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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Xafinity | LSE:XAF | London | Ordinary Share | GB00BDDN1T20 | ORD GBP0.0005 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 183.00 | 178.00 | 183.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMXAF
RNS Number : 3623J
Xafinity PLC
28 June 2017
Xafinity plc
Final results for the year ended 31 March 2017
High quality earnings and positive outlook following successful IPO
Xafinity plc ("Xafinity"), the pensions actuarial, consulting and administration business, is pleased to announce its first set of full year results for the year ended 31 March 2017.
Highlights
-- Revenue for FY17 of GBP52.04m a 1% increase compared with the prior year (2016: GBP51.77m) -- Adjusted EBITDA* grew by 5% to GBP17.46m (2016: GBP16.70m) representing a margin of 33.5%
-- The loss after tax for the year was GBP12.8m (2016: profit GBP3.0m) driven by a number of IPO related costs
-- Basic earnings per share of -12.5p after exceptional items including IPO costs (2016: 3.1p)
-- Adjusted Basic Earnings per share** of 8.1p an increase of 4% from the prior year (2016: 7.8p)
-- Strengthened balance sheet with net assets of GBP28.9m as at 31 March 2017, compared to net liabilities of GBP21.3m as at 31 March 2016, with the increase in net assets largely driven by the net impact of the IPO proceeds
-- Net debt at 31 March 2017 of GBP28m (1.6x Adjusted EBITDA leverage)
-- Final dividend of 0.73p per share proposed by the Board, which covers the period from IPO (16 February 2017) to 31 March 2017
-- Performance since 31 March 2017 has remained in line with the Board's expectations
* (Adjusted EBITDA represents earnings before interest, tax, depreciation and amortisation, share based payment costs and exceptional costs. See note 5)
** (Adjusted Basic Earnings per share is calculated using profit after tax but before amortisation of acquired intangible assets, share based payment costs, exceptional costs, and an estimate of the tax effect of those items. See note 5)
Successful IPO
-- Successful IPO of Xafinity on London Main Market in February 2017
-- Offer price of 139p per ordinary share was fully subscribed by a shareholder base of longer-term investors
-- Proceeds of GBP50m raised for the Company used to repay existing debt facilities, resulting in a reduction of debt from GBP86m to GBP33m immediately following the Offer
Progress made on strategic objectives
-- Growth through expanding services: National Pension Trust ("NPT") and trivial commutation are two recently added services that gathered momentum over the year. NPT assets under management grew by approximately 67% and Xafinity was awarded a trivial commutation mandate on a FTSE30 client with an GBP11bn scheme
-- Growth through increasing client base: awarded 8 new long-term contracts
-- Growth through technology: Radar, Xafinity's proprietary pensions modelling software was developed during the year and will be rolled out to clients over the coming year
Ben Bramhall, Co-CEO of Xafinity, commented:
"The challenges facing defined benefit ("DB") schemes are widespread and are now frequently making headlines in the UK media. There are more than 6,000 UK DB schemes with aggregate liabilities of approximately GBP2.0 trillion and there is growing pressure on trustees and sponsors to address pension issues. This is likely to drive increased demand for de-risking services across the industry.
"Xafinity has invested heavily in its de-risking capabilities and is extremely well placed to help trustees and sponsors address these challenges. As a result, we believe there is the opportunity for real growth in Xafinity's core markets as well as the potential to gain market share."
Paul Cuff, Co-CEO of Xafinity, commented:
"We are also investing in our people and technology to bring insight to trustees and sponsors and help them achieve better outcomes. This, together with building relationships with the Independent Trustee community, has generated some fantastic new client wins and we have some real momentum in this area."
"The defined contribution ("DC") market also offers some really exciting growth opportunities. Of the GBP380 billion invested in UK DC Schemes, only around 5% is invested in Master Trusts which we see as an excellent solution in the new world of Freedom and Choice. Xafinity's NPT is one of only three Master Trusts which hold the Retirement Quality Mark and the Directors believe that NPT is well positioned to achieve significant growth in the coming years as demand for high quality cost effective de-cumulation vehicles increases."
Tom Cross Brown, Chairman of Xafinity, commented:
"The Group's performance since 31 March 2017 has remained in line with the Board's expectations and, notwithstanding the prevailing macroeconomic uncertainties, we believe Xafinity's core markets and pipeline of business opportunities continue to offer the potential for real growth. Management remains focused on implementing the strategy for market penetration and organic revenue growth across the pensions business, resulting in a healthy momentum of new client wins and commissioning of de-risking projects, and the Board remains confident about the future prospects of the Group."
Analyst and Investor Presentation
A presentation will be held for equity analysts and investors today at 9:30 a.m. (BST) at Deloitte LLP, 2 New Street Square, London, EC4A 3BZ. Those analysts wishing to attend are asked to contact Rebecca Noonan at Camarco on +44 (0)20 3781 8330 or at rebecca.noonan@camarco.co.uk.
Media enquiries
Camarco
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Ed Gascoigne-Pees Tel: 020 3757
4994
Rebecca Noonan Tel: 020 3757
4981
Ellie Reid Tel: 020 3757
4993
This announcement contains inside information for the purposes of the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Notes to Editors
Xafinity is a UK specialist in pensions actuarial, consulting and administration, providing a wide range of advisory and compliance services to over 550 pension scheme clients. The Company combines expertise, insight and technology to address the needs of both pension trustees and sponsoring companies. The Group has more than 400 employees, of which approximately 90 per cent are client facing, with offices in Reading, Leeds, Stirling, Belfast, London and Manchester providing it with access to staff, expertise and clients in geographic locations across the UK.
Xafinity plc floated on the Main Market of the London Stock Exchange on 16 February 2017.
Forward Looking Statements
This announcement may include statements that are forward looking in nature. Forward looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may cause the actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by the Listing Rules and applicable law, the Group undertakes no obligation to update, revise or change any forward looking statements to reflect events or developments occurring after the date such statements are published.
Co-Chief Executive Officers' Q&A
A better way to drive growth
Our co-Chief Executive Officers Ben Bramhall and Paul Cuff review a landmark year for Xafinity and discuss the outlook for the Group.
Q: Why does Xafinity have co-Chief Executives, and how do you divide responsibilities?
Ben: There is a clear distinction between our roles. I run the business day-to-day, looking after big client accounts and making sure we implement our best ideas across the business. Paul focuses on new business and investment in new technology. We both work on strategic M&A, although Paul does more of the earlier stages of investigating prospective targets.
Paul: We have known each other for twenty years since our first days' training as actuaries, and we've worked together for most of those. We both spend a fair amount of time with clients, and having two of us gives us the bandwidth to do what we need to on this. In our market it is not unusual to have two CEOs or wider partnership structures.
Q: What was the rationale for the IPO?
Paul: This was the logical next step on our journey. We are a thriving independent business that flourished under private equity ownership. We benefited hugely from the investment we received from our private equity owners following our separation from Equiniti, but we're about long-term relationships with staff and clients, so it made sense to have stakeholders and a financial structure that also looks to the long term.
Ben: Remaining independent was really important to us, our people and our clients. Transparency, reputation and profile are really important in our industry, and we see being a PLC as a real edge, as many of our competitors are privately owned. It enables us to continue investing in our services while still having an attractive dividend, and is also a structure that is better suited to being able to incentivise our people.
Paul: Being a publicly owned company also gives us access to capital to pursue our strategic vision of becoming the pre-eminent mid-tier firm, whether through acquisitions or other forms of investment.
Q: How did the business perform in 2017?
Paul: Revenue for the year was GBP52.04m, a 1% increase compared with the prior year (2016: GBP51.77m). Adjusted EBITDA grew by 5% to GBP17.46m (2016: GBP16.7m) representing a margin of 33.5%. We are pleased with the levels of new business generation - our wins and forward looking pipeline were transformed relative to the beginning of the year. Revenue growth was disappointing, however, partly suppressed by the impact of a contract with the Pensions Protection Fund not being renewed.
Ben: We achieved a great deal to set ourselves up for the future. In addition to some great momentum in terms of new business wins, NPT saw some strong growth, and of course the IPO was a significant milestone. We are rolling out our new software system, Radar (read more on page 17), and some talented people joined the business. Having begun to offer trivial commutation to existing clients two years ago, in the last year we took our proposition to new clients. We have seen great success, culminating in being awarded an exercise on an GBP11 billion scheme that made us the market leader in this field.
Q: What have been the principal developments in the market?
Ben: Last year saw pensions hitting the headlines for all the wrong reasons, with problems at the likes of BHS and Tata Steel. There were serious risks that the members of their pension schemes would see material reductions in benefits. This has made pensions a high profile issue, and kept it very high on the agenda for our clients and sponsoring employers. Trustees have a harder job than ever before. We think this will drive a need for ever more support, and we are right by the sides of our clients to provide this.
Paul: In DB, there is a move from the Big 3 providers to mid-tier firms. By way of example, Aon Hewitt's decision, announced in February, to withdraw from providing standalone pension administration services to keep only clients where they provide wider services is a significant step. They have resigned the appointments of administration only clients. Competitors withdrawing from certain areas of the market will allow us to gain market share.
Ben: The recent highly critical FCA report about fiduciary management as a model within investment advisory services also plays to our strengths. The Big 3 do a lot of fiduciary management, and there is a real need for better governance in this market. Because we don't provide services in that way, we can offer proper independent oversight to advise people on which fiduciary manager to pick. The market is growing, and we're part of the solution.
Paul: Beyond DB, our view is that the wider pensions industry has not stepped up to the challenge of the Freedom and Choice reforms introduced in April 2015. People in defined contribution schemes no longer have to buy an annuity, but the industry has not filled the void. NPT is a brilliant solution, but we don't see at the moment that the industry, employers or trustees are moving quickly enough to make sure that DC scheme members, or indeed DB scheme members who transfer out of their schemes, are properly protected and finding cost effective, well governed, fully flexible vehicles. NPT is ahead of its time in that regard, but the market has been slow to move. We see that changing.
Ben: There is also the Department of Work and Pensions' Green Paper on the future of the pensions industry, which supported our view that standards need to improve. It particularly highlighted that smaller schemes are poorly served as running costs are too high; they don't have the purchasing power to get the best solutions, and the outcomes they get are challenged. We've launched DB Sense as a fantastic solution for small schemes. We were already developing this to meet a market need, so we're launching this at the perfect time given the DWP's Green Paper that draws out the challenges faced by small schemes.
Q: How would you summarise the Group's primary objective?
Ben: We strive to become the pre-eminent mid-tier firm, the best for staff and the best for clients. At a simple level, it's about providing a better service, using technology to bring insight, at a lower cost than the Big 3. We have scale to do things but remain nimble - it's a powerful combination.
Q: What sets Xafinity apart from rivals?
Ben: The world of pensions is changing massively, and the speed at which you can react is really important. Relative to our larger rivals whose pension arms are parts of much larger businesses, our pure focus on pensions is a key source of competitive advantage. Versus our mid-tier competitors, the fact that we are a PLC means we can get investment into the business much more readily and quickly than if we were a partnership. That drives our focus on technology.
Paul: Also, a number of our mid-tier competitors are looking to diversify, and are looking to new markets. We think that the pensions market for DB in particular is going to continue to grow for many years as we rise to the challenge of meeting members' benefit promises in full. Our clients' expectations will grow; they'll want more technology, they'll want more specialism and for some, their problems are bigger than ever. We are unashamedly focused on helping clients solve those problems. This is a market where, if you take your eye off the ball, you'll lose. Some of our competitors are in danger of doing that in the unfounded belief that because there are no new DB schemes being set up, you'd better find something else to do. The reality is that these schemes will be around for 50+ years, and clients need more help than ever.
Ben: In our business we have high levels of client loyalty. Partly this is a characteristic of our industry. But while clients are loyal to firms, they are also loyal to individuals, so our very high levels of staff retention are key; more than half of our people have been with the firm for more than five years. Our culture is really important. More than anywhere else I've worked, our people care massively about their clients. People are proud to work here, and our clients stay because our people stay. Doing the right thing for clients has always been the ethos of our firm.
Q: Looking ahead, where do you see the greatest opportunities?
Paul: Winning market share is a huge opportunity for us. We've been doing a lot of work to raise our profile among intermediaries, which is starting to generate more and more opportunities for us to tender. What we've demonstrated this year is that when we get introductions, with our approach to pitches and the technology we can show people, we're successful. We're very optimistic about new business levels. Looking at specific services, the fact that we were able to win a trivial commutation project on one of the UK's biggest pension funds has made other prospects view us in a different light. We are also starting to do a lot to get our message out in relation to National Pension Trust. We believe that the UK DC market presents opportunities for growth given the growing popularity of Master Trusts, and the increasing desire to offer pension scheme members access to the flexibilities introduced by the Government in April 2015 under its Freedom and Choice agenda.
Ben: In terms of other market drivers, external factors such as Brexit or new regulations tend to be favourable to our sector, because they typically give our clients more challenges. Our issue is to make sure we're developing the right solutions for our clients. Providing we keep doing that, we see great opportunities.
Having said this, a general issue with our market is that things move quite slowly. It takes people quite a long time to make decisions and do things; however we are perfectly placed for the long-term.
Q: Where does corporate responsibility fit within your way of working?
Ben: In our quest for Xafinity to be the best place for people to work and the best partner for our clients, we engage with colleagues, act upon feedback from our employee survey, and invest in development to ensure that each individual can perform to the best of their ability. As we touched upon earlier, our culture of doing the right thing for clients permeates our business, and begins with us doing the right thing for our people. We are an equal opportunities employer and do not differentiate on the grounds of gender, ethnicity, sexual orientation, religion or physical ability. 46% of our headcount of 429 colleagues are female. Behaving ethically is an essential part of working at Xafinity, fundamental to our reputation and success, and the foundation of doing the right thing for clients.
Paul: In relation to sustainability, given the size of our group and the office-based nature of what we do, we believe the direct environmental impact of our people and operations is relatively low. Having said that, we strive to work in a responsible and sustainable manner, and encourage our people to minimise their environmental impact in their day-to-day activities.
Ben: On behalf of both of us I wish to thank our people for their contribution and dedication. Their genuine commitment to clients is at the heart of our business, and critical to our future success. With our enhanced team, market leading technology and portfolio of services that are centered on pensions, we are well placed to support existing and prospective clients, and we look forward with optimism.
Paul Cuff
Co-Chief Executive Officer
Ben Bramhall
Co-Chief Executive Officer
Financial Review
A better way to deliver expectations
We saw underlying growth in revenue and adjusted EBITDA, and paid down debt with proceeds of the IPO.
Financial and Operational Highlights - Key Performance Indicators
Year
ended
GBP'millions (EPS in 31 March
pence) 2017 2016 Change
------------------------- --------- ----- ------
Revenue 52.04 51.77 1%
------------------------- --------- ----- ------
Adjusted* EBITDA 17.46 16.70 5%
------------------------- --------- ----- ------
Basic Earnings per share (12.5) 3.1
------------------------- --------- ----- ------
Adjusted Basic Earnings
per share 8.1 7.8
* Adjusted EBITDA represents profit from operating activities before depreciation, amortisation, shared-based payment costs and exceptional costs. See Note 5 in the Financial Information.
Revenue
Revenue for the Group consists of fees charged, on a time and materials basis or fixed fee arrangement, for pensions actuarial and consulting services and administration.
It also includes the annual management charge for NPT clients, and fees and commission earned from our SIP, independent trustee and healthcare activities.
Revenue increased 1% to GBP52.04m in 2017 (2016: GBP51.77m).
Adjusted EBITDA
Adjusted EBITDA represents earnings before interest, tax, depreciation and amortisation, share based payment costs and exceptional costs. Exceptional costs relate to costs of the IPO and other exceptional items.
We consider this measure provides a comparable figure to 2016 as it does not include the exceptional items and other non-cash items which were largely driven by the IPO this year.
In the year to 31 March 2017 Adjusted EBITDA increased 5% to GBP17.46m (2016: GBP16.70m).
Loss before tax
The loss before tax for the year was GBP13.2m (2016: Profit GBP3.3m) after charging share based payment costs of GBP14.3m (2016: GBPnil) and exceptional costs of GBP3.0m (2016: GBP0.5m).
Interest and financing costs
Net interest and financing costs totalled GBP8.6m and included interest GBP4.5m, swap costs of GBP0.4m, and write-off of previous refinancing costs GBP3.7m.
The Group's debt reduced from GBP82.5m at the start of the year to GBP33m at the end of the year, by utilising the proceeds of the IPO.
As discussed in the Prospectus produced at the IPO the margin on the new facility is 1.75% over LIBOR which has led to substantially reduced financing costs
Taxation
The tax credit in 2017 of GBP0.4m arose from current tax of GBP0.3m, offset by a deferred tax credit of GBP0.7m.
EPS
The EPS for 2017 is a loss per share of 12.5p (2016: EPS of 3.1p).
We have shown an adjusted EPS in 2017 of 8.1p (2016: 7.8p) which removes exceptional and other, mainly IPO related, items so as to be able to compare the business on a like for like basis. The adjusted earnings figure used in the calculation of Adjusted EPS is the driver for the dividend policy. Full details can be found in the notes to the Financial Information.
Dividend
A final dividend of 0.73p is being proposed by the Board. The dividend covers the period from IPO (16 February 2017) to year-end (31 March 2017).
The final dividend, if approved, which amounts to GBP1m, will be paid on 28 September 2017 to those shareholders on the register on 1 September 2017.
Balance sheet
At 31 March 2017 the Group had net assets of GBP29m (31 March 2016: Net liabilities GBP21m). The increase in net assets arises from the impact of the IPO offset by the loss for the year.
Capital Expenditure
Capital expenditure remains low and for
2017 was GBP1.2m (2016: GBP0.6m), largely driven by software purchases and development.
Cash flow and cash position
At 31 March 2017 the Group had GBP4.9m cash balances and generated GBP11.6m of cash from its operating activities before tax and after capital expenditure. These, combined with a GBP38m committed financing facility until February 2022, mean the Group is well placed to meet future working capital cash requirements.
The Group had net cash outflows from financing activities of GBP8.1m (2016: GBP16.6m) which was the net position of GBP50.0m proceeds from the issue of share capital on the IPO and the repayment of bank borrowings and associated finance costs of GBP58.1m.
Subsidiary undertakings
The subsidiary undertakings of the Group in the year are listed in note 33 to the financial information.
Going Concern
Details on the Directors continuing to adopt the going concern basis in preparing the financial information can be found in the note 1 to the Financial Information.
Mike Ainslie
Chief Financial Officer
27 June 2017
Principal risks and uncertainties
The Group laid out the principal risks affecting it in the IPO prospectus. The risks are grouped here under seven main headings along with mitigating controls.
Principal Risks
Staff retention
Description
The Group is dependent on the continued services of its senior management team and key employees for the growth and success of the business. The loss of, or inability to recruit key personnel could have a material adverse effect on the Group's business, results of operations and financial condition
Mitigation
The Group offers attractive compensation packages that are regularly benchmarked. The Group also has a graduate recruitment scheme that takes on recent graduates and trains them and supports them through professional exams. Training and development are provided for all staff with regular opportunities for discussion about career progression. A performance share plan and sharesave scheme are to be rolled out in July 2017. Succession planning is reviewed by the Nominations Committee.
Reputation
Description
The Group may suffer damage to its reputation which could materially and adversely affect the Group's results of operations
Mitigation
Quality control standards and processes are maintained throughout the operational activity of the Group. Staff and client surveys are carried out on a regular basis, with the Board reviewing the consolidated feedback. The executive management and wider senior management team constantly demonstrate high standards of professional behaviours which permeates throughout the organisation.
Data loss/security breach
Description
The loss or unintended disclosure of sensitive personal data could damage the Group's reputation and materially and adversely affect the Group's results of operations.
The Group's information technology systems may be affected by failures and breaches of security, which could materially and adversely affect the Group's results of operations
Mitigation
Procedures and processes are in place to safeguard against unintended data breaches and IT security standards are regularly reviewed and penetration testing performed regularly. Appropriate Professional Indemnity Insurance arrangements are in place to cover the business activity of the Group along with product, public and employers liability cover and other insurances necessary for a corporate Group. The levels of cover are reviewed annually.
Errors
Description
The Group may be materially adversely affected by mistakes and misconduct by its personnel, including non-compliance with regulatory procedures or by any errors or omissions in any work undertaken previously by the Group
Mitigation
The Group sets high standards of professional performance and trains employees appropriately for their area of operation. Policies and procedures are in place to cover these operations. Quality control processes are also in place. Insurance arrangements exist to limit the loss should an error lead to a claim.
Competition/client retention
Description
The Group's principal market, being the professional services market to UK pensions arrangements, is competitive
The Group's future success depends on its ability to continue to perform and maintain its client contracts. If the Group is unable to provide services under its client contracts, if the Group has disputes with its clients over the services provided or to be provided under the Group's contracts, or if the services to be provided under the Group's contracts are more demanding than anticipated, the Group's results of operations could be materially adversely affected
Mitigation
The Group reviews the competitive landscape on a regular basis. As described above the Group has arrangements in place to ensure the highest professional standards are achieved in providing services to our clients. These services are provided at prices that provide a fair reward for the work done and which are competitively priced. The Group strives to maintain deep relationships with its clients which is manifested in the number of clients that have been with the Group for more than 20 years.
Regulatory change/compliance
Description
The Group is subject to regulation and benefits from regulatory approvals. The Group may fail, or be held to have failed, to comply with regulations. In addition, such regulations and approvals may change, making compliance more onerous
The Group's clients operate in an evolving regulatory environment
Mitigation
The Group has a Compliance department that reviews the adherence to regulatory requirements and monitors changes in those requirements. The risk arising from regulatory change is generally viewed as an opportunity to provide more services to our clients.
Crime/external events/market, economic, political
Description
The Group may be susceptible to crime which could materially and adversely affect its results of operations
The Group's operations could be adversely affected by external events and amounts recoverable under its insurance policies may be limited
The Group may be subject to litigation or regulatory claims and its insurance arrangements may not be adequate to protect the Group
Certain parts of the Group's business may be adversely affected by economic, political and market factors that are beyond the Group's control
Mitigation
The Group takes a structured approach to Risk management and identifies and manages risks. Appropriate Professional Indemnity Insurance arrangements are in place to cover the business activity of the Group along with product, public and employers liability cover and other insurances necessary for a corporate group. The levels of cover are reviewed annually.
Consolidated statement of comprehensive income
for the year ended 31 March 2017
Year Year
ended ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
------------------------------------------------- ---- --------- ---------
Revenue 7 52,038 51,769
Administrative expenses 8 (56,556) (40,602)
------------------------------------------------- ---- --------- ---------
Adjusted EBITDA - Earnings before interest,
tax, depreciation and amortisation, share-based
payment costs and exceptional costs 17,463 16,703
Share-based payment costs 12 (14,314) -
Exceptional costs 6 (2,959) (534)
Depreciation of tangible assets 15 (631) (651)
Amortisation of software 16 (361) (245)
Amortisation of acquired intangible assets 16 (3,716) (4,106)
------------------------------------------------- ---- --------- ---------
(Loss)/profit from operating activities (4,518) 11,167
Finance income 13 475 46
Finance costs 13 (9,121) (7,907)
(Loss)/profit before tax (13,164) 3,306
------------------------------------------------- ---- --------- ---------
Income tax credit/(expense) 14 373 (315)
(Loss)/profit and total comprehensive,
(loss)/income for the year (12,791) 2,991
------------------------------------------------- ---- --------- ---------
Pence Pence
------------------------------------------------- ---- --------- ---------
(Loss)/earnings per share attributable
to the ordinary equity holders of the
company:
Basic and diluted (loss)/earnings per
share 32 (12.5) 3.1
Adjusted basic earnings per share 32 8.1 7.8
Adjusted diluted earnings per share 32 8.0 7.8
------------------------------------------------- ---- --------- ---------
Consolidated statement of financial position
as at 31 March 2017
Assets Note 31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------- ---- -------- --------
Non-current assets
Property, plant and equipment 15 1,342 1,529
Intangible assets 16 58,595 61,940
Deferred tax assets 18 36 36
--------------------------------------- ---- -------- --------
59,973 63,505
--------------------------------------- ---- -------- --------
Current assets
Trade and other receivables 19 12,320 12,510
Current income tax asset 20 597 -
Cash and cash equivalents 21 4,880 2,740
--------------------------------------- ---- -------- --------
17,797 15,250
--------------------------------------- ---- -------- --------
Total assets 77,770 78,755
--------------------------------------- ---- -------- --------
Equity and liabilities
Equity attributable to owners of the
parent
Share capital 26 68 40
Share premium 27 49,958 -
Investment in own shares held in trust 27 (465) (2,717)
Accumulated deficit 27 (20,612) (18,669)
--------------------------------------- ---- -------- --------
Total equity/(deficit) 28,949 (21,346)
--------------------------------------- ---- -------- --------
Liabilities
Non-current liabilities
Loans and borrowings 22 32,829 83,282
Deferred income tax liabilities 18 6,542 7,219
--------------------------------------- ---- -------- --------
39,371 90,501
--------------------------------------- ---- -------- --------
Current liabilities
Loans and borrowings 22 22 18
Provisions for other liabilities and
charges 25 1,069 391
Trade and other payables 23 8,359 8,664
Current income tax liabilities 24 - 425
Derivative financial liabilities 17 - 102
--------------------------------------- ---- -------- --------
9,450 9,600
--------------------------------------- ---- -------- --------
Total liabilities 48,821 100,101
--------------------------------------- ---- -------- --------
Total equity and liabilities 77,770 78,755
--------------------------------------- ---- -------- --------
Consolidated statement of changes in equity
for the year ended 31 March 2017
Investment
in
Share Share own Accumulated Total
capital premium shares deficit equity/(deficit)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- -------- -------- ---------- ----------- -----------------
Balance at 1 April 2015 1,022 - (50) (2,095) (1,123)
Comprehensive income and total
comprehensive income for the
year - - - 2,991 2,991
----------------------------------------- -------- -------- ---------- ----------- -----------------
Contributions by and distributions
to owners
Share capital issued 50 - - - 50
Investment in own shares held
in trust - - (2,667) - (2,667)
Share capital cancellation (1,032) - - 1,032 -
Dividends paid - - - (20,597) (20,597)
----------------------------------------- -------- -------- ---------- ----------- -----------------
Balance at 31 March 2016 40 - (2,717) (18,669) (21,346)
----------------------------------------- -------- -------- ---------- ----------- -----------------
Balance at 1 April 2016 40 - (2,717) (18,669) (21,346)
Comprehensive loss and total
comprehensive loss for the year - - - (12,791) (12,791)
----------------------------------------- -------- -------- ---------- ----------- -----------------
Contributions by and distributions
to owners
Bonus issue of shares 10 - - (10) -
Share capital issued 18 51,267 - - 51,285
Share issue costs - (1,309) - - (1,309)
Shares sold by employee benefit
trust for cash - - 86 519 605
Share-based payment expense -
equity settled from employee
benefit trust - - 2,166 10,310 12,476
Share-based payment expense -
IFRS2 charge in respect of long-term
incentives - - - 29 29
----------------------------------------- -------- -------- ---------- ----------- -----------------
Total contributions by and distributions
to owners 28 49,958 2,252 10,848 63,086
----------------------------------------- -------- -------- ---------- ----------- -----------------
Balance at 31 March 2017 68 49,958 (465) (20,612) 28,949
----------------------------------------- -------- -------- ---------- ----------- -----------------
Consolidated statement of cash flows
for the year ended 31 March 2017
Year Year
ended ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
------------------------------------------- ---- --------- ---------
Cash flows from operating activities
(Loss)/profit for the year (12,791) 2,991
Adjustments for:
Depreciation 15 631 651
Amortisation 16 4,077 4,351
Finance income 13 (475) (46)
Finance costs 13 9,121 7,907
Share-based payment expense 12 12,505 -
Income tax (credit)/expense 14 (373) 315
------------------------------------------- ---- --------- ---------
12,695 16,169
------------------------------------------- ---- --------- ---------
Increase in trade and other receivables (458) (455)
Decrease in trade and other payables (189) (691)
Increase in provisions 678 303
------------------------------------------- ---- --------- ---------
12,726 15,326
------------------------------------------- ---- --------- ---------
Income tax paid (1,327) (2,063)
Net cash inflow from operating activities 11,399 13,263
------------------------------------------- ---- --------- ---------
Cash flows from investing activities
Finance income received 13 11 13
Purchases of property, plant and equipment 15 (444) (184)
Purchases of software 16 (732) (403)
------------------------------------------- ---- --------- ---------
Net cash outflow from investing activities (1,165) (574)
------------------------------------------- ---- --------- ---------
Cash flows from financing activities
Proceeds from the issue of share capital 49,976 50
Proceeds from new loans net of capitalised
costs - 82,493
Repayment of financial derivative (504) -
Repayment of loans (53,261) (71,522)
Sale/(repurchase) of own shares 605 (2,667)
Interest paid (4,876) (4,345)
Payment of finance lease liabilities (34) (34)
Dividends paid - (20,597)
------------------------------------------- ---- --------- ---------
Net cash outflow from financing activities (8,094) (16,622)
------------------------------------------- ---- --------- ---------
Net increase/(decrease) in cash and cash
equivalents 2,140 (3,933)
Cash and cash equivalents at start of
the year 2,740 6,673
------------------------------------------- ---- --------- ---------
Cash and cash equivalents at end of year 21 4,880 2,740
------------------------------------------- ---- --------- ---------
Notes to the consolidated financial information
for the year ended 31 March 2017
1 Accounting policies
Xafinity plc (the "Company") is a public limited company incorporated in the UK. On 6 February 2017 Xafinity Group Holdings (Reading) Limited changed its name to Xafinity plc and the Company re-registered as a public limited company. The principal activity of the Group is employee benefit consultancy and related business services. The registered office is Phoenix House, 1 Station Hill, Reading RG1 1NB. The Group financial information consolidate those of the Company and its subsidiaries (together referred to as the "Group").
Basis of preparation
The financial information set out herein does not constitute the Group's statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2016 have been delivered to the Registrar of Companies and those for the year ended 31 March 2017 will be delivered following the Group's annual general meeting to be held on 14 September 2017. The external auditor has reported on the 2016 and 2017 accounts and its reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
This financial information has been prepared on the basis of the accounting policies as set out below.
Functional and presentation currency
The financial information is presented in British Pounds which is the Company's functional currency. Figures are rounded to the nearest thousand.
Measurement convention
The financial information is prepared on the historical cost basis except for the measurement of certain financial instruments.
Basis of consolidation
Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any elements of control.
De-facto control exists in situations where the company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether defacto control exists the company considers all relevant facts and circumstances, including:
-- The size of the company's voting rights relative to both the size and dispersion of other parties who hold voting rights
-- Substantive potential voting rights held by the company and by other parties -- Other contractual arrangements -- Historic patterns in voting attendance.
The consolidated financial information presents the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial information incorporates the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of the acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.
Derivative financial instruments
Derivatives have been used to hedge the Group's exposure to fair value interest rate risk. The hedged item is remeasured to take into account the gain or loss attributable to the hedged risk with the gains or losses arising recognised in profit or loss. This offsets the gain or loss arising on the hedging instrument which is measured at fair value through profit or loss.
Third party valuations are used to fair value the Group's derivatives.
Property, plant and equipment
Property, plant and equipment are stated at historic cost less accumulated depreciation. For items acquired as part of a business combination, cost comprises the deemed fair value of those items at the date of acquisition. Depreciation on those items is charged over their estimated remaining useful lives from that date.
Depreciation is charged to profit and loss in the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Estimated useful lives are as follows:
-- Office equipment Three to ten
years
-- Leasehold improvements Five years
-- Fixtures and fittings Three to ten
years
Going concern
Accounting standards require the Directors to consider the appropriateness of the going concern basis when preparing the financial information. The Directors have taken notice of the Financial Reporting Council guidance 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2010' which requires the reasons for this decision to be explained.
The Directors have prepared cash flow forecasts for a period including 12 months from the date of approval of this financial information which show that during that period the group is expected to generate sufficient cash from its operations to settle its liabilities as they fall due without the requirement for additional borrowings. Therefore the Directors conclude that the Group has adequate resources to continue in operational existence for the foreseeable future and they continue to adopt the going concern basis of accounting in preparing this annual financial information.
Intangible assets and goodwill
Goodwill represents amounts arising on acquisition, being the difference between the cost of the acquisition and the net fair value of the identifiable assets and liabilities acquired on a business combination. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units for the purposes of impairment testing and is not amortised. It is tested annually for impairment.
Externally acquired intangible assets are stated at cost less accumulated amortisation and impairment losses.
Acquired software is valued based on replacement cost valuations where identifiable or at cost less accumulated amortisation and impairment. Internally produced software is valued at cost less accumulated amortisation and impairment.
Customer relationships are valued based on the net present value of the excess earnings generated by the revenue streams over their estimated useful lives.
Brands valuation is based on net present value of estimated royalty returns.
Amortisation is charged to profit and loss in the statement of comprehensive income over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life, such as goodwill, are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. Estimated useful lives are as follows:
-- Goodwill Indefinite life
-- Customer relationships Ten years, reducing balance
method
-- Brands Ten years, straight line
method
-- Software Three to four years,
straight line method
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity.
Fair value through profit or loss
This category comprises only in-the-money derivatives (see "Financial liabilities" section for out-of-money derivatives). They are carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income in the finance income or expense line. Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
Loans and other receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments, that are not quoted in an active market. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment and are included in non-current assets as their maturity is greater than 12 months after the end of the reporting period.
Trade receivables are stated initially at fair value then measured at amortised cost less provisions for impairment. Provisions for impairment are recognised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The impairment recorded is the difference between the carrying value of the receivables and the estimated future cash flows discounted where appropriate. Any impairment required is recorded in the statement of comprehensive income within administrative expenses.
Cash and cash equivalents comprise cash balances and call deposits.
Financial liabilities
The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Group's accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises only out-of-the-money derivatives (see "Financial assets" for in-the-money derivatives). They are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income. The Group does not hold or issue derivative instruments for speculative purposes, but for hedging purposes. Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.
Other financial liabilities
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of comprehensive income over the period of the borrowings on an effective interest basis. When borrowings are extinguished, any difference between the cash paid and the carrying value is recognised in the statement of comprehensive income.
Trade payables and other short term monetary liabilities represent liabilities for goods and services received by the Group prior to the end of the financial year which are unpaid. The amounts within trade payables are unsecured. They are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Provisions
A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate.
Dilapidations provisions relate to the estimated cost to put leased premises back to the required condition expected under the terms of the lease. These include provisions for wear and tear along with provisions where leasehold improvements have been made that would require reinstatement back to the original status on exit. These are uncertain in timing as leases may be terminated early or extended. To the extent that exits of premises are expected within 12 months of the end of the year they are shown as current.
Professional indemnity provisions relate to complaints against the Group. The amount provided is based on management's best estimate of the likely liability and is capped to the excess on the Group's professional indemnity insurance on a case by case basis where covered and settled on a net basis.
Social security costs provisions represent estimates of the Group's national insurance contributions liability on the cost of the Group's Performance Share Plan.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Retirement benefits: Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.
Employee benefit trust (EBT)
As the Group is deemed to have control of its EBT, it is treated as a subsidiary and consolidated for the purposes of the consolidated financial information. The EBT's investment in the Group's shares is deducted from equity in the consolidated statement of financial position as if it were treasury shares. Consideration paid (or received) for the purchase (or sale) of these shares is recognised directly in equity. The cost of shares held is presented as a separate reserve (the "investment in own shares"). Any excess of the consideration received on the sale of these shares over the weighted average cost of the shares sold is credited to retained earnings.
The equity-settled share-based payment expense represents the amount of share awards made by the Employee Benefit Trust on behalf of the company as instructed by the company. Proceeds from the subsequent sale of the share awards were transferred to employees via payroll on their behalf the values being based on the share price at IPO.
EBT equity settled awards, which vest immediately on issue, are measured at the fair value of the shares issued on the date of the award, representing the bid price of the shares, the share based payment expense is charged to the consolidated statement of comprehensive income.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the directors and in the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.
Revenue
Revenue, which excludes value added tax, represents the invoiced value of employee benefit consultancy and related business services supplied. Revenue is derived mainly from sales made in the United Kingdom. Revenue derived from outside the United Kingdom is immaterial.
Amounts recognised as revenue but not yet billed are reflected in the statement of financial position as accrued income. Amounts billed in advance of work performed are deferred in the statement of financial position as deferred income.
Revenue in respect of time and materials contracts is recognised as the services are performed. Revenue relating to fixed fee contracts is recognised evenly over the contract period. Commission income is recognised on renewal of scheme membership.
Expenses
Exceptional costs
Exceptional costs are items which due to their size, incidence and non-recurring nature have been classified separately in order to draw them to the attention of the reader of the financial information and, in management's judgement, to show more accurately the underlying profits of the group. Such items are included within the statement of comprehensive income caption to which they relate, and are separately disclosed in the notes to the financial information.
Operating lease payments
Payments made under operating leases are recognised in profit and loss in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of comprehensive income as an integral part of the total lease expense and are spread over the term of the lease.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Foreign exchange policy
Transactions entered into by Group entities in a currency other than the functional currency (GBP) are recorded at the rates ruling when the transactions occur.
Any exchange rate differences are recognised immediately through the statement of comprehensive income.
Net finance costs
Net finance costs comprise interest payable, interest receivable on own funds, gains and/or losses on the Group's interest rate swaps, foreign exchange gains and losses and costs directly related to the raising of loans.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
Share-based payment costs - Performance Share Plan
-- The Group operates an equity-settled, share-based compensation plan, under which the entity receives services from the executive directors in consideration for equity instruments of the Group. The fair value of the director services received in exchange for the grant of the awards is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the awards granted:
-- including any market performance conditions (for example, an entity's share price); and
-- including the impact of any service and non-market performance vesting conditions (for example, profitability and remaining a director for a specified period of time);
-- Share-based payment costs in respect of the Performance Share Plan in the year were not material.
Share-based payment costs in respect of the Performance Share Plan in the year were not material.
See the Employee Benefit Trust (EBT) policy above for information on the employee benefit trust element of share-based payment costs.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in profit and loss in the statement of comprehensive income except to the extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards, and interpretations are not effective for 2017, and therefore have not been applied in preparing Xafinity's financial information.
-- IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.
IFRS 9 requires the Company to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Company expects to apply the simplified approach and record lifetime expected losses on all trade receivables.
The Company plans to adopt the new standard on the required effective date. The Company is still assessing the impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9.
-- IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. The Company plans to adopt the new standard on the required effective date. The Company has not yet performed a preliminary assessment of IFRS 15, but plans to do so by December 2017, which will then be subject to changes arising from a more detailed ongoing analysis. Once the analysis is performed, the transition method will be chosen. Based on the current sales contracts, both methods are feasible from implementation perspective. Furthermore, the Company is considering the clarifications issued by the IASB in April 2016 and will monitor any further developments.
-- IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces 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. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019, subject to endorsement by the European Union. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.
The Group has entered into a number of long term leases in respect of land and buildings. The Group has assessed the leases under IFRS 16 and expects an impact as the right of use assets and lease liabilities will come onto the consolidated statement of financial position for the first time in respect of its current operating leases. The Group expects that IFRS 16 will have an impact on the financial information of the Group, however the Group are currently assessing the impact. To see the volume of operating leases please see Note 29 to the Group's consolidated financial information for the year ended March 31, 2017 for more information.
Xafinity is currently reviewing the impact of the above-mentioned Standards and Interpretations and is yet to conclude on whether any such standards will have a significant impact on the financial information of the Group in the year of initial application.
The other standards, interpretations and amendments issued by the IASB (of which some still subject to endorsement by the European Union), but not yet effective are not expected to have a material impact on the Group's consolidated financial information.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Fair values of intangible assets
Goodwill and intangibles are tested for impairment at the cash generating unit level on an annual basis at the year end and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of cash generating units, assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair value of a unit. The fair value of each cash generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur and determination of our weighted average cost of capital.
Deferred tax
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Throughout the current and prior periods the directors consider that the IAS 12 recognition criteria have been satisfied.
Provisions
Dilapidations provisions have been made for properties which the Group currently lease based upon the cost to make good the property in accordance with lease terms where applicable. Provisions are made for claims in respect of complaints against the Group. The amount provided is based on management's best estimate of the likely liability. The cost to the business is capped to the excess on the Group's professional indemnity insurance in respect of each individual claim.
Useful lives of intangible assets
Intangible assets are amortised over their estimated useful lives with the charge recorded in administrative expenses. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods.
Business combinations
The Directors determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date. The purchase price allocation process requires the use of significant estimates and assumptions, including the estimated fair value of the acquired intangible assets.
While the Directors use their best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
-- future expected Cash flows from customer relationships and brands -- the fair value of the property, plant and equipment; and -- discount rates
Exceptional costs
Exceptional costs are recognised to the extent that they meet the definition outlined in the accounting policy above. This requires a certain amount of judgement that is applied consistently by management.
2 Financial risk management
The Xafinity Group's operations expose it to a variety of financial risks including credit risk, liquidity risk and the effects of changes in interest rates on debt. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Group by monitoring levels of debt finance and the related finance costs.
The Group's principal financial instruments comprise sterling cash, bank deposits, bank loans, overdrafts and shareholder loans together with trade receivables and trade payables that arise directly from its operations.
The Group has exposure to the following risks from its use of financial instruments:
credit risk
liquidity risk
market risk
cash flow interest rate risk
Risk management policies are established for the Xafinity group of companies and the Group Audit Committee oversees how management monitors compliance with these policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty, including brokers, to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers.
Due to the nature of the business the majority of the trade receivables are with trustees of pension schemes and large institutions and losses have occurred infrequently over previous years.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that the Group will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions.
Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates and equity prices will effect the Group's income or the value of its financial instruments. Interest rate risks are discussed in the cash flow interest rate risk below.
The Group's financial instruments are currently in sterling, hence foreign exchange movements do not have a material effect on the Group's performance.
The Group is exposed to movements in interest rate in its net finance costs and also in a small element of its operating revenue. Senior loans are linked to LIBOR. The Group earns income in relation to client and shareholder deposits as well as interest income on its own deposits.
Exposure to interest rate fluctuations are partly managed through the use of interest rate swaps. Objectives are established by the board so as to seek to reduce the impact of variations in interest rates on the group's profit and cash flow.
During the majority of the year the Group's senior bank debt was covered by fixed interest rates, achieved by way of a financial instrument (interest rate swap). The balance of bank debt interest is at current market rates. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
The Group does not hold its own position in trading securities, being involved only in arranging transactions on behalf of its clients.
The Group does not engage in holding speculative financial instruments or derivatives. Further quantitative disclosures are included throughout the consolidated financial information.
Cash flow interest rate risk
The Xafinity Group is exposed to cash flow interest rate risk in two main respects. Firstly corporate and client bank deposits, which earn interest at a variable rate, although not at a material level. Secondly, interest expense arising on bank facilities at a margin over LIBOR.
3 Capital risk management
The Group is focused on delivering value for its shareholders whilst ensuring the Group is able to continue effectively as a going concern. Value adding opportunities to grow the business are continually assessed, although strict and careful criteria are applied.
The policies for managing capital are to increase shareholder value by maximising profits and cash. The policy is to set budgets and forecasts in the short and medium term that the Group feels are achievable. The process for managing capital are regular reviews of financial data to ensure that the Group is tracking the targets set and to reforecast as necessary based on the most up to date information. This then contributes to the Xafinity Group's forecast which ensures future covenant test points are met. The Group continues to meet these test points and they have been achieved over the last year.
Due to the nature of some of the services provided, two subsidiaries within the Group are regulated by the Financial Conduct Authority (FCA). They are required to hold a minimum level of capital and this is monitored on a monthly basis. Formal compliance returns are submitted to the FCA in line with their reporting requirements.
4 Auditors' remuneration
During the period the following services were obtained from the group's auditor at a cost detailed below:
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Audit services
Fees payable in respect of the parent company
and consolidated accounts 52 22
Fees payable in respect of the subsidiary
accounts 23 23
---------------------------------------------- --------- ---------
75 45
Non-audit services
Corporate finance fees 281 -
Tax advisory 188 40
Tax compliance 17 17
Other assurance services 53 29
Other services 6 6
---------------------------------------------- --------- ---------
545 92
---------------------------------------------- --------- ---------
Total 620 137
---------------------------------------------- --------- ---------
5 Adjusted EBITDA and adjusted profit after tax
Year Year
ended ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
--------------------------------------------- ---- --------- ---------
(Loss) / profit from operating activities (4,518) 11,167
Adjustments to administrative expenses
Exceptional costs 6 2,959 534
Share-based payment cost 12 14,314 -
Amortisation of acquired intangible assets 16 3,716 4,106
Depreciation of tangible assets 15 631 651
Amortisation of software 16 361 245
--------------------------------------------- ---- --------- ---------
21,981 5,536
--------------------------------------------- ---- --------- ---------
Adjusted EBITDA - Earnings before interest,
tax, depreciation and amortisation,
share-based payment costs and exceptional
costs 17,463 16,703
--------------------------------------------- ---- --------- ---------
Adjustments to administrative expenses
Depreciation of tangible assets 15 (631) (651)
Amortisation of software 16 (361) (245)
Finance income 13 475 46
Finance costs 13 (9,121) (7,907)
Add back unamortised loan arrangement
fees written-off as part of re-financing
exercises 13 2,892 1,962
--------------------------------------------- ---- --------- ---------
Adjusted profit before tax, amortisation
of acquired intangible assets,
share-based payment costs and exceptional
costs 10,717 9,908
--------------------------------------------- ---- --------- ---------
Tax 373 (315)
Adjustments to tax
Tax on exceptional costs (204) (107)
Tax on share-based payment costs equity
settled from EBT (2,863) -
Tax on written-off loan arrangement fees (579) (392)
Less deferred tax not recognised 14 1,477 -
Deferred tax related to acquired intangibles 18 (648) (1,518)
--------------------------------------------- ---- --------- ---------
Adjusted profit after tax 8,273 7,576
--------------------------------------------- ---- --------- ---------
Earnings have been adjusted for the tax impact of the adjusting items set out in note 5 by applying the statutory tax rate of 20%. Unrecognised deferred tax in respect of unutilised non-trading losses carried forward have been adjusted for as these would have been relieved had the adjusting items not occurred.
6 Exceptional costs
Year Year
ended ended
31 March 31 March
2016 2017
GBP'000 GBP'000
------------------------------------- --------- ---------
Re-financing costs - 169
IPO costs 1,939 -
Professional indemnity related claim 500 -
Restructuring costs 520 365
------------------------------------- --------- ---------
Total 2,959 534
------------------------------------- --------- ---------
IPO costs comprise the expenses incurred to get the Company listed on the London Stock Exchange. The professional indemnity related claim is a provision for a potential claim in respect of the administration of a particular scheme and is exceptional in nature due to its size. The potential liability is capped at GBP500,000 being the value of the insurance policy excess. The restructuring costs are mainly made up of redundancy costs.
7 Operating segments
In accordance with IFRS 8 'Operating Segments', an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision maker ('CODM') and for which discrete information is available. The Group's CODM is the Board of Directors.
The Group has several operating segments based on geographical location and revenue streams, but one reporting segment due to the nature of services provided across the whole business being the same, pension and employee benefit solutions. The Group's revenues, costs, assets, liabilities and cash flows are therefore totally attributable to this reporting segment.
Operating segments
Year Year
ended ended
31 March 31 March
Revenue from external customers 2017 2016
------------------------------------- --------- ---------
Pensions Advisory and Administration 42,808 42,786
National Pension Trust 682 459
SSAS and SIPP 4,967 4,881
HR Trustees 2,548 2,494
Healthcare 1,033 1,149
------------------------------------- --------- ---------
Total 52,038 51,769
------------------------------------- --------- ---------
8 Administrative expenses
Included in the operating (loss)/profit for the year are the following:
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
----------------------------------------------- --------- ---------
Expenses by nature
Staff costs (note 9) 39,270 25,645
Depreciation and amortisation 4,708 5,002
Operating lease costs 938 922
Premises costs (excluding rent under operating
leases) 818 702
Exceptional costs (see note 6) 2,959 534
Other general business costs 7,863 7,797
----------------------------------------------- --------- ---------
Total 56,556 40,602
----------------------------------------------- --------- ---------
9 Staff numbers and costs
The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:
Year Year
ended ended
31 March 31 March
2017 2016
Number Number
of employees of employees
-------------------- ------------- -------------
Operational 384 384
Administration 28 27
Sales and marketing 17 17
-------------------- ------------- -------------
429 428
-------------------- ------------- -------------
The aggregate payroll costs of these persons were as follows:
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------ --------- ---------
Wages and salaries 21,019 21,621
Social security contributions and similar
taxes 2,237 2,333
Defined contribution pension cost 1,084 1,192
Other long-term employee benefits 616 499
Share based payment costs (See note 12) 14,314 -
------------------------------------------ --------- ---------
39,270 25,645
------------------------------------------ --------- ---------
10 Employee benefits
Defined contribution plan
The Company operates a defined contribution pension plan. Outstanding contributions at the year end were GBP217,000 (2016: GBP207,000).
11 Directors' emoluments
The directors were remunerated for their services by the Group and their emoluments are disclosed below.
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Aggregate emoluments 8,278 1,401
Company contributions to money purchase pension
plans 36 82
Compensation for loss of office - 43
------------------------------------------------ --------- ---------
8,314 1,526
------------------------------------------------ --------- ---------
Year Year
ended ended
31 March 31 March
2017 2016
Number Number
of directors of directors
----------------------------------------------- ------------- -------------
At 31 March 2017, retirement benefits are
accruing to the following number of directors
under:
Money purchase schemes 3 5
----------------------------------------------- ------------- -------------
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- ---------
The emoluments of the highest paid director,
including benefits and share-based payments 4,180 323
--------------------------------------------- --------- ---------
12 Share-based payment costs
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
Share-based payment expense - equity settled
from EBT 12,476 -
Social security cost on equity settled share-based
payment expense 1,803 -
Performance Share Plan awards 29 -
Social security cost on Performance Share
Plan awards 6 -
--------------------------------------------------- --------- ---------
14,314 -
--------------------------------------------------- --------- ---------
Performance Share Plan "PSP"
Number Number
Expiry of shares of shares
date 2017 2016
Grant date/Vest date year '000 '000
--------------------- ------- ---------- ----------
2017-2020 2022 896 -
--------------------- ------- ---------- ----------
896 -
----------------------------- ---------- ----------
The cash flows in respect of the equity share-based payment expense awarded by the Employee Benefit Trust were operated by the Group on behalf of the employees and processed through the Group's payroll making the necessary tax deductions and delivering the proceeds to the relevant individuals. 8,975,000 shares were sold on behalf of staff and directors at a price of GBP1.39 per share.
The Performance Share Plan (PSP) award expense relates to annual awards over shares that vest subject to certain, stretching performance conditions, measured over a three-year period. Maximum "normal" grant level is 150% of salary, capped at a maximum of 200% in exceptional circumstances. Malus and clawback provisions apply. The fair value of awards granted during the year was determined using certain assumptions around vesting. More information about the PSP can be found in the Remuneration report section of this Annual Report.
13 Finance income and expense
Year Year
ended ended
31 March 31 March
2016 2017
GBP'000 GBP'000
-------------------------------------------------- --------- ---------
Interest income on bank deposits 11 13
Income on interest rate swap valuation 464 33
-------------------------------------------------- --------- ---------
Finance income 475 46
-------------------------------------------------- --------- ---------
Interest expense on loans from related parties - 1,535
Interest expense on bank loans 4,509 3,185
Other costs of borrowing 806 1,112
Amortisation of loan arrangement fees written-off
as part of re-financing exercises 2,892 1,962
Interest on finance leases 16 20
Other finance expense 32 2
Expense on interest rate swap valuation 866 91
-------------------------------------------------- --------- ---------
Finance expenses 9,121 7,907
-------------------------------------------------- --------- ---------
Other costs of borrowing largely represent the amortisation expense of capitalised loan arrangement fees on the Group's previous bank debt.
14 Income tax (credit)/expense
Recognised in the statement of comprehensive income
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
-------------------------------------------------- --------- ---------
Current tax expense
Current year (19) 1,641
Income tax payable by the EBT 353 -
Adjustment in respect of prior year (30) 253
-------------------------------------------------- --------- ---------
Total current tax expense 304 1,894
Deferred tax credit
Origination and reversal of temporary differences (677) (1,579)
-------------------------------------------------- --------- ---------
Total income tax (credit)/expense (373) 315
-------------------------------------------------- --------- ---------
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
----------------------------------------- --------- ---------
(Loss)/profit for the year (12,791) 2,991
Total tax (credit)/expense (373) 315
----------------------------------------- --------- ---------
(Loss)/profit before income tax (13,164) 3,306
----------------------------------------- --------- ---------
Tax using the UK corporation tax rate of
20% (2016: 20%) (2,633) 661
----------------------------------------- --------- --------- Non-deductible expenses 409 167 Deferred tax not recognised 1,477 - Fixed asset differences (29) - Income tax payable by the EBT 353 Adjustment in respect of prior periods (30) 253 Other timing differences - (41) Effect of tax rate change 80 (725) ----------------------------------------- --------- --------- Total tax (credit)/expense (373) 315 ----------------------------------------- --------- ---------
The standard rate of Corporation tax in the UK was 20% (2016: 20%). Deferred tax assets and liabilities have been measured at the enacted rate of 17% at 31 March 2017 (2016: 18%).
The deferred tax not recognised relates to finance expense losses in the current year and their future recoverability is uncertain. At 31 March 2017 the total unrecognised deferred tax asset in respect of these losses was approximately GBP1.5m (2016: Nil) representing gross losses of GBP7.4m (2016 : Nil).
15 Property, plant and equipment
Fixtures
Leasehold Office and
improvements equipment fittings Total
Cost GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------- ---------- --------- --------
Balance at 1 April 2016 896 1,190 943 3,029
Additions 132 187 125 444
Disposals - (741) (174) (915)
--------------------------------- ------------- ---------- --------- --------
Balance at 31 March 2017 1,028 636 894 2,558
--------------------------------- ------------- ---------- --------- --------
Accumulated depreciation
Balance at 1 April 2016 309 785 406 1,500
Depreciation charge for the year 189 280 162 631
Disposals - (741) (174) (915)
--------------------------------- ------------- ---------- --------- --------
Balance at 31 March 2017 498 324 394 1,216
--------------------------------- ------------- ---------- --------- --------
Net book value
Balance at 31 March 2016 587 405 537 1,529
--------------------------------- ------------- ---------- --------- --------
Balance at 31 March 2017 530 312 500 1,342
--------------------------------- ------------- ---------- --------- --------
Fixtures
Leasehold Office and
improvements equipment fittings Total
Cost GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------- ---------- --------- --------
Balance at 1 April 2015 896 1,039 910 2,845
Additions - 151 33 184
--------------------------------- ------------- ---------- --------- --------
Balance at 31 March 2016 896 1,190 943 3,029
--------------------------------- ------------- ---------- --------- --------
Accumulated depreciation
Balance at 1 April 2015 134 436 279 849
Depreciation charge for the year 175 349 127 651
--------------------------------- ------------- ---------- --------- --------
Balance at 31 March 2016 309 785 406 1,500
--------------------------------- ------------- ---------- --------- --------
Net book value
Balance at 1 April 2015 762 603 631 1,996
--------------------------------- ------------- ---------- --------- --------
Balance at 31 March 2016 587 405 537 1,529
--------------------------------- ------------- ---------- --------- --------
The net book value of property, plant and equipment includes the following amounts held under finance lease: Office equipment: GBP42,000 (2016: GBP62,000). The depreciation charged in the year relating to these assets was GBP20,000 (2016: GBP20,000).
16 Intangible assets
Customer
Goodwill relationships Brands Software Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------------- -------- -------- --------
Cost
Balance at 1 April 2016 24,782 49,898 628 1,008 76,316
Additions - - - 732 732
Disposals - - - (277) (277)
-------------------------- -------- -------------- -------- -------- --------
Balance at 31 March 2017 24,782 49,898 628 1,463 76,771
-------------------------- -------- -------------- -------- -------- --------
Accumulated amortisation
Balance at 1 April 2016 - 13,794 195 387 14,376
Amortisation for the year 3,653 63 361 4,077
Disposals - - - (277) (277)
-------------------------- -------- -------------- -------- -------- --------
Balance at 31 March 2017 - 17,447 258 471 18,176
-------------------------- -------- -------------- -------- -------- --------
Net book value
Balance at 1 April 2016 24,782 36,104 433 621 61,940
-------------------------- -------- -------------- -------- -------- --------
Balance at 31 March 2017 24,782 32,451 370 992 58,595
-------------------------- -------- -------------- -------- -------- --------
Customer
Goodwill relationships Brands Software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------------- -------- -------- --------
Cost
Balance at 1 April 2015 24,782 49,898 628 605 75,913
Additions - - - 403 403
Balance at 31 March 2016 24,782 49,898 628 1,008 76,316
-------------------------- -------- -------------- -------- -------- --------
Accumulated amortisation
Balance at 1 April 2015 - 9,751 132 142 10,025
Amortisation for the year - 4,043 63 245 4,351
-------------------------- -------- -------------- -------- -------- --------
Balance at 31 March 2016 - 13,794 195 387 14,376
-------------------------- -------- -------------- -------- -------- --------
Net book value
Balance at 1 April 2015 24,782 40,147 496 463 65,888
-------------------------- -------- -------------- -------- -------- --------
Balance at 31 March 2016 24,782 36,104 433 621 61,940
-------------------------- -------- -------------- -------- -------- --------
At 31 March 2017, the remaining amortisation period for Customer relationships was 7 years.
Impairment test
Goodwill represents the excess of the consideration over the fair value of the net assets acquired on the purchase of the subsidiary companies listed in note 33. In accordance with IFRS, this balance is not amortised and is subject to annual impairment reviews. Goodwill has been allocated to its cash generating unit which comprises Xafinity Consulting Limited, Xafinity SIPP Services Limited, Xafinity Pensions Consulting Limited and their subsidiaries.
The cash generating unit at each year/period end was assessed on the basis of value in use using the following assumptions, which reflect past experience of the Group:
2017 2016
--------------------------------------------- ------- -------
Discount rate pre-tax 15% 12.5%
Terminal value after period 8 2.0% 2.0%
Period on which detailed forecasts are based 3 years 3 years
Growth rate during 3 year detailed forecast
period (average) 5.5% 4.7%
Growth rate applied beyond approved forecast
period to year 8 5.0% 5.8%
--------------------------------------------- ------- -------
The growth rate beyond the forecast period is based on a blend of average growth rates experienced by the Group and management's assessment of industry and macro-economic outlooks. Such forecast rates have been accurate in the past. Therefore the Directors believe they can be used.
2017 2016
Goodwill allocated to cash generating units: GBP'000 GBP'000
------------------------------------------------- -------- --------
Goodwill - Xafinity Consulting Limited, Xafinity
SIPP Services Limited, Xafinity Pensions
Consulting Limited and subsidiaries: 24,782 24,782
------------------------------------------------- -------- --------
On review, the directors are satisfied that no impairment has taken place throughout the historical financial period.
Sensitivity analysis of assumptions
No sensitivity analysis has been performed on the basis that there was no reasonably foreseeable changes in the above assumptions which would result in the recoverable amount falling below the carrying amount.
17 Derivative financial assets & liabilities
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Current liability
Interest rate swap derivative - (102)
---------------------------------------------------- -------- --------
- (102)
---------------------------------------------------- -------- --------
Net interest rate swap derivative asset/(liability) - (102)
---------------------------------------------------- -------- --------
The Group previously entered into floating-to-fixed interest rate swaps to hedge the fair value interest rate risk arising where it had borrowed at floating rates.
The Group no longer has any outstanding interest rate swaps at 31 March 2017. The notional principal amounts of the two interest rate swap contracts at 31 March 2016 were GBP36,292,000 and GBP18,129,000. Their net fair value was a liability of GBP102,000.
The net expense recognised in the consolidated statement of comprehensive income that arises from movements in the fair value of the derivatives amounts to GBP402,000 (2016: GBP58,000).
The interest rate swap derivatives were valued by the financial institutions that issued the instruments and were calculated at the present value of the estimated future cash flows based on observable yield, using level 2 inputs. They were accounted for as fair value through profit and loss.
18 Deferred income tax
Analysis of the breakdown and movement of deferred tax during the year is as follows:
Balance
at 31 March 31 March
1 April Recognised 31 March 2017 2017
2016 in income 2017 Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- ---------- -------- -------- ------------
Property, plant and equipment 54 (29) 25 - 25
Capital gains 717 - 717 - 717
Short-term temporary differences (36) - (36) 36 -
Business combinations 6,448 (648) 5,800 - 5,800
--------------------------------- -------- ---------- -------- -------- ------------
7,183 (677) 6,506 36 6,542
--------------------------------- -------- ---------- -------- -------- ------------
Balance
at 31 March 31 March
1 April Recognised 31 March 2016 2016
2015 in income 2016 Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- ---------- -------- -------- ------------
Property, plant and equipment 75 (21) 54 - 54
Capital gains 717 - 717 - 717
Short-term temporary differences (36) - (36) 36 -
Other timing differences 40 (40) - - -
Business combinations 7,966 (1,518) 6,448 - 6,448
--------------------------------- -------- ---------- -------- -------- ------------
8,762 (1,579) 7,183 36 7,219
--------------------------------- -------- ---------- -------- -------- ------------
Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit through future taxable profits is probable. Deferred tax has been recognised at 31 March 2017 using a rate of 18%.
19 Trade and other receivables
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Trade receivables 6,468 6,845
Less: provision for impairment of trade receivables (229) (139)
---------------------------------------------------- -------- --------
Net trade receivables 6,239 6,706
Accrued income 4,071 4,104
---------------------------------------------------- -------- --------
Total financial assets other than cash and
cash equivalents classified as loans and
receivables 10,310 10,810
Prepayments 1,902 916
Other receivables includes GBP53,000 (2016:
GBP701,000) of capitalised loan arrangement
fees 108 784
---------------------------------------------------- -------- --------
Total trade and other receivables 12,320 12,510
---------------------------------------------------- -------- --------
The carrying value of trade and other receivables classified as loans and receivables approximates to fair value.
20 Current income tax asset
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------- -------- --------
Tax receivable 597 -
--------------- -------- --------
597 -
--------------- -------- --------
The tax receivable balance has arisen primarily due to a deduction for share-based payments paid to staff as part of the IPO and the accelerated charge on loan arrangement fees relating to the previous senior debt of GBP86,000,000. This loan was repaid as part of the IPO re-financing exercise and the related fees were expensed to the comprehensive statement of income. The resulting tax liability for the year fell below the payments on account which the Group had already made.
21 Cash and cash equivalents
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------- -------- --------
Cash and cash equivalents per statement of
financial position 4,880 2,740
------------------------------------------- -------- --------
Cash and cash equivalents per statement of
cash flows 4,880 2,740
------------------------------------------- -------- --------
The balance comprises solely of cash at bank and on hand.
22 Loans and borrowings
The book value and fair value of loans and borrowings are as follows:
Due Due
within between Due Sub-total
1 year 1 & after (non
(current) 2 years 2 years current) Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ---------- -------- -------- --------- --------
Senior Debt (secured) - - 15,000 15,000 15,000
Revolving Credit Facility - - 18,000 18,000 18,000
Capitalised debt arrangement
fees - (53) (155) (208) (208)
Finance lease 22 28 9 37 59
------------------------------ ---------- -------- -------- --------- --------
Sub-total 22 (25) 32,854 32,829 32,851
------------------------------ ---------- -------- -------- --------- --------
Capitalised debt arrangement
fees shown as current assets
on balance sheet (53) - - - (53)
------------------------------ ---------- -------- -------- --------- --------
Total (31) (25) 32,854 32,829 32,798
------------------------------ ---------- -------- -------- --------- --------
22 Loans and borrowings continued
Due Due
within between Due Sub-total
1 year 1 & after (non
(current) 2 years 2 years current) Total
31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---------- -------- -------- --------- --------
Senior Debt (secured) - - 86,000 86,000 86,000
Capitalised Senior debt arrangement
fees - (701) (2,074) (2,775) (2,775)
Finance lease 18 22 35 57 75
------------------------------------ ---------- -------- -------- --------- --------
Sub-total 18 (679) 83,961 83,282 83,300
------------------------------------ ---------- -------- -------- --------- --------
Capitalised debt arrangement
fees shown as current assets
on balance sheet (701) - - - (701)
------------------------------------ ---------- -------- -------- --------- --------
Total (683) (679) 83,961 83,282 82,599
------------------------------------ ---------- -------- -------- --------- --------
Terms and debt repayment schedule
Amount Nominal interest Year
31 March 2017 GBP'000 Currency rate of maturity
------------------------- -------- -------- ----------------- ------------
Senior Debt B 15,000 GBP 1.75% above LIBOR 2022
Revolving Credit Facility 18,000 GBP 1.75% above LIBOR 2022
------------------------- -------- -------- ----------------- ------------
Amount Nominal interest Year
31 March 2016 GBP'000 Currency rate of maturity
------------- -------- -------- ----------------- ------------
Senior Debt B 86,000 GBP 5.25% above LIBOR 2021
------------- -------- -------- ----------------- ------------
On 17 February 2017, as part of the IPO related re-financing exercise, the Group replaced its existing GBP86,000,000 bank loan with new senior debt of GBP15,000,000 and a drawn revolving credit facility of GBP18,000,000.
At 31 March 2017 the Group had access to a further undrawn rolling facility loan in the amount of GBP5,000,000 (2016: GBP3,000,000). The related fees for access to the facility are included in the consolidated statement of comprehensive income.
Capitalised loan related costs are amortised over the life of the loan to which they relate.
Bank debt is secured by way of debentures in the group companies which are obligors to the loans. These are Xafinity (Reading) Limited, Xafinity Consulting (Reading) Limited, Xafinity Consulting Limited (and its subsidiaries), Xafinity Pension Consulting Limited (and its subsidiaries) and Xafinity SIPP Services Limited.
23 Trade and other payables
31 March 31 March
2017 2016
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Trade payables 1,821 287
Accrued expenses 3,294 4,223
Interest payable 80 226
----------------------------------------------------- -------- --------
Total financial liabilities excluding loans
and borrowings, classified as financial liabilities
less amortised cost 5,195 4,736
Other payables - tax and social security
payments 636 1,005
Other payables - VAT 1,072 1,481
Deferred income 1,207 1,196
Other payables 249 246
----------------------------------------------------- -------- --------
Total trade and other payables 8,359 8,664
----------------------------------------------------- -------- --------
The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates to fair value.
24 Current income tax liabilities
31 March 31 March
2017 2016
GBP'000 GBP'000
------------ -------- --------
Tax payable - 425
------------ -------- --------
- 425
------------ -------- --------
25 Provisions for other liabilities and charges
Social
security
costs
on Performance
Share Professional
Plan Dilapidations Indemnity Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------------- ------------- ------------ --------
Current
Balance at 1 April 2016 - 139 252 391
Provisions made during the year 6 51 834 891
Provisions used during the year - - (102) (102)
Provisions released unused during
the year - - (111) (111)
---------------------------------- --------------- ------------- ------------ --------
Balance at 31 March 2017 6 190 873 1,069
---------------------------------- --------------- ------------- ------------ --------
Social
security
costs
on Performance
Share Professional
Plan Dilapidations Indemnity Total
31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------------- ------------- ------------ --------
Current
Balance at 1 April 2015 - 88 - 88
Provisions made during the year - 51 252 303
-------------------------------- --------------- ------------- ------------ --------
Balance at 31 March 2016 - 139 252 391
-------------------------------- --------------- ------------- ------------ --------
The Group is involved in a number of potential professional indemnity claims. The amount provided represents the directors' best estimate of the Group's liability having taken legal advice. Uncertainties relate to whether claims will be settled out of court or if not whether the Group is successful in defending any action. Because of the nature of the disputes, the directors have not disclosed future information on the basis that they believe that this would be seriously prejudicial to the Group's position in defending the cases brought against it.
The increase in professional indemnity provisions made in the period to March 2017 includes an exceptional charge of GBP0.5 million to provide for a potential claim in respect of the administration of a particular scheme.
26 Share capital
Ordinary Ordinary
Ordinary Ordinary shares shares
shares shares ('000) (GBP'000)
('000) (GBP'000) 31 March 31 March
31 March 31 March
2017 2017 2016 2016
--------------------------------- --------- ---------- --------- ----------
In issue at the beginning of the
year 3,971 40 102,215 1,022
Bonus issue (per ratio 1.259:1) 1,029 10 - -
Subdivision of shares (per ratio
20:1) 95,000 - - -
--------------------------------- --------- ---------- --------- ----------
Balance after bonus issue 100,000 50 102,215 1,022
Issued during the year 36,896 18 4,947 50
Cancellation of share capital - - (103,191) (1,032)
--------------------------------- --------- ---------- --------- ----------
In issue at the end of the year 136,896 68 3,971 40
--------------------------------- --------- ---------- --------- ----------
Ordinary shares 136,896 68 - -
Class A & B shares - - 2,586 26
Class C Shares - - 910 9
Class D shares - - 475 5
--------------------------------- --------- ---------- --------- ----------
Total 136,896 68 3,971 40
--------------------------------- --------- ---------- --------- ----------
On 3 February 2017, the Company made a bonus issue of 1,028,823 ordinary shares of GBP0.01 per share for GBP10,288 through the capitalisation of reserves, to increase the nominal value of the share capital to GBP50,000, as required by the London Stock Exchange, to become a public limited company. On 10 February 2017 the Company converted its existing A to D shares to one class of ordinary shares and subdivided these GBP0.01 ordinary shares into GBP0.0005 ordinary shares.
31 March 31 March
31 March 31 March
2017 2017 2016 2016
('000) (GBP'000) (GBP'000) (GBP'000)
------------------------------------ -------- ---------- ---------- ----------
Allotted, called up and fully paid
Ordinary shares of 0.05p (2016: 1p)
each 135,059 67 3,577 36
Shares held by the Group's employee
benefit trust
Ordinary shares of 0.05p (2016: 1p)
each 1,837 1 394 4
Shares classified in shareholders'
funds 136,896 68 3,971 40
------------------------------------ -------- ---------- ---------- ----------
The Group has invested in the shares for its Employee benefit trust (EBT). These shares are held on behalf of employees and legal ownership will transfer to those employees on the exercise of an award. This investment in own shares held in trust is deducted from equity in the consolidated statement of changes in equity.
27 Reserves
The following describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
Accumulated
deficit:
Share premium: All net gains and losses recognised
through the consolidated statement of
comprehensive income
Investment in Amounts subscribed for share capital
own shares: in excess of nominal value.
28 Financial instruments
The fair values and the carrying values of financial assets and liabilities are the same.
Third party valuations are used to fair value the Group derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between inputs.
Credit risk
The maximum exposure to credit risk at the reporting date was:
Carrying Carrying
Amount Amount
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Trade receivables 6,468 6,845
Provision for impairment of trade receivables (229) (139)
---------------------------------------------- --------- ---------
Net trade receivables due 6,239 6,706
Accrued income 4,071 4,104
Cash and cash equivalents 4,880 2,740
---------------------------------------------- --------- ---------
15,190 13,550
---------------------------------------------- --------- ---------
Credit risk mitigation
The ageing of trade receivables at the reporting date was:
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------- -------- --------
Not past due 4,720 5,000
Past due 0-30 days 1,020 1,389
Past due 31-90 days 392 316
Past due more than 90 days 336 140
------------------------------------------- -------- --------
6,468 6,845
------------------------------------------- -------- --------
Movement in impairment allowance for trade
receivables
Balance at start of the year 139 167
Increase/(decrease) during the year 165 (10)
Receivable written off during the year as
uncollectable (11) (14)
Reversal of allowances (64) (4)
------------------------------------------- -------- --------
Balance at end of the year 229 139
------------------------------------------- -------- --------
28 Financial instruments continued
Based on historic performance of these contracts, the Group believes that an impairment allowance of GBP229,000 (2015: GBP139,000) is adequate in respect of trade receivables. All impaired debts are more than 90 days past due. Those debts which have not been provided against are considered recoverable by the Group.
Cash flow risk
The Xafinity Group is exposed to cash flow interest rate risk in two main respects. Firstly corporate and client bank deposits, which earn interest at a variable rate, although not at a material level. Secondly, interest expense arising on bank facilities at a margin over LIBOR.
Interest rate risk
The interest rate on long-term borrowings is a margin over LIBOR and as such the Company is at risk from LIBOR increases.
In the previous year, this risk has been mitigated by hedging 100% of the bank debt using two fixed rate interest rate swap derivatives. The rates were fixed at 0.671%, 1.079% and 0.895%. The net loss on the interest rate swap recognised in the consolidated statement of comprehensive income for the year ended 31 March 2017 was GBP402,000 (2016: GBP58,000).
Liquidity risk
Liquidity risk arises from the Group's working capital and the finance charges and principal repayments on its debt instruments. It is the risk the Group will encounter difficulty in meeting its financial obligations as they fall due.
The following table sets out the contractual maturities (representing undiscounted cash flows) of financial liabilities:
Between Between Between
Up to 3 & 1 & 2 & Over 31 March
3 months 12 months 2 years 5 years 5 years 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- ---------- -------- -------- -------- --------
Trade and other payables 5,195 - - - - 5,195
Finance leases 8 25 34 9 - 76
Loans and borrowings - - - 33,000 - 33,000
Bank interest 174 465 411 1,029 - 2,079
------------------------- --------- ---------- -------- -------- -------- --------
5,377 490 445 34,038 - 40,350
------------------------- --------- ---------- -------- -------- -------- --------
Between Between Between
Up to 3 & 1 & 2 & Over 31 March
3 months 12 months 2 years 5 years 5 years 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables 4,736 - - - - 4,736
Finance leases 9 25 34 42 - 110
Loans and borrowings - - - 86,000 - 86,000
Bank interest - 5,201 5,216 15,419 - 25,836
------------------------- --------- ---------- -------- -------- -------- --------
4,745 5,226 5,250 101,461 - 116,682
------------------------- --------- ---------- -------- -------- -------- --------
Capital risk
The Group's objectives when managing capital is to maximise shareholder value whilst safeguarding the Group's ability to continue as a going concern. Total capital is calculated as total equity in the statement of financial position.
Management of capital
31 March
31 March
2017 2016
(GBP'000) (GBP'000)
------------- ---------- ----------
Total equity 28,949 (21,346)
------------- ---------- ----------
29 Operating leases
The future aggregate minimum lease payments are payable as follows:
31 March
31 March
2017 2016
(GBP'000) (GBP'000)
--------------------------- ---------- ----------
Within one year 834 852
Between two and five years 1,057 1,836
--------------------------- ---------- ----------
1,891 2,688
--------------------------- ---------- ----------
Leasing commitments in respect of land and buildings amounted to GBP1,891,000 (2016: GBP2,681,000)
30 Finance leases
The Group holds a lease for some of its photocopying and printing equipment. These assets are classified as finance leases as the rental period amounts to the useful economic life of the assets.
Future lease payments are due as follows:
Minimum
lease Present
payments Interest value
31 March 31 March 31 March
2017 2017 2017
GBP'000 GBP'000 GBP'000
--------------------------------------------- --------- --------- ---------
Not more than one year - current liabilities 34 12 22
Between one and five years - non-current
liabilities 42 5 37
--------------------------------------------- --------- --------- ---------
76 17 59
--------------------------------------------- --------- --------- ---------
Minimum
lease Present
payments Interest value
31 March 31 March 31 March
2016 2016 2016
GBP'000 GBP'000 GBP'000
--------------------------------------------- --------- --------- ---------
Not more than one year - current liabilities 34 16 18
Between one and five years - non-current
liabilities 76 19 57
--------------------------------------------- --------- --------- ---------
110 35 75
--------------------------------------------- --------- --------- ---------
31 Related party transactions
Key management emoluments during the year
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Emoluments 1,024 1,401
Share-based payments 7,178 -
Termination payments - 43
Company contributions to money purchase pension
plans 36 82
Social security costs 1,136 194
------------------------------------------------ --------- ---------
9,374 1,720
------------------------------------------------ --------- ---------
Non-Executive emoluments during the year
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------- --------- ---------
Emoluments 76 75
Social security costs 9 -
---------------------- --------- ---------
85 75
---------------------- --------- ---------
Non-Executive fees during the year
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------- --------- ---------
Fees from non-executive directors 88 160
---------------------------------- --------- ---------
These fees represent charges from the former controlling shareholder, CBPE Capital LLP, in respect of monitoring services provided by their appointed non-executive directors.
31 Related party transactions continued
Interest on shareholder loans
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Interest expense during the year on investor
loan notes - 1,533
Interest paid during the year on investor
loan notes - 1,162
--------------------------------------------- --------- ---------
Shareholder loan repayments during the year
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Principal loan capital repaid - 11,607
--------------------------------------------- --------- ---------
During the year there were no shareholder loans outstanding. GBP11,607,000 was repaid in the year ended 31 March 2016.
Share issues to management
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Issues of shares to management at fair value 7,178 501
--------------------------------------------- --------- ---------
Amounts payable to related parties at the balance sheet date
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------- -------- --------
Payables to related parties - 34
---------------------------- -------- --------
- 34
---------------------------- -------- --------
Payables to related parties represent outstanding non-executive director fees to then shareholders, CBPE Capital LLP.
All transactions with related parties are made in the ordinary course of business and balances outstanding at the reporting date are unsecured.
32 Earnings per share
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------- -------- --------
(Loss)/profit for the year (12,791) 2,991
--------------------------- -------- --------
Weighted average number of ordinary shares
in issue 102,510 96,615
-------------------------------------------- ------- ------
Diluted weighted average number of ordinary
shares 103,406 96,615
Basic and diluted (loss)/earnings per share
(pence) (12.5) 3.1
-------------------------------------------- ------- ------
The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. In accordance with IAS 33 the weighted average number of shares in issue during the prior period has been retrospectively adjusted for the proportionate change in the number of the shares outstanding as a result of the bonus issue and share sub-division (see note 25), as if the event had occurred at the beginning of the earliest period presented.
895,680 shares have been awarded to the executive board members and vest in 2020 subject to certain conditions. These shares are reflected in the dilluted number of shares and diluted earnings per share calculation.
Adjusted earnings per share
31 March 31 March
2017 2016
Note 000 000
-------------------------------------------- ---- -------- --------
Adjusted profit after tax 5 8,273 7,576
-------------------------------------------- ---- -------- --------
Adjusted earnings per share (pence) 8.1 7.8
Diluted adjusted earnings per share (pence) 8.0 7.8
-------------------------------------------- ---- -------- --------
33 Subsidiaries
The following is the list of wholly owned companies consolidated within the financial Information of Xafinity plc
Company
Company Name Number Principal activity Registered address
------------------- -------- ---------------------------- ---------------------------------------
Xafinity plc 08279139 Holding company Phoenix House, 1 Station Hill, Reading,
Berkshire, RG1 1NB
Xafinity Financing 08279274 Holding company Phoenix House, 1 Station Hill, Reading,
(Reading) Limited Berkshire, RG1 1NB
Xafinity (Reading) 08279362 Holding company Phoenix House, 1 Station Hill, Reading,
Limited Berkshire, RG1 1NB
Xafinity Consulting 08287502 Holding company Phoenix House, 1 Station Hill, Reading,
(Reading) Limited Berkshire, RG1 1NB
Xafinity Consulting 02459442 Employee benefit consultancy Phoenix House, 1 Station Hill, Reading,
Limited Berkshire, RG1 1NB
Xafinity SIPP SC069096 Employee benefit consultancy Scotia House, Castle Business Park,
Services Limited Stirling, Stirlingshire, FK9 4TZ
Xafinity Pensions 04436642 Dormant Phoenix House, 1 Station Hill, Reading,
Consulting Limited Berkshire, RG1 1NB
HR Trustees Limited 00745598 Independent trustee Phoenix House, 1 Station Hill, Reading,
services Berkshire, RG1 1NB
Xafinity PT Limited 00232565 Dormant Phoenix House, 1 Station Hill, Reading,
Berkshire, RG1 1NB
Entegria Limited 05777554 Dormant Phoenix House, 1 Station Hill, Reading,
Berkshire, RG1 1NB
Xafinity Pensions 01450089 Dormant Phoenix House, 1 Station Hill, Reading,
Trustees Limited Berkshire, RG1 1NB
Hazell Carr (AT) SC420031 Employee benefit consultancy Scotia House, Castle Business Park,
Services Limited Stirling, Stirlingshire, FK9 4TZ
Hazell Carr (SG) 01867603 Dormant Phoenix House, 1 Station Hill, Reading,
Services Limited Berkshire, RG1 1NB
Hazell Carr (ES) 02372343 Dormant Phoenix House, 1 Station Hill, Reading,
Services Limited Berkshire, RG1 1NB
Hazell Carr (PN) 00236752 Dormant Phoenix House, 1 Station Hill, Reading,
Services Limited Berkshire, RG1 1NB
Hazell Carr (SA) SC086807 Dormant Phoenix House, 1 Station Hill, Reading,
Services Limited Berkshire, RG1 1NB
Xafinity Trustees 04305500 Dormant Phoenix House, 1 Station Hill, Reading,
Limited Berkshire, RG1 1NB
Xafinity Employee N/A Trust JTC Trustees Limited, Elizabeth House,
Benefit Trust 9 Castle Street, St Helier, Jersey,
2013 JE4 2QP
------------------- -------- ---------------------------- ---------------------------------------
34 Dividends
Amounts recognised as distributions to equity holders of the parent in the year
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------------- -------- --------
Interim dividend of Nil (2016: 21p) per ordinary
share was paid during the year - 20,597
------------------------------------------------- -------- --------
- 20,597
------------------------------------------------- -------- --------
The recommended final dividend payable in respect of the year ended 31 March 2017 is GBP1m or 0.73p per share (2016: Nil).
The proposed dividend has not been accrued as a liability as at 31 March 2017 as it is subject to approval at the Annual General Meeting.
31
31 March March
2017 2016
GBP'000 GBP'000
------------------------------------------ -------- --------
Proposed final dividend for year ended 31
March 2017 1,000 -
------------------------------------------ -------- --------
The Company statement of changes in equity shows that the Company has negative reserves of GBP1,725,000. There are sufficient distributable reserves in subsidiary companies to pass up to Xafinity plc in order to pay the proposed final dividend.
35 Ultimate controlling party
The Directors do not consider that there is an ultimate controlling party.
36 Post balance sheet events
There are no material subsequent events to report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUMCQUPMUWR
(END) Dow Jones Newswires
June 28, 2017 02:01 ET (06:01 GMT)
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