TIDMCMS
RNS Number : 5550W
Communisis PLC
02 August 2018
2 August 2018
Communisis plc
("Communisis" or the "Group")
Interim Results for the six months ended 30 June 2018
Leading provider of integrated business services, Communisis plc
(LSE: CMS) reports interim results for the half year ended 30 June
2018.
Commenting on the results Communisis Chief Executive, Andy
Blundell, said:
"Communisis traded positively in the first half of 2018 and
total sales were up 9%. Outbound statement volume grew with an
increasing digital proportion but the volume of marketing
communication has seen an initial reduction as an effect of the
introduction of the General Data Protection Regulation (GDPR) in
May. The Group won two significant contracts; the first with
Zurich, a new insurance client, and the second with an existing
client in Fast Moving Consumer Goods (FMCG) for a major expansion
of services. Trading saw good free cash flow and net debt
materially lowered. There was also a marked reduction in the
pension deficit. Overall expectations for FY 2018 are
unchanged."
FINANCIAL HIGHLIGHTS
Positive trading
-- Total revenue of GBP188.6m (H1 2017 GBP173.5m).
-- Overseas revenue at 34% of total (H1 2017 33%).
-- Adjusted profit before tax of GBP6.5m (H1 2017 GBP6.4m).
-- Profit before tax of GBP4.0m (H1 2017 GBP4.8m).
-- Adjusted earnings per share of 2.5p (H1 2017 2.4p).
Good free cash flow and net debt materially lowered
-- Net operating cash flow at GBP8.4m (H1 2017 GBP7.5m).
-- Free cash flow at GBP5.5m (H1 2017 GBP6.5m) after increased
capital expenditure of GBP2.9m (H1 2017 GBP1.0m).
-- Net debt reduced to GBP23.7m (H1 2017 GBP28.3m).
-- 5% proposed increase in interim dividend to 0.93p (H1 2017 0.89p).
Marked reduction in the pension deficit
-- Pension deficit reduced to GBP32.4m from GBP42.0m at 30 June 2017.
All financial comparatives have been restated to reflect the
changes as a result of the transition to IFRS 15 Revenue from
Contracts with Customers (IFRS 15).
FINANCIAL RESULTS
H1 2018 H1 2017
(restated)#
Total revenue (GBPm) 188.6 173.5 +9%
Adjusted operating profit
(GBPm)* 7.7 8.3 -7%
Adjusted profit before tax
(GBPm)* 6.5 6.4 +2%
Profit before tax (GBPm) 4.0 4.8 -16%
Adjusted earnings per share
(p)* 2.5 2.4 +6%
Proposed interim dividend
per share (p) 0.93 0.89 +5%
Net operating cash flow
(GBPm)** 8.4 7.5 +11%
Free cash flow (GBPm)** 5.5 6.5 -16%
Net debt (GBPm) 23.7 28.3 -16%
# The 2017 figures are restated to reflect the changes as a
result of the transition to IFRS 15.
* Adjusted metrics are stated before exceptional items and the
amortisation of acquired intangibles to give a better understanding
of the underlying performance of the Group. Adjusted earnings per
share is diluted and excludes the after tax effects of exceptional
items, amortisation of acquired intangibles and certain tax items
in respect of prior years.
** Net operating cash flow represents net cash flows from
operating activities before investments in new contracts. Free cash
flow represents net operating cash flow less net capital
expenditure.
STRATEGY UPDATE AND OPERATIONAL HIGHLIGHTS
VALUE ENHANCEMENT PROGRAMME (VEP)
Encouraging progress has been made against the Value Enhancement
Programme launched in March 2018:
DIGITAL FIRST
-- We continue to transform our clients' customer
communications, with the emphasis primarily on digital within a
multi-channel delivery. As an example, Communisis has won a
five-year contract with Zurich Insurance in the UK for the
provision of these services.
-- During H1 2018, 14% of outbound communications were delivered
via digital channels vs 9% in H1 2017.
-- New technology partnerships in place with the company Striata
to further enhance our digital transactional delivery and with
Idomoo for personalised video.
-- Implementation of the cloud-based software platform Noosh is
progressing to support the next phase of growth in Brand
Deployment. The system will be ready for launch and rollout from
September through to Q4 2018.
-- Further rollout of our proprietary digital fraud prevention
technology, eUCN, in our security printing business - now adopted
by the majority of major UK retail banks.
GLOBAL REACH
-- New contract: Communisis has won a major expansion of its
relationship with a global FMCG brand owner for a three-year term.
Existing coverage in Poland, Portugal and Spain will now expand to
include Italy and the Middle East, the latter serviced from our
Dubai hub. Sales will start to increase from the second half of
this year and we expect this client account to scale rapidly.
-- A contract has been renewed with Bacardi for a further three
years, operating in nine European countries, expanding our scope of
services to include permanent point of sale.
-- Editions Financial, the content marketing agency, continues
to grow US clients from its New York base, with recent wins in the
banking sector.
-- The Hong Kong operation is now live for the direct sourcing
of Premiums (gifts with purchase), with a local team recruited and
a direct supply chain established.
-- Overseas revenue now represents 34% of Group revenue (H1 2017 33%).
EMPOWERED ORGANISATION
-- We have significantly reshaped our approach to marketing
insight and commercial decision making with a number of senior
hires and the appointment of third parties in support.
-- A more rigorous approach has been adopted to the way we
manage our new business pipeline and we have established a detailed
process for managing prospects through to award.
OUTLOOK
Overall, the strong order book of long-term client commitments
plus the new contract wins we are announcing, give us good
visibility for the second half. Expectations for the full year are
therefore unchanged.
For further information please contact:
Communisis plc 0207 382 8950
Andy Blundell / Steve
Rawlins
0203 727
FTI Consulting 1000
Matt Dixon / Niamh
Fogarty
About Communisis
Communisis is an integrated business services company which
drives client value and sustainable profit improvement, through the
provision of increasingly digitally enabled solutions for regulated
transactional communication and marketing execution.
FINANCIAL PERFORMANCE
SUMMARY
-- Total revenue increased by 9% to GBP188.6m (H1 2017
GBP173.5m) with overseas revenue now representing 34% of total
Group revenue (H1 2017 33%).
-- Adjusted operating profit is 7% lower than in the first half
of 2017 at GBP7.7m (H1 2017 GBP8.3m). The reported H1 2017
operating profit benefited from a GBP1.1m one-off reassessment of a
historical provision, unrelated to the underlying trading in 2017.
Group operating margin for the first half of 2018 was 4.1% (H1 2017
4.8%). Adjusted profit before tax increased to GBP6.5m from
GBP6.4m, assisted by GBP0.7m lower net finance costs. Profit before
tax was 16% lower at GBP4.0m (H1 2017 GBP4.8m) and, as a result,
basic earnings per share is reduced to 1.52p (H1 2017 1.76p).
Adjusted earnings per share, however, increased to 2.52p (H1 2017
2.37p), reflecting the impact of a lower net finance cost from
retranslation gains and reduced interest on the pension
deficit.
-- The pension deficit closed the half year at GBP32.4m which is
15% lower than at the year end and 23% lower than June 2017.
-- Net debt reduced 16% to GBP23.7m (H1 2017 GBP28.3m).
-- Net operating cash flow at GBP8.4m (H1 2017 GBP7.5m).
-- Free cash flow at GBP5.5m (H1 2017 GBP6.5m) is reported after capital expenditure.
-- Capital expenditure of GBP2.9m (H1 2017 GBP1.0m), the majority being technology investment.
Following the introduction of IFRS 15, comparative numbers have
been restated to reflect the full retrospective implementation of
the change in accounting standard.
TRADING SUMMARY
Revenue, operating profit and margins before exceptional items
are reported in two divisions, Customer Experience and Brand
Deployment. From 1 January the trading activity of Psona and Psona
Films was transferred into the Brand Deployment division.
Unallocated Central and Corporate Costs are reported separately.
The segmental reporting comparatives have been restated to reflect
these changes.
The table below is an extract from the Group's segmental Income
Statement.
HY 2018 HY 2017
(restated)#
GBPm GBPm
Revenue
Customer Experience 87.7 79.2
Brand Deployment 100.9 94.3
-------- -------------
188.6 173.5
-------- -------------
Adjusted profit from operations
Customer Experience 12.0 11.9
Brand Deployment 5.6 5.2
Central Costs (6.8) (6.1)
Corporate Costs (3.1) (2.7)
-------- -------------
Adjusted operating profit 7.7 8.3
Amortisation of acquired intangibles (0.4) (0.4)
-------- -------------
Profit from operations before exceptional items 7.3 7.9
Exceptional items (2.1) (1.2)
Net finance costs (1.2) (1.9)
-------- -------------
Profit before tax 4.0 4.8
Tax (0.8) (1.1)
-------- -------------
Profit after tax 3.2 3.7
-------- -------------
Earnings per share
Basic (p) 1.52 1.76
Adjusted diluted (p) 2.52 2.37
Adjusted profit before tax 6.5 6.4
Adjusted EBITDA 11.0 11.6
Adjusted operating margin 4.1% 4.8%
# The 2017 figures are restated to reflect the changes as a
result of the transition to IFRS 15.
CUSTOMER EXPERIENCE
Revenues ended 11% higher than prior year, driven by our
Transactional and CE Technology business units and adjusted
operating margins remained strong at 13.7%.
Adjusted operating profit for the segment ended in line with H1
2017 at GBP12.0m (H1 2017 GBP11.9m), but from a different sales
mix. Direct Mail has had a challenging first half following the
introduction of GDPR which has had the initial effect of reducing
the volume of marketing communication, as clients confirmed the
integrity of their customer data. The overall Transactional output
business and CE Technology were both ahead of prior year, with
increases in digital output.
BRAND DEPLOYMENT
Total revenues increased to GBP100.9m (H1 2017 GBP94.3m).
Adjusted operating margins remained consistent at 5.5%. The
adjusted operating profit for the segment ended the half year at
GBP5.6m (H1 2017 GBP5.2m). Margins are forecast to improve across
H2 with the introduction of the Noosh operating platform and the
full benefits coming through associated restructuring
activities.
CENTRAL AND CORPORATE COSTS
We intend to recharge Central Costs internally to the operating
divisions by activity and with effect from our full year 2018
results we intend to report adjusted profit from operations on a
fully recharged basis with the previous year's results restated
like for like for comparison purposes. Corporate Costs, which
relate primarily to the overheads of the public company and are not
determined by divisional operational activity, will continue to be
shown separately.
Overall central and corporate costs have increased by GBP1.1m in
H1 2018 against H1 2017 driven by a series of key appointments to
enhance the capabilities across all shared functions including
Technology, Commercial Services, Group Finance and Financial Shared
Services along with increased spend on GDPR and professional
advisory fees.
EXCEPTIONAL ITEMS
The exceptional charge of GBP2.1m can be broken down into
internal and external categories. The internal category totalled
GBP0.8m and was reduced from the GBP1.2m recorded at H1 2017. The
internal charges relate to restructuring within Brand Deployment
and the financial shared services centre (GBP0.4m), one off costs
relating to the introduction of GDPR (GBP0.3m) and the write down
of certain acquired client relationship assets (GBP0.1m). External
charges were GBP1.3m and relate to the Value Enhancement Programme,
being primarily professional fees incurred in support of corporate
activity towards an optimal Group structure.
NET FINANCE COSTS
Net finance costs decreased to GBP1.2m from GBP1.9m in H1 2017,
due to a GBP0.4m beneficial impact on retranslation of
non-Sterling-related balances, GBP0.2m lower interest charge on the
defined benefit pension scheme deficit and GBP0.1m of lower
interest paid on borrowings.
TAX
The effective tax rate in the Income Statement was 21.02% (H1
2017 23.06%). During the period, the effective tax rate has
benefited from a credit which related to prior years. The balance
has been adjusted through the current year Income Statement, as
management considers that the adjustment is immaterial in the
context of an understanding of the Group's financial performance
for users of the Financial Statements. Excluding this adjustment,
the tax rate would have been 24.71% which is higher than the UK
rate of corporation tax due to the proportion of profits generated
in overseas jurisdictions with higher tax rates.
DIVID
Dividends of 1.77p per share were paid in the first half of 2018
in respect of 2017, resulting in a year-on-year increase of GBP0.3m
in dividend payments to GBP3.7m. The Board has proposed an interim
dividend of 0.93p, which represents an increase of 5% on the prior
year. The interim dividend will be paid on 12 October 2018 to
shareholders on the register at the close of business on 14
September 2018.
PENSION SCHEME
At 30 June 2018, the deficit related to the defined benefit
pension scheme on an IAS 19 basis has reduced to GBP32.4m compared
with GBP38.2m at 31 December 2017. Gross scheme liabilities were
GBP188.2m and assets were GBP155.8m. The deficit reduction is
primarily due to a GBP12.7m reduction in liabilities resulting from
an increased discount rate and lower inflation, along with a
GBP6.9m reduction in assets.
The Board continues to work with the Trustees to seek
opportunities to reduce the deficit and liability exposure and
accelerate progress to the goal of "self-sufficiency" for the
defined benefit pension scheme.
CASH AND NET DEBT
The table below summarises the cash flows for the period and the
closing net debt position.
HY 2018 HY 2017
(restated)#
GBPm GBPm
Profit from operations before exceptional
items 7.3 7.9
Depreciation and other non-cash
items 4.4 4.4
Increase in working capital (0.1) (0.1)
Pension scheme contributions (0.3) (0.6)
Interest and tax (2.1) (2.5)
-------- -------------
Net operating cash flow before exceptional
items 9.2 9.1
Exceptional items (0.8) (1.6)
-------- -------------
Net operating cash flow 8.4 7.5
Net capital expenditure (2.9) (1.0)
-------- -------------
Free cash flow 5.5 6.5
Investment in new contracts (0.5) (0.3)
Repayment of promissory loan notes - (9.3)
Dividends paid (3.7) (3.4)
Share issues 0.1 -
Other (0.3) 0.3
-------- -------------
Decrease/(increase) in bank debt 1.1 (6.2)
Opening bank debt (22.8) (19.7)
-------- -------------
Closing bank debt (21.7) (25.9)
-------- -------------
Bank debt (21.7) (25.9)
Unamortised borrowing costs 0.5 0.1
-------- -------------
Net bank debt (21.2) (25.8)
-------- -------------
Finance lease creditor (2.5) (2.5)
-------- -------------
Net debt (23.7) (28.3)
-------- -------------
# The 2017 figures are restated to reflect the impact of IFRS
15.
The Group's focused approach to cash generation continued during
2018. Free cash flow was GBP5.5m (H1 2017 GBP6.5m). The principal
movements within the period were increased capital expenditure to
GBP2.9m (H1 2017 GBP1.0m), offset by lower tax and interest
payments of GBP2.1m (H1 2017 GBP2.5m).
Net debt reduced 16% to GBP23.7m (H1 2017 GBP28.3m).
Bank debt was GBP21.7m, representing 31% of the Group's
facilities. Bank debt at the period end was 0.83 times adjusted
EBITDA for the twelve months to June 2018 and average bank debt
during the period was GBP37.5m, 1.43 times adjusted EBITDA.
Covenants remain well covered.
BOARD APPOINTMENTS
On 1 June 2018 Helen Sachdev was appointed as Non-executive
Director. On 6 June 2018 Helen Keays stepped down from the role of
Non-executive Director and Chair of the Board's Remuneration
Committee. On 7 June 2018 Jane Griffiths assumed the role of Chair
of the Board's Remuneration Committee.
Andy Blundell Steve Rawlins
Chief Executive Chief Financial Officer
Consolidated Income Statement
for the half year ended 30 June 2018
Half year ended 30 Half year ended 30 June Year ended 31 December
June 2018 (unaudited) 2017 (restated)* (unaudited) 2017 (restated)* (unaudited)
Before Amortisation Before Amortisation Before Amortisation
amortisation of acquired amortisation of acquired amortisation of acquired
of acquired intangibles of acquired intangibles of acquired intangibles
intangibles and intangibles and intangibles and
and exceptional and exceptional and exceptional
exceptional items exceptional items exceptional items
items (Note Total items (Note Total items (Note Total
5) 5) 5)
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 3 188,641 - 188,641 173,484 - 173,484 350,664 - 350,664
Changes
in inventories
of finished
goods and
work in
progress 81 - 81 133 - 133 22 - 22
Raw materials
and consumables
used (99,547) - (99,547) (91,548) - (91,548) (176,490) - (176,490)
Employee
benefits
expense (45,937) (350) (46,287) (47,560) (556) (48,116) (91,597) (1,570) (93,167)
Other operating
expenses (32,208) (1,794) (34,002) (22,909) (659) (23,568) (56,914) (482) (57,396)
Depreciation
and amortisation
expense (3,334) (347) (3,681) (3,350) (375) (3,725) (6,435) (733) (7,168)
Profit
from operations 7,696 (2,491) 5,205 8,250 (1,590) 6,660 19,250 (2,785) 16,465
Finance
revenue 6 234 - 234 - - - 1 - 1
Finance
costs 6 (1,405) - (1,405) (1,877) - (1,877) (3,943) - (3,943)
------------------------- -------- ------------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ----------
Profit
before
taxation 6,525 (2,491) 4,034 6,373 (1,590) 4,783 15,308 (2,785) 12,523
Income
tax expense 7 (1,057) 209 (848) (1,414) 311 (1,103) (2,911) 586 (2,325)
------------------------- -------- ------------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ----------
Profit
for the
period
attributable
to equity
holders
of the
parent 5,468 (2,282) 3,186 4,959 (1,279) 3,680 12,397 (2,199) 10,198
------------------------- -------- ------------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ----------
Earnings
per share 8
On profit
for the
period
attributable
to equity
holders
and from
continuing
operations
- basic 2.54p 1.52p 2.38p 1.76p 5.65p 4.88p
- diluted 2.52p 1.51p 2.37p 1.76p 5.62p 4.86p
Dividend
per share 9
- paid 1.77p 1.61p 2.50p
- proposed 0.93p 0.89p 1.77p
------------------------- -------- ------------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ----------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
Dividends paid and proposed during the period were GBP3.7m and
GBP2.0m respectively (30 June 2017 GBP3.4m and GBP1.9m
respectively; 31 December 2017 GBP5.2m and GBP3.7m
respectively).
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
All income and expenses relate to continuing operations.
Consolidated Statement of Comprehensive Income
for the half year ended 30 June 2018
Half Year
year Half year ended
ended ended
30 June 30 June 31 Dec
2018 2017
2017 (restated)* (restated)*
(unaudited) (unaudited) (unaudited)
GBP000 GBP000 GBP000
Profit for the period 3,186 3,680 10,198
------------------------------------------ ------------- ----------------- -------------
Other comprehensive income/(loss)
to be reclassified to profit or loss
in subsequent periods:
Exchange (loss)/gain differences on
translation of foreign operations (223) 341 415
Gain on cash flow hedges taken directly
to equity 80 67 134
Income tax thereon (14) (12) (23)
Items not to be reclassified to profit
or loss in subsequent periods:
Adjustments in respect of prior years
due to change in tax rate - - 824
Actuarial gains on defined benefit
pension plans 5,949 13,645 14,805
Income tax thereon (1,011) (2,320) (2,517)
------------------------------------------ ------------- ----------------- -------------
Other comprehensive income for the
period, net of tax 4,781 11,721 13,638
------------------------------------------ ------------- ----------------- -------------
Total comprehensive income for the
period, net of tax 7,967 15,401 23,836
------------------------------------------ ------------- ----------------- -------------
Attributable to:
Equity holders of the parent 7,967 15,401 23,836
------------------------------------------ ------------- ----------------- -------------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
Consolidated Balance Sheet
30 June 2018
Half Half
year year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
(restated)* (restated)*
(unaudited) (unaudited) (unaudited)
GBP000 GBP000 GBP000
ASSETS
Non-current assets
Property, plant and equipment 19,150 20,275 19,296
Intangible assets 177,515 176,508 177,683
Contract fulfilment assets 1,692 1,026 1,802
Trade and other receivables 8,361 8,189 8,452
Contract assets 1,390 631 571
Deferred tax assets 4,858 5,134 5,669
------------------------------------------- ------------ -------------- --------------
212,966 211,763 213,473
------------------------------------------- ------------ -------------- --------------
Current assets
Inventories 8,504 6,649 7,756
Contract fulfilment assets 874 923 993
Trade and other receivables 67,398 64,456 62,896
Contract assets 14,815 15,050 15,136
Cash and cash equivalents 37,247 37,088 30,182
------------------------------------------- ------------ -------------- --------------
128,838 124,166 116,963
------------------------------------------- ------------ -------------- --------------
TOTAL ASSETS 341,804 335,929 330,436
------------------------------------------- ------------ -------------- --------------
EQUITY AND LIABILITIES
Equity attributable to the equity holders
of the parent
Equity share capital 52,433 52,346 52,405
Share premium 109 2 75
Merger reserve 519 519 519
ESOP reserve (75) (215) (163)
Cumulative translation adjustment 519 668 742
Retained earnings 85,460 74,078 80,817
------------------------------------------- ------------ -------------- --------------
Total equity 138,965 127,398 134,395
-------------------------------------------
Non-current liabilities
Interest-bearing loans and borrowings 59,954 1,559 53,604
Trade and other payables 2,302 1,347 245
Contract liabilities 1,923 2,814 5,268
Provisions - 161 42
Financial liabilities - 165 -
Retirement benefit obligations 32,417 42,033 38,217
-------------------------------------------
96,596 48,079 97,376
------------------------------------------- ------------ -------------- --------------
Current liabilities
Interest-bearing loans and borrowings 989 63,866 884
Trade and other payables 95,107 88,423 88,268
Contract liabilities 8,937 5,949 8,005
Income tax payable 1,154 2,140 1,414
Provisions 42 74 -
Financial liabilities 14 - 94
------------------------------------------- ------------ -------------- --------------
106,243 160,452 98,665
-------------------------------------------
Total liabilities 202,839 208,531 196,041
------------------------------------------- ------------ -------------- --------------
TOTAL EQUITY AND LIABILITIES 341,804 335,929 330,436
------------------------------------------- ------------ -------------- --------------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
Consolidated Cash Flow Statement
for the half year ended 30 June 2018
Half Half
year year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017 (restated)*
(restated)* (unaudited)
(unaudited) (unaudited)
Note GBP000 GBP000 GBP000
--------------------------------------------- ----- ------------- ------------- -----------------
Cash flows from operating activities
Cash generated from operations 10 9,956 9,644 21,944
Interest paid (814) (922) (1,800)
Interest received 11 - 1
Income tax paid (1,313) (1,539) (3,419)
--------------------------------------------- ----- ------------- ------------- -----------------
Net cash flows from operating activities 7,840 7,183 16,726
--------------------------------------------- ----- ------------- ------------- -----------------
Cash flows from investing activities
Purchase of property, plant and equipment (1,130) (236) (1,559)
Proceeds from the sale of property,
plant and equipment 11 54 283
Purchase of intangible assets (1,774) (853) (3,684)
--------------------------------------------- -----
Net cash flows from investing activities (2,893) (1,035) (4,960)
--------------------------------------------- ----- ------------- ------------- -----------------
Cash flows from financing activities
Share issues net of directly attributable
expenses 62 4 136
New borrowings under existing loan facility 6,000 - -
New borrowings under old loan facility - 5,000 5,000
Repayment of borrowings under old loan
facility - - (63,000)
New loan facility - - 63,000
Repayment of borrowings under new loan
facility - - (10,000)
Repayment of promissory loan note in
respect of acquisition of subsidiary
undertakings - (9,300) (9,300)
Debt arrangement fees - - (657)
Dividends paid 9 (3,704) (3,362) (5,222)
--------------------------------------------- ----- ------------- ------------- -----------------
Net cash flows from financing activities 2,358 (7,658) (20,043)
--------------------------------------------- ----- ------------- ------------- -----------------
Net increase/(decrease) in cash and
cash equivalents 7,305 (1,510) (8,277)
Cash and cash equivalents at 1 January 30,182 38,294 38,294
Exchange rate effects (240) 304 165
--------------------------------------------- ----- ------------- ------------- -----------------
Cash and cash equivalents at end of
period 37,247 37,088 30,182
--------------------------------------------- ----- ------------- ------------- -----------------
Cash and cash equivalents consist of:
Cash at bank 37,247 37,088 30,182
--------------------------------------------- ----- ------------- ------------- -----------------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
Consolidated Statement of Changes in Equity
for the half year ended 30 June 2018
Cumulative Retained Total
Issued Share Merger ESOP translation earnings equity
capital premium reserve reserve adjustment (restated)* (restated)*
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
As at 1 January
2018 52,405 75 519 (163) 742 80,817 134,395
Profit for the
period - - - - - 3,186 3,186
Other comprehensive
income/(loss) - - - - (223) 5,004 4,781
---------------------- --------- --------- --------- --------- ------------- ------------- -------------
Total comprehensive
income - - - - (223) 8,190 7,967
Employee share
option schemes
- value of services
provided - - - - - 245 245
Shares issued
- exercise of
options 28 34 - - - - 62
Shares issued
from ESOP - - - 88 - (88) -
Dividends paid - - - - - (3,704) (3,704)
----------------------
As at 30 June
2018 (unaudited) 52,433 109 519 (75) 519 85,460 138,965
---------------------- --------- --------- --------- --------- ------------- ------------- -------------
As at 1 January
2017 52,344 - 519 (297) 327 62,155 115,048
Profit for the
period - - - - - 3,680 3,680
Other comprehensive
income - - - - 341 11,380 11,721
---------------------- ------- --- ---- ------ ---- -------- --------
Total comprehensive
income - - - - 341 15,060 15,401
Employee share
option schemes
- value of services
provided - - - - - 307 307
Shares issued -
exercise of options 2 2 - - - - 4
Shares issued from
ESOP - - - 82 - (82) -
Dividends paid - - - - - (3,362) (3,362)
---------------------- ------- --- ---- ------ ---- -------- --------
As at 30 June 2017
(unaudited) 52,346 2 519 (215) 668 74,078 127,398
---------------------- ------- --- ---- ------ ---- -------- --------
As at 1 January
2017 52,344 - 519 (297) 327 62,155 115,048
Profit for the
period - - - - - 10,198 10,198
Other comprehensive
income - - - - 415 13,223 13,638
---------------------- ------- --- ---- ------ ---- -------- --------
Total comprehensive
income - - - - 415 23,421 23,836
Employee share
option schemes
- value of services
provided - - - - - 597 597
Shares issued -
exercise of options 61 75 - - - - 136
Shares issued from
ESOP - - - 134 - (134) -
Dividends paid - - - - - (5,222) (5,222)
---------------------- ------- --- ---- ------ ---- -------- --------
As at 31 December
2017 (unaudited) 52,405 75 519 (163) 742 80,817 134,395
---------------------- ------- --- ---- ------ ---- -------- --------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018
1 Corporate information
The Interim Condensed Consolidated Financial Statements of
Communisis plc and its subsidiaries for the six months ended 30
June 2018 were authorised for issue in accordance with a resolution
of the Directors on 2 August 2018.
Communisis plc is a public limited company incorporated and
domiciled in England and Wales whose shares are traded on the
London Stock Exchange. The registered office is located at
Communisis House, Manston Lane, Leeds LS15 8AH.
2 Basis of preparation and changes to the Group's accounting policies
2.1 Basis of preparation
The Interim Condensed Consolidated Financial Statements for the
six months ended 30 June 2018 have been prepared in accordance with
IAS 34 Interim Financial Reporting.
The Interim Condensed Consolidated Financial Statements do not
include all the information and disclosures required in the Annual
Consolidated Financial Statements and should therefore be read in
conjunction with the Group's Annual Consolidated Financial
Statements as at 31 December 2017.
2.2 New standards, interpretations and amendments adopted by the
Group
The accounting policies adopted in the preparation of the
Interim Condensed Consolidated Financial Statements are consistent
with those followed in the preparation of the Group's Annual
Consolidated Financial Statements for the year ended 31 December
2017, except for the adoption of new standards effective as of 1
January 2018. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
The Group applies, for the first time, IFRS 15 Revenue from
Contracts with Customers and IFRS 9 Financial Instruments. As the
Group has elected to apply a full retrospective approach to
adoption of IFRS 15, a restatement of previous Consolidated
Financial Statements is required. As per IAS 34, the nature and
effect of these changes are disclosed below. Several other
amendments and interpretations apply for the first time in 2018,
but do not have an impact on the Interim Condensed Consolidated
Financial Statements of the Group.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue
and related interpretations and it applies to all revenue arising
from contracts with customers, unless those contracts are in the
scope of other standards. The new standard 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 Group's new
revenue accounting policy is detailed in Note 2.3.
The standard requires entities to exercise judgement, taking
into consideration all of the relevant facts and circumstances when
applying each step of the model to contracts with their customers.
The standard also specifies the accounting for the incremental
costs of obtaining a contract and the costs directly related to
fulfilling a contract.
The Group adopted IFRS 15 using the full retrospective method of
adoption in accordance with IFRS 15:C3(a), restating the prior
period's comparatives and electing to use the following
expedients:
-- in respect of completed contracts, the Group will not restate
contracts that: (i) begin and end within the same annual reporting
period; or (ii) were completed contracts at the beginning of the
earliest period presented (IFRS 15:C5(a));
-- in respect of completed contracts that had variable
consideration, the Group has used the transaction price at the date
the contract was completed rather than estimating variable
consideration amounts in the comparative periods (IFRS
15:C5(b));
-- contract modifications which occurred before the beginning of
the earliest period presented have been reflected in aggregate
(IFRS 15:C5(c)); and
-- for all reporting periods presented before the date of
initial application, the Group will not disclose in its 2018 Annual
Report and Financial Statements the amount of the transaction price
allocated to the remaining performance obligations or an
explanation of when the Group expects to recognise that amount as
revenue (IFRS 15:C5(d)).
The effect of adopting IFRS 15 is as follows:
Impact on the Consolidated Balance Sheet (increase/(decrease))
as at 30 June 2017:
Adjustments GBP000
------------- ----------
ASSETS
Intangible assets C (9,553)
Contract fulfilment assets D 1,026
Trade and other receivables C,E 7,089
Contract assets E 631
Deferred tax assets F 734
----------
Total non-current assets (73)
----------
Contract fulfilment assets D 923
Trade and other receivables C,D,E (14,012)
Contract assets E 15,050
Total current assets 1,961
Total assets 1,888
==========
EQUITY AND LIABILITIES
Retained earnings B,F (3,343)
----------
Total equity (3,343)
----------
Contract liabilities B 2,814
----------
Total non-current liabilities 2,814
----------
Trade and other payables E (3,532)
Contract liabilities B,E 5,949
Total current liabilities 2,417
Total equity and liabilities 1,888
==========
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
2 Basis of preparation and changes to the Group's accounting policies (continued)
2.2 New standards, interpretations and amendments adopted by the
Group (continued)
IFRS 15 Revenue from Contracts with Customers (continued)
Impact on the Consolidated Income Statement
(increase/(decrease)) for the six months ended 30 June 2017:
Adjustments GBP000
------------- ---------
Revenue A,B,C (12,475)
Raw materials and consumables
used A,B,D 11,145
Depreciation and amortisation
expense C 1,115
---------
Profit from operations/profit
before taxation B,D (215)
Income tax expense F 39
---------
Profit for the period attributable
to equity holders of the parent (176)
=========
The impact on adjusted basic and adjusted diluted EPS for the
six months ended 30 June 2017 is a decrease of 0.08p and 0.09p
respectively. There is no material impact on other comprehensive
income or the Consolidated Cash Flow Statement for the six months
ended 30 June 2017.
Impact on the Consolidated Balance Sheet (increase/(decrease))
as at 31 December 2017:
Adjustments GBP000
------------- ---------
ASSETS
Intangible assets C (8,441)
Contract fulfilment assets D 1,802
Trade and other receivables C,E 6,486
Contract assets E 571
Deferred tax assets F 1,033
---------
Total non-current assets 1,451
---------
Contract fulfilment assets D 993
Trade and other receivables C,D,E (14,479)
Contract assets E 15,136
Total current assets 1,650
Total assets 3,101
=========
EQUITY AND LIABILITIES
Retained earnings B,F (4,741)
---------
Total equity (4,741)
---------
Trade and other payables E (706)
Contract liabilities B,E 5,268
Total non-current liabilities 4,562
---------
Trade and other payables E (4,725)
Contract liabilities B,E 8,005
Total current liabilities 3,280
Total equity and liabilities 3,101
=========
Impact on the Consolidated Income Statement
(increase/(decrease)) for the twelve months ended 31 December
2017:
Adjustments GBP000
------------- ---------
Revenue A,B,C (25,201)
Raw materials and consumables
used A,B,D 21,061
Depreciation and amortisation
expense C 2,228
---------
Profit from operations/profit
before taxation B,D (1,912)
Income tax expense F 338
---------
Profit for the period attributable
to equity holders of the parent (1,574)
=========
The impact on adjusted basic and adjusted diluted EPS for the
twelve months ended 31 December 2017 is a decrease of 0.75p. There
is no material impact on other comprehensive income or the
Consolidated Cash Flow Statement for the twelve months ended 31
December 2017.
An extensive exercise was undertaken to consider the Group's
major contractual arrangements as part of the implementation of
IFRS 15. A number of significant areas have been identified for
adjustment which include:
A Recognition of revenue by the Group as agent or principal
Prior to the adoption of IFRS 15, based on the existence of
credit risk, the Group concluded that it had an exposure to
significant risks and rewards associated with the postage services
and licence sales within the Customer Experience segment and hence
reported these sales on a principal basis. Upon the adoption of
IFRS 15, which focuses on control of which risk and reward is just
one indicator, the Group determined that it does not always control
these goods/services before they are transferred to the customer.
Where this is the case the revenue is now reported on an agent
basis; therefore, revenue is recorded at a net amount reflecting
the margin earned. When the Group acts as principal in a
transaction with a customer, revenue is recorded on a gross basis.
There is no impact on the Consolidated Balance Sheets at 30 June
2017 or 31 December 2017. The Consolidated Income Statements for
the six months ended 30 June 2017 and twelve months ended 31
December 2017 were restated resulting in decreases to both revenue
and raw materials and consumables used amounting to GBP10,843,000
and GBP19,843,000 respectively.
B Recognition of revenue for transition services
Prior to the adoption of IFRS 15, revenue for transition
services was recognised on completion of key milestones outlined in
the contract. This reflected the timing, nature and value of the
benefits provided and assumed that there was no significant
uncertainty over its collection. Under IFRS 15, however, the Group
is required to identify the distinct performance obligations in a
contract which in some situations does not equate to the key
milestones previously recognised. Where this is the case revenue is
now recognised over the term of the contract. All contracts which
are open at the date of transition to IFRS 15 have been restated to
reflect this. As a consequence the Consolidated Balance Sheets at
30 June 2017 and 31 December 2017 were restated resulting in
recognition of contract liabilities totalling GBP5,230,000 and
GBP7,842,000 respectively. These contract liabilities have been
aged accordingly. Retained earnings at 1 January 2017 were restated
by a reduction of GBP4,710,000. The Consolidated Income Statements
for the six months ended 30 June 2017 and twelve months ended 31
December 2017 were restated resulting in a decrease to revenue of
GBP517,000 and GBP3,130,000 respectively.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
2 Basis of preparation and changes to the Group's accounting policies (continued)
2.2 New standards, interpretations and amendments adopted by the
Group (continued)
IFRS 15 Revenue from Contracts with Customers (continued)
C Reclassification of contract premiums
Amounts paid to secure customer contracts are held within other
receivables and unwound over the life of the contract as a
reduction to the transaction price. Previously they were held as
intangible assets on the Consolidated Balance Sheet and amortised
over the life of the contract. As a consequence the Consolidated
Balance Sheets at 30 June 2017 and 31 December 2017 were restated
resulting in a decrease to intangible assets of GBP9,553,000 and
GBP8,441,000 respectively and a corresponding increase to other
receivables. The other receivables element was then aged
accordingly. The Consolidated Income Statements for the six months
ended 30 June 2017 and twelve months ended 31 December 2017 were
restated resulting in a decrease to revenue and a decrease to
amortisation of GBP1,115,000 and GBP2,228,000 respectively.
D Recognition, utilisation and derecognition of contract
fulfilment assets
Prior to the adoption of IFRS 15, costs relating directly to the
setup of various long-term contracts were expensed within the
Customer Experience segment in relation to transition services.
These costs, however, relate directly to the contract, generate or
enhance resources used by the entity in satisfying the performance
obligation and are expected to be recovered. They were therefore
capitalised as contract fulfilment assets following the adoption of
IFRS 15. These assets are amortised on a straight-line basis over
the term of the specific contract, which is consistent with the
Group's transfer of related goods or services. As a consequence the
Consolidated Balance Sheets at 30 June 2017 and 31 December 2017
were restated resulting in recognition of contract fulfilment
assets amounting to GBP1,154,000 and GBP2,068,000 respectively.
Retained earnings at 1 January 2017 were restated by an increase of
GBP848,000. The Consolidated Income Statements for the six months
ended 30 June 2017 and twelve months ended 31 December 2017 were
restated resulting in a decrease to raw materials and consumables
used of GBP302,000 and GBP1,218,000 respectively. These contract
fulfilment assets have been aged accordingly.
In addition, at 30 June 2017 and 31 December 2017, GBP795,000
and GBP727,000 respectively were reallocated from other receivables
to contract fulfilment assets in relation to capitalised expenses
within the Brand Deployment segment to comply with the
presentational requirements of IFRS 15. These contract fulfilment
assets have been aged accordingly.
E Presentation of contract assets and contract liabilities
The Group has voluntarily changed the presentation of certain
amounts on the face of the Consolidated Balance Sheet to reflect
the terminology of IFRS 15:
- Contract assets recognised in relation to unbilled revenue
were previously presented as accrued income within trade and other
receivables. As a consequence the Consolidated Balance Sheets at 30
June 2017 and 31 December 2017 were restated resulting in an
increase to contract assets and a decrease to other receivables of
GBP15,681,000 and GBP15,707,000 respectively. These balances have
been aged accordingly.
- Contract liabilities were previously presented as deferred
income within trade and other payables. As a consequence the
Consolidated Balance Sheets at 30 June 2017 and 31 December 2017
were restated resulting in an increase to contract liabilities and
a decrease to other payables of GBP3,532,000 and GBP5,431,000
respectively. These balances have been aged accordingly.
F Impact on tax balances
Under the principles of IAS 12, the restated Consolidated
Balance Sheets for 30 June 2017 and 31 December 2017 reflect a net
increase in deferred tax assets arising from the recognition of
contract fulfilment assets and contract liabilities in relation to
transition services. The deferred tax asset has been calculated on
the basis of the tax rates which are currently anticipated to be
ruling at the time in which the reversal will take place. As a
consequence, retained earnings at 1 January 2017 were restated by
an increase of GBP695,000. The Consolidated Income Statements for
the six months ended 30 June 2017 and twelve months ended 31
December 2017 were restated resulting in a credit to the
corporation tax charge of GBP39,000 and GBP338,000 respectively.
The Consolidated Balance Sheets at 30 June 2017 and 31 December
2017 were restated resulting in an increase to deferred tax assets
of GBP39,000 and GBP338,000 respectively.
G Presentation and disclosure requirements
As required for the Interim Condensed Consolidated Financial
Statements, the Group disaggregated revenue recognised from
contracts with customers into categories that depict how the
nature, amount, timing and uncertainty of revenue and cash flows
are affected by economic factors. The Group also disclosed
information about the relationship between the disclosure of
disaggregated revenue and revenue information disclosed for each
reportable segment in Note 3.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018, bringing together all three
aspects of the accounting for financial instruments: classification
and measurement; impairment; and hedge accounting. The adoption of
IFRS 9 did not have a material impact on the Group; therefore, no
restatement of the prior years' results was required. IFRS 9 did,
however, lead to changes in accounting policies (see Note 2.3), the
basis of which are discussed below.
Classification and measurement
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial
assets of held to maturity, loans and receivables and available for
sale. The adoption of IFRS 9 has not had a significant effect on
the Group's accounting policies related to financial instruments
and derivative financial instruments. For derivatives that are used
as hedging instruments, see 'hedge accounting' below.
Impairment
The adoption of IFRS 9 has fundamentally changed the Group's
accounting for impairment losses for financial assets by replacing
IAS 39's incurred loss approach with a forward-looking expected
credit loss (ECL) approach.
For contract assets and trade and other receivables, the Group
has applied IFRS 9's simplified approach to measuring ECLs which
uses a lifetime expected loss allowance. The Group has established
a provision matrix that is based on the Group's historical credit
loss experience, adjusted for forward-looking estimates that are
specific to the economic environment. At each reporting date, the
Group updates the observed default history and forward-looking
estimates in calculating the impairment provision.
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in
default when internal or external information indicates that the
Group is unlikely to receive the outstanding contractual amounts in
full before taking into account any credit enhancements held by the
Group. The adoption of the ECL requirements of IFRS 9 had no
significant impact on the Group's Consolidated Financial
Statements.
Hedge accounting
The Group applied hedge accounting prospectively. At the date of
the initial application, the Group's existing hedging relationships
were eligible to be treated as continuing hedging relationships.
Consistent with prior periods, the Group has continued to designate
the change in fair value of the interest rate swaps in the Group's
cash flow hedge relationships and, as such, the adoption of the
hedge accounting requirements of IFRS 9 had no significant impact
on the Group's Consolidated Financial Statements.
IFRS 16 Leases
The adoption of IFRS 16 Leases is mandatory for the Group for
the financial year beginning 1 January 2019 and is expected to have
a material impact on the amounts reported and disclosures made in
the Group's Consolidated Financial Statements. It will result in
almost all leases being recognised on the Group's Consolidated
Balance Sheet, as the distinction between operating and finance
leases is removed. Under the new standard, an asset (the right to
use the leased item) and a financial liability to pay rentals are
recognised. The only exceptions are short-term and low-value
leases.
The standard will affect primarily the Group's operating leases.
As at the reporting date, the Group has non-cancellable operating
lease commitments of GBP35,995,000. The Group has, however, not yet
determined to what extent these commitments will result in the
recognition of an asset and liability for future payments and how
this will affect the Group's profit and classification of cash
flows. Some of the commitments may be covered by the exception for
short-term and low-value leases under IFRS 16.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
2 Basis of preparation and changes to the Group's accounting policies (continued)
2.3 Accounting policies applied from 1 January 2018
Revenue
The Group provides integrated business services. The goods and
services provided as part of this offering are sold in separately
identified contracts with customers.
Under IFRS 15, revenue is recognised based on delivery of
performance obligations and an assessment of when a customer
obtains control of the goods or services. Determining the timing of
the transfer of control, at a point in time or over time, requires
a number of key judgements. In addition, the Group also exercises a
number of judgements in recognising related Balance Sheet items in
the period (such as contract fulfilment assets, capitalisation of
costs to obtain a contract, trade receivables, contract assets and
contract liabilities). The significant judgements taken are
discussed in Note 2.4.
For all contracts, the Group determines if the arrangement with
a customer creates enforceable rights and obligations. This
assessment results in some Master Service Agreements (MSAs) not
meeting the definition of a contract under IFRS 15 on their own. As
such, the individual project briefs/purchase orders linked to the
MSAs are treated as individual contracts.
For contracts with multiple components to be delivered such as
short-term customer projects and transition services, management
applies judgement to consider whether those promised goods and
services are:
(i) distinct - to be accounted for as separate performance obligations;
(ii) not distinct - to be combined with other promised goods or
services until a bundle is identified that is distinct; or
(iii) part of a series of distinct goods and services that are
substantially the same and have the same pattern of transfer to the
customer.
At contract inception the total transaction price is estimated,
being the amount to which the Group expects to be entitled and has
rights to under the present contract. Once the total transaction
price is determined, the Group allocates this to the identified
performance obligations in proportion to their relative standalone
selling prices and recognises revenue when (or as) those
performance obligations are satisfied.
For each performance obligation, the Group determines if revenue
will be recognised over time or at a point in time. For each
performance obligation to be recognised over time, the Group
applies a revenue recognition method that faithfully depicts the
Group's performance in transferring control of the goods or
services to the customer.
The Group disaggregates revenue from contracts with customers by
contract type (previously goods and services), as this best depicts
how the nature, amount, timing and uncertainty of the Group's
revenue and cash flows are affected by economic factors. The Group
therefore now presents revenue in three categories: long-term
services, short-term customer projects and transition services.
Long-term services
The Group performs a range of services across the Customer
Experience segment under customer contracts with a duration, on
average, of five years. The main service lines within this category
are as follows:
- Transactional Print
- Inbound Servicing and Response Handling
- Security Communications
The nature of performance obligations categorised within this
revenue stream is diverse; however, the general principle is that
revenue is recognised over time. The Group considers that the
services provided meet the definition of a series of distinct goods
and services as they are: (i) substantially the same; and (ii) have
the same pattern of transfer, and therefore treats the series as
one performance obligation. Even if the underlying activities
performed by the Group to satisfy a promise vary significantly
throughout the day and from day to day, that fact, by itself, does
not mean the distinct goods or services are not substantially the
same. The Group measures progress towards completion and hence
recognises revenue using output methods, namely units
produced/delivered, as this best reflects the nature in which the
Group is transferring control of the goods/services to the
customer.
Short-term customer projects
The Group performs a range of services across the Customer
Experience segment and Brand Deployment segment under customer
contracts with project durations of typically less than one year.
The main service lines within this category are as follows:
- Managed Services
- Campaign Fulfilment
- Print Sourcing
- Direct Mail
- Agency and Creative Services
- Document Design and Change
Agency projects are predominantly recognised over time using
output methods, namely a combination of time elapsed and
milestones, as this best reflects the nature in which the Group is
transferring control of the goods/services to the customer.
Campaign type work, however, is recognised at a point in time, when
the performance obligation has been satisfied and control is passed
to the customer.
Transition services
Transition revenue occurs within the Customer Experience
segment, relating to the delivery of business process optimisation
solutions and transformational services for significant new
contracts secured. Revenue from transition services is assessed on
a contract by contract basis to determine the number of distinct
performance obligations in the contract and the point at which
control is passed on to the customer. Where there is one identified
performance obligation, namely the full integration of work into
existing production facilities and systems, the total revenue is
recognised over the term of the contract regardless of whether an
advanced payment is received. Transition revenue may, however, also
include payment for template design where the right to use the
template is passed on to the customer. Any revenue in respect of
this is recognised at a point in time when the performance
obligation is satisfied and control transferred.
Contract premiums
Amounts paid to secure customer contracts are held within trade
and other receivables and unwound over the life of the contract as
a reduction to the transaction price.
Principal versus agent
The Group has arrangements with some of its customers whereby it
needs to determine if it acts as a principal or an agent as more
than one party is involved in providing the goods and services to
the customer. In making this assessment the Group considers the
overall performance obligation in the contract and whether the
individual services provided in satisfying the performance
obligation are distinct.
The Group acts as a principal if it controls a promised good or
service before transferring that good or service to the customer.
The Group is an agent if its role is to arrange for another entity
to provide the goods or services. Other indicators considered in
making this assessment are most notably the discretion the Group
has in establishing the price for the specified good or service,
whether the Group has inventory risk and whether the Group is
primarily responsible for fulfilling the promise to deliver the
service or good.
Where the Group has determined that it is acting as principal in
a transaction with a customer, revenue is recorded on a gross
basis. Where the Group is acting as an agent, revenue is recorded
at a net amount reflecting the margin earned.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
2 Basis of preparation and changes to the Group's accounting policies (continued)
2.3 Accounting policies applied from 1 January 2018
(continued)
Revenue (continued)
Capitalisation of costs to obtain a contract
The Group recognises as an asset the incremental costs of
obtaining a contract with a customer where those costs are expected
to be recovered. Costs incurred to obtain a contract that are not
incremental are expensed as incurred. Judgement is therefore
applied by the Group when determining what costs qualify to be
capitalised. These assets are referred to as 'contract acquisition
assets' and are included as a separate class of intangible
asset.
Capitalisation of contract fulfilment costs
Contract fulfilment costs are divided into: (i) costs that give
rise to an asset; and (ii) costs that are expensed as incurred.
When determining the appropriate accounting treatment for such
costs, the Group firstly considers any other applicable standards.
If those other standards preclude capitalisation of a particular
cost, then an asset is not recognised under IFRS 15.
If other standards are not applicable to contract fulfilment
costs, the Group applies the following criteria which, if met,
result in capitalisation:
(i) the costs directly relate to a contract or to a specifically
identifiable anticipated contract;
(ii) the costs generate or enhance resources of the entity that
will be used in satisfying (or in continuing to satisfy)
performance obligations in the future; and
(iii) the costs are expected to be recovered.
Contract fulfilment assets relate directly to the Group's
performance under the contract and are identified separately on the
Consolidated Balance Sheet and aged accordingly. The related
utilisation is shown within cost of sales to reflect its
nature.
Utilisation, derecognition and impairment of capitalised costs
to obtain and fulfil contracts with customers
The Group amortises capitalised costs to obtain and fulfil a
contract over the expected contract period using a systematic basis
that mirrors the pattern in which the Group transfers control of
the service to the customer. In the absence of any known phasing a
straight-line basis over the life of the contract is used as the
closest proxy. If the revenue stream ceases and no further economic
benefits are expected to flow from its use then the costs would be
deemed as impaired and written off.
At each reporting date, the Group determines whether or not the
contract acquisition assets or contract fulfilment assets are
impaired by comparing the carrying amount of the asset to the
remaining amount of consideration that the Group expects to receive
less the costs that relate to providing services under the relevant
contract. In determining the estimated amount of consideration, the
Group uses the same principles as it does to determine the contract
transaction price.
Where there are indicators of impairment such as the relevant
contracts demonstrating marginal profitability, judgement is
required to determine whether or not the future economic benefits
from these contracts are sufficient to recover these assets.
Management is required to make an assessment of the costs to
complete the contract in performing this impairment assessment. The
ability to accurately forecast such costs involves estimates around
cost savings to be achieved over time, anticipated profitability of
the contract, as well as future performance.
Financial instruments
Financial assets and financial liabilities are recognised in the
Consolidated Balance Sheet when the Group becomes party to the
contractual provisions of the instrument. The Group's principal
financial instruments comprise bank loans and overdrafts, cash and
short-term deposits and interest rate swaps. The main purpose of
these financial instruments is to raise finance for the Group's
operations and to manage interest rate risk. The Group also has
various other financial assets and liabilities such as trade
receivables and trade payables, which arise directly from its
operations.
Financial assets
On initial recognition, a financial asset is classified into one
of three categories: amortised cost, fair value through other
comprehensive income (FVOCI) and fair value through profit or loss
(FVTPL), based on the business model in which the financial asset
is managed and its contractual cash flow characteristics. The
Group's financial assets are currently all classified within IFRS
9's amortised cost model and comprise contract assets, trade and
other receivables and cash and cash equivalents. The Group's
financial assets are therefore initially recognised at fair value
plus transaction costs that are directly attributable to their
acquisition and are subsequently carried at amortised cost using
the effective interest rate method, less provision for impairment.
Impairment losses and any gain or loss on derecognition are
recognised in the Consolidated Income Statement.
When calculating impairment provisions the Group assesses on a
forward-looking basis the expected credit losses associated with
its financial assets. For contract assets and trade receivables,
the Group applies the simplified approach permitted by IFRS 9,
which requires expected lifetime losses to be recognised from the
initial recognition of the receivable.
Financial liabilities
On initial recognition the Group classifies its financial
liabilities into one of two categories, depending on the purpose
for which the liability was acquired: fair value through profit and
loss (FVTPL) and amortised cost. Financial liabilities held for
trading are measured at FVTPL, and all other financial liabilities
are measured at amortised cost unless the fair value option is
applied. The Group's financial liabilities include borrowings and
trade and other payables. They are initially measured at fair
value, net of transaction costs and then subsequently measured
using the amortised cost model applying the effective interest rate
method.
Hedge accounting
Hedge accounting is applied to financial assets and financial
liabilities only where all of the following criteria are met:
-- At the inception of the hedge there is formal designation and
documentation of the hedging relationship and the Group's risk
management objective and strategy for undertaking the hedge;
and
-- The hedge relationship meets all of the hedge effectiveness
requirements including that an economic relationship exists between
the hedged item and the hedging instrument and the hedge ratio is
designated based on actual quantities of the hedged item and
hedging instrument.
Cash flow hedges that qualify for hedge accounting
The Group uses derivative financial instruments, namely interest
rate swaps, to hedge its interest rate risks. Such derivative
financial instruments are initially recognised at fair value on the
date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as
financial assets when the fair value is positive and as financial
liabilities when the fair value is negative. The fair value of
interest rate swaps is calculated based on the future cash flows,
discounted to present value. The cash flows are determined by the
difference between the agreed fixed rate and the relevant future
LIBOR rates implied at the Balance Sheet date.
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges is
recognised in the cash flow hedge reserve within equity. The gain
or loss relating to the ineffective portion is recognised
immediately in the Income Statement. Amounts accumulated in equity
are reclassified in the periods when the hedged item affects profit
or loss, as such, the gain or loss relating to the effective
portion of the interest rate swaps hedging variable rate borrowings
is recognised in profit or loss within finance cost at the same
time as the interest expense on the hedged borrowings.
When the forecast transaction is no longer expected to occur,
the cumulative gain or loss and deferred costs of hedging that were
reported in equity are immediately reclassified to profit or
loss.
For those derivatives designated as hedges and for which hedge
accounting is desired, the hedging relationship is formally
designated and documented at its inception. This documentation
identifies the risk management objective and strategy for
undertaking the hedge, the hedging instrument, the hedged item or
transaction, the nature of the risk being hedged and how
effectiveness will be measured throughout its duration (including
sources of ineffectiveness and how the hedge ratio is determined).
Such hedges are expected to be highly effective in offsetting
changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective
throughout the financial reporting periods for which they were
designated.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
2 Basis of preparation and changes to the Group's accounting policies (continued)
2.4 Significant accounting judgements and estimates
In preparing these Interim Condensed Consolidated Financial
Statements, management have made judgements and estimates that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. These
assumptions could have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year.
The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those described in the last Annual
Consolidated Financial Statements, except for new significant
judgements and key sources of estimation uncertainty related to the
application of IFRS 15. These are described below:
Judgements
Revenue recognition: principal or agent basis
The Group acts as principal if it controls a promised good or
service before transferring that good or service to the customer.
This assessment of control requires judgement, in particular in
relation to certain service contracts. An example is the provision
of licensing and postage services where the Group may be assessed
to be agent or principal dependent upon the facts and circumstances
of the arrangement and the nature of the services being
delivered.
Costs to fulfil a contract
The Group recognises as an asset certain costs which are
incurred in fulfilling a contract. In order to qualify for
capitalisation the costs must meet the criteria outlined in IFRS
15. The assessment of this criteria requires the application of
judgement, in particular when considering if costs generate or
enhance resources to be used to satisfy future performance
obligations and whether costs are expected to be recoverable.
3 Revenue
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
For the six months ended 30 June 2018
------------------------------------------
Customer
Experience Brand Deployment Total
GBP000 GBP000 GBP000
Contract type
Long-term services 52,314 - 52,314
Short-term customer projects 32,320 100,902 133,222
Transition services 3,105 - 3,105
------------- ----------------- --------
Total revenue from contracts
with customers 87,739 100,902 188,641
============= ================= ========
Geographical markets
United Kingdom 87,030 38,252 125,282
Overseas 709 62,650 63,359
Total revenue from contracts
with customers 87,739 100,902 188,641
============= ================= ========
Timing of revenue recognition
Transferred at a point in
time 22,223 95,927 118,150
Transferred over time 65,516 4,975 70,491
Total revenue from contracts
with customers 87,739 100,902 188,641
============= ================= ========
For the six months ended 30 June 2017
------------------------------------------
Customer
Experience Brand Deployment Total
GBP000 GBP000 GBP000
Contract type
Long-term services 48,238 - 48,238
Short-term customer projects 29,614 94,302 123,916
Transition services 1,330 - 1,330
------------- ----------------- --------
Total revenue from contracts
with customers 79,182 94,302 173,484
============= ================= ========
Geographical markets
United Kingdom 78,279 38,710 116,989
Overseas 903 55,592 56,495
Total revenue from contracts
with customers 79,182 94,302 173,484
============= ================= ========
Timing of revenue recognition
Transferred at a point in
time 21,182 90,102 111,284
Transferred over time 58,000 4,200 62,200
Total revenue from contracts
with customers 79,182 94,302 173,484
============= ================= ========
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
3 Revenue (continued)
For the twelve months ended 31 December
2017
--------------------------------------------
Customer
Experience Brand Deployment Total
GBP000 GBP000 GBP000
Contract type
Long-term services 100,788 - 100,788
Short-term customer projects 56,633 189,495 246,128
Transition services 3,748 - 3,748
------------- ------------------- --------
Total revenue from contracts
with customers 161,169 189,495 350,664
============= =================== ========
Geographical markets
United Kingdom 159,522 77,752 237,274
Overseas 1,647 111,743 113,390
Total revenue from contracts
with customers 161,169 189,495 350,664
============= =================== ========
Timing of revenue recognition
Transferred at a point in
time 40,690 180,596 221,286
Transferred over time 120,479 8,899 129,378
Total revenue from contracts
with customers 161,169 189,495 350,664
============= =================== ========
Contract balances
The following table provides information about receivables,
contract fulfilment assets, contract assets and contract
liabilities from contracts with customers.
Half Half
year year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
----------------------------------------------- --------- --------- --------
Receivables, which are included in 'Trade and
other receivables' 52,533 48,180 49,951
Contract fulfilment assets 2,566 1,949 2,795
Contract assets 16,205 15,681 15,707
Contract liabilities 10,860 8,763 13,273
The contract assets primarily relate to the Group's rights to
consideration for work completed but not billed at the end of the
reporting period. The contract assets are transferred to
receivables when the rights become unconditional. This usually
occurs when the Group issues an invoice to the customer. The
contract liabilities primarily relate to the advance consideration
received from customers.
4 Segmental information
The Group's activities are predominantly focused in two main
areas which are:
-- Customer Experience; and
-- Brand Deployment.
During the year there have been two changes to the previously
reported segments as follows:
-- The Psona and Psona Films business units (previously part of
the Customer Experience segment) are being reported within the
Brand Deployment segment as the trade from these businesses since
the re-segmentation in 2016 has become more affiliated with the
Brand Deployment segment.
-- The prior year reported results have been restated to reflect
the changes as a result of the transition to IFRS 15 as discussed
in Note 2.
Pension scheme costs are included in the Corporate Costs
segment.
The segment results for the half year ended 30 June 2018 are as
follows:
Customer Brand Central Corporate
Experience Deployment Costs Costs Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 87,739 100,902 - - 188,641
--------------------------------------- ------------ ------------ -------- ---------- --------
Profit from operations before
amortisation of acquired intangibles
and exceptional items 12,047 5,557 (6,761) (3,147) 7,696
Amortisation of acquired intangibles (169) (178) - - (347)
--------------------------------------- ------------ ------------ -------- ---------- --------
Profit from operations before
exceptional items 11,878 5,379 (6,761) (3,147) 7,349
Exceptional items (381) (475) (310) (978) (2,144)
--------------------------------------- ------------ ------------ -------- ---------- --------
Profit from operations 11,497 4,904 (7,071) (4,125) 5,205
--------------------------------------- ------------ ------------ -------- ---------- --------
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
4 Segmental information (continued)
The restated and re-segmented results for the half year ended 30
June 2017 are as follows:
Customer Brand Central Corporate
Experience Deployment Costs Costs Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 79,182 94,302 - - 173,484
--------------------------------------- ------------ ------------ -------- ---------- --------
Profit from operations before
amortisation of acquired intangibles
and exceptional items 11,870 5,168 (6,130) (2,658) 8,250
Amortisation of acquired intangibles (170) (205) - - (375)
--------------------------------------- ------------ ------------ -------- ---------- --------
Profit from operations before
exceptional items 11,700 4,963 (6,130) (2,658) 7,875
Exceptional items - (1,215) - - (1,215)
--------------------------------------- ------------ ------------ -------- ---------- --------
Profit from operations 11,700 3,748 (6,130) (2,658) 6,660
--------------------------------------- ------------ ------------ -------- ---------- --------
The restated and re-segmented results for the year ended 31
December 2017 are as follows:
Customer Brand Central Corporate
Experience Deployment Costs Costs Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 161,169 189,495 - - 350,664
--------------------------------------- ------------ ------------ --------- ---------- --------
Profit from operations before
amortisation of acquired intangibles
and exceptional items 22,403 14,555 (11,759) (5,949) 19,250
Amortisation of acquired intangibles (339) (394) - - (733)
--------------------------------------- ------------ ------------ --------- ---------- --------
Profit from operations before
exceptional items 22,064 14,161 (11,759) (5,949) 18,517
Exceptional items (51) (1,998) (289) 286 (2,052)
--------------------------------------- ------------ ------------ --------- ---------- --------
Profit from operations 22,013 12,163 (12,048) (5,663) 16,465
--------------------------------------- ------------ ------------ --------- ---------- --------
5 Amortisation of acquired intangibles and exceptional items
Half Half Year
year year ended
ended ended
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
------------------------------------------------------ -------- -------- -------
Profit from operations is arrived at after
charging the following items:
Exceptional restructuring costs 420 788 1,737
Customer relationship write off 125 105 170
Introduction of General Data Protection Regulation 310 - -
(GDPR)
Value Enhancement Programme 1,289 - -
Write off of unsupported assets - 383 506
Contingent consideration write off - (61) (361)
Exceptional items 2,144 1,215 2,052
Non-exceptional amortisation of acquired intangibles 347 375 733
------------------------------------------------------ -------- -------- -------
2,491 1,590 2,785
------------------------------------------------------ -------- -------- -------
During the first half of 2018 the Group incurred GBP420,000 in
respect of organisational restructuring to reduce the cost base and
deliver efficiency improvements. The restructuring costs included
GBP350,000 relating to staff restructuring. Of the GBP420,000,
GBP44,000 is unpaid at 30 June 2018.
The GBP125,000 customer relationship write off relates to
customer relationships valued as part of acquisition accounting in
recent years. It is indicative of the current nature of client
turnover in agency businesses where revenues are project based and
not usually underpinned by long-term contracts.
Costs totalling GBP310,000 have been incurred in preparing the
business for the introduction of GDPR.
A further GBP1,289,000 has been incurred relating to the Value
Enhancement Programme, being primarily professional fees incurred
in support of corporate activity towards an optimal Group
structure.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
6 Net finance costs
Half year Half Year
ended year ended
ended
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
---------------------------------------------------- ---------- -------- --------
Interest on financial assets measured at amortised
cost 11 - 1
Interest on financial liabilities measured
at amortised cost (888) (1,000) (2,030)
---------------------------------------------------- ---------- -------- --------
Net interest from financial assets and financial
liabilities not at fair value through Income
Statement (877) (1,000) (2,029)
Gain/(loss) on foreign currency liabilities 223 (126) (425)
Retirement benefit related cost (517) (751) (1,488)
----------------------------------------------------
(1,171) (1,877) (3,942)
---------------------------------------------------- ---------- -------- --------
7 Income tax
The tax charge on continuing operations for the period is based
upon an effective rate of 21.02% (H1 2017 23.06%). The provision
for deferred tax at 30 June 2018 has been made at rates between 17%
and 19% depending upon the anticipated time of reversal. This
reflects the legislation included in the Finance Act 2016 reducing
the rate of corporation tax to 17% from April 2020.
Impact of adoption of IFRS 15 on income tax balances
Due to the changes in assets, liabilities, income and expenses
recognised as a result of the application of IFRS 15, there are
consequent IAS 12 Income Taxes differences that arise and are
reflected in the restated 30 June 2017 and 31 December 2017
balances.
Due to the changes in the pattern and timing of revenue
recognition under IFRS 15, contract liabilities were recognised on
the Consolidated Balance Sheet, which will be recognised through
the Consolidated Income Statement in subsequent periods. Contract
fulfilment assets were also recognised on the Consolidated Balance
Sheet from 1 January 2017, which will be charged to the
Consolidated Income Statement in subsequent periods.
Under the principles of IAS 12, the restated Consolidated
Balance Sheet for 30 June 2017 and 31 December 2017 reflects a net
increase in deferred tax assets of GBP734,000 and GBP1,033,000
respectively, arising from the recognition of contract fulfilment
assets and contract liabilities as a result of the transition to
IFRS 15. The deferred tax asset has been calculated on the basis of
the tax rates which are currently anticipated to be ruling at the
time at which the reversal will take place.
8 Earnings per share
Half Year
Half year year ended
ended ended
30 June 30 June 31 Dec
2018 2017 2017
(restated)* (restated)*
GBP000 GBP000 GBP000
Basic and diluted earnings per share are calculated
as follows:
Profit for the period 3,186 3,680 10,198
----------------------------------------------------- ---------- ------------- -------------
Weighted average number of ordinary shares
(excluding treasury shares) for basic earnings
per share ('000) 209,404 208,741 208,804
Effect of dilution:
Share options 1,539 219 1,008
----------------------------------------------------- ---------- ------------- -------------
Weighted average number of ordinary shares
(excluding treasury shares) adjusted for the
effect of dilution ('000) 210,943 208,960 209,812
----------------------------------------------------- ---------- ------------- -------------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
204,473 (30 June 2017 584,270; 31 December 2017 441,220) shares
were held in trust at 30 June 2018.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
8 Earnings per share (continued)
Adjusted earnings per share
Adjusted earnings per share are derived from net profit from
continuing operations before exceptional items, amortisation of
acquired intangibles and certain tax items in respect of prior
years, attributable to equity holders of the parent as follows:
Half Year
Half year year ended
ended ended
30 June 30 June 31 Dec
2018 2017 2017
(restated)* (restated)*
GBP000 GBP000 GBP000
Profit after taxation from continuing operations 3,186 3,680 10,198
Exceptional items 2,144 1,215 2,052
Taxation on exceptional items (150) (247) (461)
Amortisation of acquired intangibles 347 375 733
Taxation on amortisation of acquired intangibles (59) (64) (125)
Taxation - adjustments in respect of prior
years (150) - (609)
Profit after taxation from continuing operations
excluding exceptional items and amortisation
of acquired intangibles 5,318 4,959 11,788
-------------------------------------------------- ---------- ------------- -------------
Adjusted earnings per share:
Basic 2.54p 2.38p 5.65p
Diluted 2.52p 2.37p 5.62p
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
The basis of measurement of adjusted earnings per share is to
reflect more accurately the measure of earnings per share used by
the market.
Adjusted earnings per share uses the same weighted average
number of ordinary shares as reported above.
9 Dividends paid and proposed
Half
Half year year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
Declared and paid during the period GBP000 GBP000 GBP000
------------------------------------------------- ---------- -------- -------
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2016 of 1.61p per share - 3,362 3,362
Interim dividend for the year ended 31 December
2017 of 0.89p per share - - 1,860
Final dividend for the year ended 31 December
2017 of 1.77p per share 3,704 - -
-------------------------------------------------
3,704 3,362 5,222
------------------------------------------------- ---------- -------- -------
Proposed for approval by the Board
(not recognised as a liability at period end)
Interim equity dividend on ordinary shares
for 2018 of 0.93p
(30 June 2017 interim 0.89p; 31 December 2017
final 1.77p) per share 1,958 1,864 3,704
------------------------------------------------- ---------- -------- -------
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
10 Cash generated from operations
Half Half
year year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
(restated)* (restated)*
GBP000 GBP000 GBP000
Continuing operations
Profit before tax 4,034 4,783 12,523
Adjustments for:
Amortisation of intangible assets arising on
business acquisitions 347 375 733
Depreciation and amortisation 3,334 3,350 6,435
Utilisation of contract fulfilment assets 490 248 666
Exceptional items 2,144 1,215 2,052
Loss on sale of property, plant and equipment - 113 7
Share-based payment charge 245 307 597
Net finance costs 1,171 1,877 3,942
Additional contribution to the defined benefit
pension plan (288) (575) (3,988)
Cash cost of exceptional items (776) (1,646) (2,704)
Changes in working capital:
(Increase)/decrease in inventories (751) 337 (761)
Increase in contract fulfilment assets, trade
and other receivables and contract assets (17,871) (12,004) (15,202)
Increase in trade and other payables and contract
liabilities 17,877 11,264 17,644
----------------------------------------------------
Cash generated from operations 9,956 9,644 21,944
---------------------------------------------------- --------- ------------- -------------
*Restated to reflect the changes as a result of the transition
to IFRS 15 (Note 2).
11 Directors' responsibility statement
The Directors are responsible for preparing the condensed set of
Consolidated Financial Statements, in accordance with applicable
law and regulations. The Directors confirm that, to the best of
their knowledge:
-- the condensed set of Consolidated Financial Statements on
pages 6 to 22 has been prepared in accordance with IAS 34 Interim
Financial Reporting, as adopted by the European Union; and
-- the information set out on this page and on pages 1 to 5
includes a fair review of the information required by Sections DTR
4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority.
There were no related party transactions during the period which
require disclosure.
12 Risks and uncertainties
Communisis has a robust internal control and risk management
process outlined on page 39 of the Corporate Governance Report in
the 2017 Annual Report. The Group continues to monitor the impact
of the UK's decision to leave the EU and other political changes
that may affect its operations.
The principal risks and uncertainties relating to the business
at 31 December 2017 were set out in the Strategic Report on pages
19 to 21 of the 2017 Annual Report. These include the ability of
the Group to adapt to market and technological change, the degree
of customer concentration within the Group, managing international
exposure from expansion outside the UK, the smooth and
uninterrupted operation of the Group's IT networks to ensure
safeguarding of data, cyber risk and uninterrupted delivery of
products/services, talent and skills shortage, deterioration in the
economic environment which may decrease the Group's profitability,
a high operational gearing which means that a reduction in revenues
could significantly impact profitability, the Group's continuing
obligations under defined benefit pension scheme arrangements and
contingent liabilities arising from lease commitment guarantees on
past disposals.
The view of the Board of Directors is that the nature of the
risks has not changed since 8 March 2018 and that they represent
our current best understanding of the situation faced by the Group.
In terms of risk mitigation, management will continue to be alert
to the need for action in respect of any problems caused or
exacerbated by the current economic climate, especially as it
affects our ability to forecast reliably the market demand for some
of our newer services.
Notes to the Consolidated Financial Statements
for the half year ended 30 June 2018 (continued)
13 Additional information
General information
The information for the year ended 31 December 2017 does not
constitute statutory accounts as defined in Section 435 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The financial
information for the year ended 31 December 2017 has been extracted
from the Group Consolidated Financial Statements for that period.
Those Consolidated Financial Statements were prepared in accordance
with IFRS as adopted by the EU. The auditor reported on those
Financial Statements: their report was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
The Group has, however, made retrospective restatements during
the current interim period as a result of adoption of new
accounting standards. The Consolidated Balance Sheet of the Group
for the preceding year (31 December 2017) presented with the
Interim Financial Statements (30 June 2018) reflects the
retrospective application of the new accounting principles. As the
amounts differ from the amounts in the 2017 Financial Statements on
which the Group's auditor previously reported, the 31 December 2017
Consolidated Balance Sheet is unaudited.
The financial information for the half year ended 30 June 2018
and for the equivalent period in 2017 has not been audited. It has
been prepared in accordance with IAS 34 Interim Financial Reporting
and on the basis of the accounting policies as set out in the 2017
Annual Report and Financial Statements.
Pension
At 30 June 2018 the pension deficit had reduced to GBP32,417,000
compared with GBP38,217,000 at 31 December 2017. Further details
regarding the reason for the reduction can be found on page 4.
Bank facilities
At 30 June 2018 the Group had a committed GBP65,000,000 bank
loan facility in place which was due for renewal in August 2022 and
an on-demand GBP5,000,000 overdraft facility.
Going concern
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern
basis of accounting in preparing the Interim Report.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKDDQFBKDPFK
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