1.3million.
The impact of these misstatements are presented below in tabular format for the Consolidated income statement and Consolidated balance sheet for the financial period ending 31 December 2018 and 30 June 2018 respectively.
For the year ended 31 December 2018 ------------------------------------------------- As previously Restatement Ref As restated reported impacts GBP000 GBP000 GBP000 ------------------------ -------------- ------------ ---- ------------ Billings 609,610 - 609,610 ------------------------- -------------- ------------ ---- ------------ Revenue 422,404 (2,560) 1 419,844 Third party cost of sales (167,031) (1,679) 2 (168,710) Overheads (57,653) (2,161) 3-5 (59,814) Staff costs (182,536) - (182,536)
Other gains / (losses) 1,584 - 1,584 ------------------------- -------------- ------------ ------------ Operating profit 16,768 (6,400) 10,368 ------------------------- -------------- ------------ ---- ------------ Profit before taxation 17,598 (6,400) 11,198 ------------------------- -------------- ------------ ---- ------------ Taxation (6,635) 1,273 6 (5,362) ------------------------- -------------- ------------ ---- ------------ Profit for the year 10,963 (5,127) 5,836 ------------------------- -------------- ------------ ---- ------------ Attributable to: - 0 Equity shareholders of the Group 8,255 (5,127) 3,128 Non-controlling interests 2,708 - 2,708 ------------------------- -------------- ------------ ---- ------------ Profit for the year 10,963 (5,127) 5,836 ------------------------- -------------- ------------ ---- ------------ Earnings per share Basic (pence) 9.79p (6.08)p 3.71p Diluted (pence) 9.15p (5.68)p 3.47p ------------------------- -------------- ------------ ---- ------------ For the year ended 31 December 2018 ------------------------------------------------ As previously Restatement As restated reported impacts GBP000 GBP000 GBP000 ----------------------------- -------------- ------------ ---- ------------ Total non-current assets 95,430 (656) 5 94,774 ------------------------------ -------------- ------------ ---- ------------ Current assets Trade and other receivables 150,941 (5,744) 1-4 145,197 Current tax assets 968 1,273 6 2,241 Cash and cash equivalents 50,065 - 50,065 Non-current assets Held-for-sale 13,106 - 13,106 -------------- ------------ 215,080 (4,471) 210,609 ----------------------------- -------------- ------------ ---- ------------ Total current liabilities (173,084) - (173,084) ------------------------------ -------------- ------------ ---- ------------ Net current assets 41,996 (4,471) 37,525 ------------------------------ -------------- ------------ ---- ------------ Total assets less current liabilities 137,426 (5,127) 132,299 ------------------------------ -------------- ------------ ---- ------------ Total non-current liabilities (48,506) - (48,506) ------------------------------ -------------- ------------ ---- ------------ Total net assets 88,920 (5,127) 83,793 ------------------------------ -------------- ------------ ---- ------------ Total adjustment to equity: Retained earnings 34,195 (5,127) 29,068 Other reserves 54,725 - 54,725 88,920 (5,127) 83,793 ----------------------------- -------------- ------------ ---- ------------ For the period ended 30 June 2018 ------------------------------------------------- As previously Restatement Ref As restated reported impacts GBP000 GBP000 GBP000 --------------------------- -------------- ------------ ---- ------------ Billings 289,219 - 289,219 ---------------------------- -------------- ------------ ---- ------------ Revenue 215,395 (2,560) 1 212,835 Third party cost of sales (88,197) (1,679) 2 (89,876) Overheads (27,057) (2,161) 3-5 (29,218) Staff costs (89,269) - (89,269) Other gains / (losses)*)* 400 - 400 ---------------------------- -------------- ------------ ------------ Operating profit 11,272 (6,400) 4,872 ---------------------------- -------------- ------------ ---- ------------ Profit before taxation 11,381 (6,400) 4,981 ---------------------------- -------------- ------------ ---- ------------ Taxation (3,341) 1,273 6 (2,068) ---------------------------- -------------- ------------ ---- ------------ Profit for the year 8,040 (5,127) 2,913 ---------------------------- -------------- ------------ ---- ------------ Attributable to: - 0 Equity shareholders of the Group 6,645 (5,127) 1,518 Non-controlling interests 1,395 - 1,395 ---------------------------- -------------- ------------ ---- ------------ Profit for the year 8,040 (5,127) 2,913 ---------------------------- -------------- ------------ ---- ------------ Earnings per share Basic (pence) 8.07p (6.23)p 1.84p Diluted (pence) 7.46p (5.75)p 1.71p ---------------------------- -------------- ------------ ---- ------------
* Reflecting IFRS9 year end treatment.
For the period ended June 2018 ------------------------------------------------ As previously Restatement Ref As restated reported impacts GBP000 GBP000 GBP000 ----------------------------- -------------- ------------ ---- ------------ Total non-current assets 102,515 (656) 5 101,859 ------------------------------ -------------- ------------ ---- ------------ Current assets Trade and other receivables 144,250 (5,744) 1-4 138,506 Current tax assets 4,944 1,273 6 6,217 Cash and cash equivalents 36,267 - 36,267 Non-current assets Held-for-sale - - 0 -------------- ------------ 185,461 (4,471) 180,990 ----------------------------- -------------- ------------ ---- ------------ Total current liabilities (159,294) - (159,294) ------------------------------ -------------- ------------ ---- ------------ Net current assets 26,167 (4,471) 21,696 ------------------------------ -------------- ------------ ---- ------------ Total assets less current liabilities 128,682 (5,127) 123,555 ------------------------------ -------------- ------------ ---- ------------ Total non-current liabilities (40,369) - (40,369) ------------------------------ -------------- ------------ ---- ------------ Total net assets 88,313 (5,127) 83,186 ------------------------------ -------------- ------------ ---- ------------ Total adjustment to equity: Retained earnings 37,392 (5,127) 32,265 Other reserves 50,921 - 50,921 88,313 (5,127) 83,186 ----------------------------- -------------- ------------ ---- ------------
5. ACCOUNTING POLICIES
The financial information in these interim results is that of the holding company and all of its subsidiaries (the Group). It has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs). Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2018.
The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 December 2019.
The Group has initially adopted IFRS 16 Leases from 1 January 2019. Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the interim condensed consolidated financial statements of the Group.
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.
Adoption method
The Group has adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application being 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised within equity at the date of initial application. Accordingly there is no restatement of the comparative period financial information.
On adoption of IFRS 16 the Group has elected to grandfather the assessment of which arrangements are leases. Contracts not identified as leases under Legacy IFRS were not reassessed for whether there is a lease under IFRS 16. The Group also elected to use the recognition exemptions for lease contracts that, at the application date of IFRS 16, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low-value assets').
Approach to transition
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Any prepaid rent and accrued rent were recognised under Prepayments and Trade and other payables, respectively.
Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for all leases (unless exempt from applying IFRS 16) on its balance sheet. The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases:
-- applied the exemption not to recognise right-of-use assets and liabilities for leases of low value or for which the lease term ends within 12 months of the date of initial application, on a lease-by-lease basis
-- relied on previous assessments on whether leases are onerous for impairment of right-of-use assets
-- excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application
-- used hindsight when determining the lease term if the contract contains options to extend or terminate the lease
-- applied the exemption not to separate non-lease components such as service charges from lease rental charges
-- used a single discount rate to a portfolio of leases with reasonably similar characteristics
Leases previously accounted for as operating leases
Under the transition rules for leases classified as operating leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the relevant (i.e. specific to each member of the Group) incremental borrowing rate as at 1 January 2019.
Right-of-use assets are measured at cost. In the majority of instances this comprised the initial amount of the lease liability adjusted for any lease payments made at or before the adoption date and less any lease incentives received at or before the adoption date.
For a selection of material long-term leases, the Group has however assessed the cost of the Right-of-use asset as if IFRS 16 had always been applied from the original inception date of the lease using the incremental borrowing rate at the date of initial application. Under this method, the difference between the right-of-use asset and lease liability is taken to retained earnings as at 1 January 2019.
Leases previously classified as finance leases
The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases. The requirements of IFRS 16 was applied to the leases from 1 January 2019.
Impact of adoption of IFRS 16
The effect of adoption IFRS 16 as at 1 January 2019 (increase/(decrease)) is as follows:
Increase / (decrease) GBP000 ---------------------------- ------------ Assets Right-of-use assets 34,928 Deferred tax assets 1,818 Prepayments (405) Finance lease receivable 2,048 Total assets 38,389 ---------------------------- ------------ Liabilities Lease liabilities 45,906 Trade and other payables (956) Total liabilities 44,950 ---------------------------- ------------ Total adjustment to equity Retained earnings (6,030) Non-controlling interests (531) (6,561) ---------------------------- ------------
The following table reconciles the opening balance for the lease liabilities as at 1 January 2019 based upon the operating lease obligations as at 31 December 2018:
GBP000 -------- Operating lease commitments as at 31 12 18 42,006 Short term / low value leases not included in lease liabilities (1,683) Extension options reasonably certain to be exercised 10,570 Signed leases not yet commenced - Gross lease liabilities at 1/1/19 50,893 Effect of discounting (4,987) Lease liabilities at 1/1/19 45,906 -------------------------------------- --------
The weighted average discount rate as at 1 January 2019 was 3.9%.
Accounting policies
The Group leases various assets, comprising properties, equipment and motor vehicles. The determination whether an arrangement is, or contains, a lease is based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
The following sets out the Group's lease accounting policy for all leases with the exception of leases with a term of 12 months or less and those of low value assets, both of which apply the exemption allowable under the standard. These are typically expensed to the income statement as incurred.
Right-of-use assets and lease liabilities
At the inception of the lease, the Group recognises a right-of-use asset and a lease liability. The value of the lease liability is determined by reference to the present value of the future lease payments as determined at the inception of the lease. A corresponding right-of-use fixed asset is also recognised at an equivalent amount adjusted for any initial direct costs, payments made before the commencement date (net of lease incentives) and the estimated cost for any restoration costs the Group is obligated to at lease inception. Right-of-use assets are subsequently depreciated on a straight-line basis over the shorter of the lease term or the assets estimated life. Depreciation is included within the line item Overheads in the consolidated income statement.
Under IFRS 16 right-of-use assets are tested for impairment in accordance with IAS 36 'Impairment of Assets' when there is an indication of impairment. This replaces the previous requirements relating to onerous leases.
Lease liabilities are disclosed separately on the Balance sheet. These are measured at amortised cost using the effective interest rate method. Lease payments are apportioned between a finance charge and a reduction of the lease liability based on the constant interest rate applied to the remaining balance of the liability. Interest expense is included within the line item net finance costs in the consolidated income statement.
Lease term
The lease term determined comprises the non-cancellable period of the lease contract. Periods covered by an option to extend the lease are included if the Group has reasonable certainty that the option will be exercised and periods covered by the option to terminate are included if it is reasonably certain that this will not be exercised.
Lease payments
Lease payments comprise fixed payments and variable lease payments that depend on an index or a rate, initially measured using the minimum index or rate at inception date. The payments also include any lease incentives and any penalty payments for terminating the lease, if the lease term reflects the lessee exercising that option. The lease liability is subsequently remeasured (with a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments due to a renegotiation or market rent review, a change of an index or rate or a reassessment of the lease term.
Lease modifications
Where there are significant changes in the scope of the lease then the arrangement is reassessed to determine whether a lease modification has occurred and, if there is such a modification, what form it takes.
Subleases
At times entities of the Group will sublet certain of their properties when underlying business requirements change. Under IFRS 16, the Group assesses the classification of these subleases with reference to the right-of-use asset, not the underlying asset. This results in certain leases being classified as finance leases under IFRS 16 and recognition of a finance lease receivable (recorded as a financial assets within Trade and other receivables on the consolidated balance sheet).
When the Group acts as an intermediate lessor it accounts for it's interests in the head lease and the sub-lease separately. At lease commencement a determination is made whether the lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership in relation to the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. The Group recognises lessor payments under operating leases as income on a straight-line basis over the lease term. The Group accounts for finance leases as finance lease receivables, using the effective interest rate method.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (defined by the Group as being below GBP3,000). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Significant judgements relating to leases
The Group has made significant judgements in adopting IFRS 16, these are considered to be; determining the interest rate used for discounting of future cash flows, and the lease term.
6. Headline results and earnings per share - 30 June 2019
Capital gain FVTPL tax investments on Amortisation Impairment Disposal under Revaluation issue Acquisition Reported of acquired of acquired of IFRS of contingent of put related Put option Headline results intangibles intangibles associates 9 consideration options remuneration accounting results Period ended 30 June 2019 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 ----------------- --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Net revenue 117,917 - - - - - - - - 117,917 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- EBITDA 8,195 - - - - - - 1,376 2,012 11,583 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Operating profit 341 1,350 (273) 1,376 2,012 4,806 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Share of results of associates and JV* 11,502 - - (11,617) - - - - - (115) Finance income 200 - - - - - - - 200 Finance cost (2,693) - - - 1,208 (1,485) ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- Profit before taxation 9,350 1,350 0 (11,617) (273) 0 1,376 3,220 3,406 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Taxation (354) (343) (281) 79 (899) ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Profit for the period 8,996 1,007 0 (11,898) (194) 0 0 1,376 3,220 2,507 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Non-controlling interests (487) (194) - - - - (708) - (1,389) ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Profit attributable to equity holders of the Group 8,509 813 0 (11,898) (194) 0 0 668 3,220 1,118 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Basic earnings per share ----------------- --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Weighted average number of shares (thousands) 88,707 88,707 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Basic EPS 9.59p 1.26p ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Diluted earnings per share* ----------------- --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Weighted average number of shares (thousands) 88,707 88,707 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Add ----------------- --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- - Conditional shares without dividend rights 2,240 2,240 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- - Conditional shares with dividend rights** 1,933 1,933 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- - Contingent consideration 309 309 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Total 93,189 93,189 ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Diluted earnings per share 9.13p 1.20p ------------------ --------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- ---------
The Directors believe that the headline results and headline earnings per share provide additional useful information on the underlying performance. The headline result is used for internal performance management, calculating the value of subsidiary convertible shares and minority interest put options. The term headline is not a defined term in IFRS.
The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill and acquired intangibles, but excluding software) acquired in business combinations, changes to deferred and contingent consideration and other acquisition related charges taken to the income statement; impairment of investment in associates; profit or loss on disposal of associates; revaluation of investments and their related costs; and the income statement impact of put option accounting and share based payment charges.
6. Headline results and earnings per share (continued) - 30 June 2018
Capital gain FVTPL tax investments on Amortisation Impairment Impairment under Revaluation issue Acquisition Reported of acquired of acquired of IFRS of contingent of put related Put option Headline results(#) intangibles intangibles associates 9 consideration options remuneration accounting results Period ended 30 June 2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 ----------------- ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Net revenue 122,959 - - - - - - - - 122,959 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- EBITDA 8,751 - - - - - - 399 2,534 11,684 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Operating profit 4,872 2,007 - - (400) - - 399 2,534 9,412 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Share of results of associates and JV 1,264 - - - - - - - - 1,264 Finance income 182 - - - - - - - 182 Finance cost (1,337) - - - - - - - 768 (569) ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- Profit before taxation 4,981 2,007 - - (400) - 399 3,302 10,289 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Taxation (2,068) (504) - - - (24) (2,596) ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Profit for the period 2,913 1,503 - - (400) - - 399 3,278 7,693 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Non-controlling interests (1,395) (424) - - - - - (274) - (2,093) ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Profit attributable to equity holders of the Group 1,518 1,079 - - (400) - - 125 3,278 5,600 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Basic earnings per share ---------------------------- ------- ------- Weighted average number of shares (thousands) 82,302 82,302 ----------------------------- ------- ------- Basic EPS 1.84p 6.80p ----------------------------- ------- ------- Diluted earnings per share* ---------------------------- ------- ------- Weighted average number of shares (thousands) 82,302 82,302 Add - Conditional shares without dividend rights 2,022 2,022 - Conditional shares with dividend rights** 4,575 4,575 - Contingent consideration 118 118 Total 89,017 89,017 ----------------------------- ------- ------- Diluted earnings per share 1.71p 6.29p ----------------------------- ------- -------
(#) Restated (note 11)
6. Headline results and earnings per share (continued) - 31 December 2018
Capital gain tax on FVTPL issue Amortisation Impairment Impairment investments Revaluation of Acquisition Reported of acquired of acquired of under of contingent put related Put option Headline results(#) intangibles intangibles associates IFRS 9 consideration options remuneration accounting results Year ended 31 December 2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 ----------------- ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Net revenue 251,134 - - - - - - - - 251,134 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- EBITDA 21,078 1,299 6,104 28,481 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Operating profit 10,368 4,427 2,195 674 (1,177) 37 - 1,299 6,104 23,927 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Share of results of associates and JV 2,825 - - - - - - - - 2,825 Finance income 273 - - - - - - - 273 Finance cost (2,268) - - - 229 - - - 911 (1,128) ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- Profit before taxation 11,198 4,427 2,195 674 (948) 37 1,299 7,015 25,897 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Taxation (5,362) (1,021) 0 179 - 517 - (342) (6,029) ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Profit for the year 5,836 3,406 2,195 674 (769) 37 517 1,299 6,673 19,868 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Non-controlling interests (2,708) (937) - - - - 149 (403) - (3,899) ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Profit attributable to equity holders of the Group 3,128 2,469 2,195 674 (769) 37 666 896 6,673 15,969 ------------------ ----------- ------------- ------------ ----------- ------------ -------------- -------- ------------- ----------- --------- Basic earnings per share ---------------------------- ------- ------- Weighted average number
of shares (thousands) 84,360 84,360 ----------------------------- ------- ------- Basic EPS 3.71p 18.93p ----------------------------- ------- ------- Diluted earnings per share ---------------------------- ------- ------- Weighted average number of shares (thousands) 84,360 84,360 Add - Conditional shares without dividend rights 4,038 4,038 - Conditional shares with dividend rights** 1,500 1,500 - Contingent consideration 350 350 Total 90,248 90,248 ----------------------------- ------- ------- Diluted earnings per share 3.47p 17.69p ----------------------------- ------- -------
(#) Restated (note 11)
7. Segmental information - 30 June 2019
The segmental information is reconciled to the statutory results in Note 6.
Middle East and Asia UK Europe Africa and Australia Americas Total Period ended 30 June GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 2019 ------------------------- -------- ------------ -------------- --------------- ------------ -------- Net revenue 43,584 14,229 7,236 32,195 20,673 117,917 ----------------------------- -------- ------------ -------------- --------------- ------------ -------- EBITDA 3,275 1,138 573 4,255 2,342 11,582 ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Operating profit excluding Group costs 3,001 446 89 2,443 1,391 7,370 ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Group costs (2,292) (35) 0 (174) (63) (2,564) ----------------------------- -------- ------------ --------------- ------------ -------- Operating profit 709 411 89 2,269 1,328 4,806 ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Share of results of associates and JV 0 (3) 0 (87) (25) (115) Financial income and cost (470) (80) (220) (107) (408) (1,285) ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Profit before taxation 239 328 (131) 2,075 895 3,406 ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Taxation (47) (105) 36 (568) (215) (899) ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Profit for the period 192 223 (95) 1,507 680 2,507 Non-controlling interests (1,448) 285 94 (368) 48 (1,389) ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Profit attributable to equity shareholders of the Group (1,256) 508 (1) 1,139 728 1,118 ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Headline basic EPS 1.26p ----------------------------- -------- ------------ -------------- --------------- ------------ -------- Office locations London Paris, Johannesburg, Sydney, New Milan, Cape Town, Melbourne, York, Berlin, Abu Dhabi, New Delhi, Chicago, Madrid, Dubai, Bangalore, Los Geneva, Beirut. Islamabad, Angeles, Stockholm, Tel Aviv Hong San Moscow, Kong, Francisco, Istanbul Shanghai, Mexico Tokyo, City, Kuala Sao Lumpur, Paulo Bangkok, Singapore ----------------------------- -------- ------------ -------------- --------------- ------------ --------
7. Segmental information (continued) - 30 June 2018
Middle East and Asia and UK(#) Europe Africa Australia Americas Total# Period ended 30 June GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 2018 ---------------------- -------- ------------ -------------- ------------ ---------------- -------- Net revenue 42,347 17,082 7,793 32,598 23,139 122,959 -------------------------- -------- ------------ -------------- ------------ ---------------- -------- EBITDA 624 2,712 653 4,855 2,840 11,684 -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Operating profit excluding Group costs 1,445 2,583 488 4,499 2,709 11,724 -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Group costs (2,188) (35) - (63) (26) (2,312) -------------------------- -------- ------------ ------------ ---------------- -------- Operating profit (743) 2,548 488 4,436 2,683 9,412 -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Share of results of associates and JV 1,172 (18) - 161 (51) 1,264 Financial income and cost (184) (37) 17 57 (240) (387) -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Profit before taxation 245 2,493 505 4,654 2,392 10,289 -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Taxation 328 (1,068) (91) (1,285) (480) (2,596) -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Profit for the period 573 1,425 414 3,369 1,912 7,693 Non-controlling interests (981) (203) (76) (693) (140) (2,093) -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Profit attributable to equity shareholders of the Group (408) 1,222 338 2,676 1,772 5,600 ------------------------ -------- ------------ -------------- ------------ ---------------- -------- Headline basic EPS 6.80p -------------------------- -------- ------------ -------------- ------------ ---------------- -------- Office locations London Paris, Johannesburg, Sydney, New York, Milan, Cape Town, Melbourne, Chicago, Berlin, Abu Dhabi, New Delhi, Los Angeles, Madrid, Dubai, Bangalore, San Francisco, Geneva, Beirut. Islamabad, Mexico Stockholm, Tel Aviv Hong Kong, City, Moscow, Shanghai, Sao Paulo Istanbul Tokyo, Kuala Lumpur, Bangkok, Singapore -------------------------- -------- ------------ -------------- ------------ ---------------- ----------
(#) Restated (note 44)
7. Segmental information (continued) - 31 December 2018
Middle East and Asia and UK(#) Europe Africa Australia Americas Total# Year ended 31 December GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 2018 ------------------------ -------- ------------ -------------- ------------ ---------------- -------- Net revenue 91,587 34,165 15,790 65,412 44,180 251,134 ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- EBITDA 7,959 5,760 1,506 6,998 6,305 28,528 ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Operating profit excluding Group costs 10,988 5,497 1,167 6,462 5,924 30,038 ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Group costs (5,618) (71) - (333) (89) (6,111) ---------------------------- -------- ------------ ------------ ---------------- -------- Operating profit 5,370 5,426 1,167 6,129 5,835 23,927 ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Share of results of associates and JV 2,354 (13) - 433 51 2,825 Financial income and cost (486) (31) 83 90 (511) (855) ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Profit before taxation 7,238 5,382 1,250 6,652 5,375 25,897 ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Taxation (834) (1,879) (260) (1,924) (1,132) (6,029) ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Profit for the year 6,404 3,503 990 4,728 4,243 19,868 Non-controlling interests (1,331) (452) (389) (1,189) (538) (3,899) ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Profit attributable to equity shareholders of the Group 5,073 3,051 601 3,539 3,705 15,969 ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Headline basic EPS 18.93p ---------------------------- -------- ------------ -------------- ------------ ---------------- -------- Office locations London Paris, Johannesburg, Sydney, New York, Milan, Cape Town, Melbourne, Chicago, Berlin, Abu Dhabi, New Delhi, Los Angeles, Madrid, Dubai, Bangalore, San Francisco, Geneva, Beirut. Islamabad, Mexico Stockholm, Tel Aviv Hong Kong, City, Moscow, Shanghai, Sao Paulo Istanbul Tokyo, Kuala Lumpur, Bangkok, Singapore ---------------------------- -------- ------------ -------------- ------------ ---------------- --------
(#) Restated (Note 44)
8. Net finance income / (costs)
Six Six months months Year ended ended ended 30 June 30 June 31 December 2019 2018 2018 Year ended 31 December GBP000 GBP000 GBP000 ----------------------------- ----------- --------- ------------- Bank interest receivable 172 154 272 Other interest receivable 28 - 1 Fair value adjustment to minority shareholder - 28 - put option liabilities Financial income 200 182 273 ---------------------------- ----------- --------- ------------- Bank interest payable (571) (569) (1,175) Other interest payable (17) - (182) Interest on lease liabilities (897) - - Fair value adjustment to minority shareholder (1,208) (768) (911) put option liabilities Financial expense (2,693) (1,337) (2,268) ---------------------------- ----------- --------- ------------- Net finance income /(costs) (2,493) (1,155) (1,995) ----------------------------- ----------- --------- -------------
9. Taxation
Income tax expenses are recognised based on management's estimate of the average annual headline income tax expected for the full financial year.
The estimated headline effective annual tax rate used for the period to 30 June 2019 is 26.4% (30 June 2018: 25.2%). The increase in tax is due to the sale of Blue 449 reducing associate income and a change in our tax mix.
The estimated effective annual tax rate for the period to 30 June 2019 is 3.8% (30 June 2018: 41.5%). The difference between the headline and statutory tax rates is caused by the disposal of Blue 449, the profit of which does not get a tax charge.
10. Dividends
Six months Six months Year ended ended 30 ended 30 31 December June 2019 June 2018 2018 GBP000 GBP000 GBP000 ----------------------- ------------ ------------ ------------- 2017 final dividend 7.40p (2016: 6.44p) - - 6,261 2018 interim dividend 2.45p (2017: 2.13p) - - 2,117 ------------------------ ------------- - - 8,378 ------------ ------------------------------------ -------------
The directors propose an interim dividend of 2.45p per share (2018: 2.45p per share) payable on 8 November 2019 to shareholders who are on the register at 25 October 2019. This interim dividend, amounting to GBP2,235k (2018: GBP2,117k), along with the 2018 final dividend of GBP6,261k (7.40p) has not been recognised as a liability in this half-yearly financial report.
11. Disposal of Blue 449
As at 31 December 2018 the Group recognised its 25% investment in the associate Blue 449 as held-for-sale in line with IFRS 5. On 31 January 2019 this disposal was completed for proceeds of GBP25million. The gain arising on the disposal is as detailed below.
Six months Six months Year ended ended ended 30 June 30 June 31 December 2019 2018 2018 GBP000 GBP000 GBP000 ----------- ----------- ------------- Consideration received in cash 25,000 - - Carrying amount of investments held-for-sale (11,646) - - Legal costs (1,737) Gain on sale before income tax 11,617 - - -------------------------------- ----------- ----------- ------------- Income tax expense on gain 281 - - Gain on sale after income tax 11,898 - - -------------------------------- ----------- ----------- -------------
As at 31 December 2018 the carrying value of the disposed investment was GBP13.1million. As at the point of the sale the carrying amount of the investment shown is net of a dividend due to the Group of GBP1.5million.
12. Leases
The movements relating to leases to the six months ended 30 June 2019 are as follows:
Right-of-use assets
Land Computer Motor & Buildings equipment vehicles Total GBP000s GBP000s GBP000s GBP000s At 1 January 2019 33,807 886 235 34,928 Additions 48 30 103 181 Depreciation (4,258) (158) (79) (4,495) At 30 June 2019 29,597 758 259 30,614 ------------------ ------------- ----------- ---------- --------
Lease liabilities
Land & Computer Motor Buildings equipment vehicles Total GBP000s GBP000s GBP000s GBP000s At 1 January 2019 44,852 886 168 45,906 Additions 48 30 103 181 Lease liability interest 871 21 55 897 Repayment of lease liabilities (5,823) (163) (69) (6,055) At 30 June 2019 39,948 774 207 40,929 -------------------- ----------- ----------- ---------- --------
The following table shows the breakdown of the lease expense between amounts charged to operating profit amounts recognised as finance income and finance costs:
Six months ended 30 GBP000s June 2019 ---------------------- ----------- Depreciation of right of use assets (4,495) Short-term lease expense (357) Low-value lease expense (189) Short-term sublease income 73 Charge to operating profit (4,968) Sublease finance income 53 Lease liability interest expense (897) Lease charge to profit before tax (5,852) ------------------------- -----------
The maturity of the lease liabilities held as at 30 June 2019 is as follows:
Six months ended 30 June GBP000s 2019 ----------- Period ending 31 December: 2019 5,937 2020 11,059 2021 8,118 2022 6,160 2023 5,821 2024 2,211 Later years 3,952 Gross future liability 43,258 -------------------- -----------
The Group does not face a significant liquidity risk with regard to its lease liabilities and manages them in line with its approach to other month to month liquidity matters. Detailed disclosure can be found in Note 28 of the 2018 Annual Report.
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.
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