TIDMMIDW
RNS Number : 4897S
Midwich Group PLC
12 March 2019
12 March 2019
Midwich Group plc
("Midwich" or "the Group")
Final Results
Strong revenue and profit growth across all markets and
geographies
Midwich, a specialist audio visual ("AV") distributor to the
trade market with operations across the UK and Ireland, Continental
Europe and Asia Pacific, today announces its Final Results for the
year to 31 December 2018.
Year to Year to Total growth
31 December 2018 31 December %
GBPm 2017
GBPm
Revenue 573.7 471.9 21.6%
Gross profit 94.6 73.1 29.3%
Operating profit 24.7 20.8 18.9%
Profit before tax 21.1 18.9 11.5%
Profit after tax 15.3 14.0 9.3%
Basic EPS - pence 18.53 17.06 8.6%
Adjusted financial highlights(1)
Year to Year to Total growth Growth at constant
31 December 31 December % currency
2018 2017 %
GBPm GBPm
Revenue 573.7 471.9 21.6% 21.4%
Gross profit 94.6 73.1 29.3% 29.2%
Gross profit margin
% 16.5% 15.5%
Adjusted operating
profit 30.2 25.0 20.8% 20.9%
Adjusted profit before
tax 29.1 24.3 19.7% 19.9%
Adjusted profit after
tax 22.3 18.7 19.7% 19.8%
Adjusted EPS - pence 27.28 22.86 19.3%
(1) Definitions of the alternative performance measures are set
out on page 30
Financial Highlights
-- Revenue increased by 21.6% to GBP573.7 million (21.4% on
constant currency basis) including organic revenue growth of
8.7%
-- Gross margin of 16.5% (1.0% ahead of full year 2017)
-- Adjusted operating profit(1) increased by 20.8% to GBP30.2
million (20.9% on constant currency basis)
-- Adjusted profit before tax(2) improved by 19.7% to GBP29.1
million (19.9% on constant currency basis)
-- Adjusted PBT has doubled since 2015
-- Adjusted EPS(1) increased 19.3% to 27.3p (2017: 22.9p)
-- Final dividend of 10.60 pence per share (2017: 9.65 pence)
-- Total dividend for year of 15.20 pence per share (2017: 13.82 pence)
Operational Highlights
-- Revenue and net profit growth across all territories
-- Strong full year performance from each of the three businesses acquired in 2017
-- Three successful and earnings enhancing acquisitions completed in the year
-- In-year acquisitions:
o Added new product specialisms into European and Asia Pacific
territories
o Established a presence in South East Asia
-- Expanded central office team improves capacity to acquire,
integrate and develop businesses into the Group
-- Good growth of technical products in the year, up 54.7%,
assisted by the acquisitions; now representing over 26% of Group
turnover
-- Strong growth of core Displays sales, growing 23.7% as a category across the Group
Post period Highlights
-- Entered the Italian market and strengthened the audio
business through the acquisition of 80% of the share capital of
Prase Engineering S.p.A; one of our largest acquisitions to
date
-- Established a presence in Switzerland following the acquisition of MobilePro AG
Stephen Fenby, Managing Director of Midwich Group plc,
commented:
"I am very pleased to report that in 2018 we again achieved
strong growth across all the Group's businesses and regions at both
a revenue and profit level. Our organic growth continued to be
strong, and we have continued to successfully use targeted
acquisitions to drive future growth as well as build our expertise
in a broader range of markets and products. We continue to pursue
acquisition opportunities that fit within our strategic focus of
adding new product ranges, capabilities or geographies to our
existing portfolio.
"We are seeing exciting growth opportunities across all our
markets and geographies driven by an increasing demand from end
users as well as continued innovation and new products from our
manufacturer partners. There is also a continued trend in the
increasing use and need for high quality distributors such as
Midwich to support the professional AV market. As a result, we
continue to exploit a significant number of organic growth
opportunities from targeting new vendors while continuing to grow
our customer base.
"The Board is continuing to pursue its established strategy and
is pleased with the progress made during 2018. Trading in the first
two months of 2019 has built on the good growth we saw last year,
giving the Board confidence in delivering a 2019 performance in
line with its existing expectations."
There will be a presentation for analysts at 9:30am today, 12
March 2019, at the offices of FTI Consulting, 200 Aldersgate,
London, EC1A 4HD.
For further information:
Midwich Group plc Tel: +44 (0) 13 7964 9200
Stephen Fenby, Managing Director
Stephen Lamb, Finance Director
Investec Bank plc (NOMAD and Joint Broker to Tel: +44 (0) 20 7597 5970
Midwich)
James Rudd
Carlton Nelson
Berenberg (Joint Broker to Midwich) Tel: +44 (0) 20 3207 7800
Ben Wright
Mark Whitmore
Laure Fine
FTI Consulting Tel: +44 (0) 20 3727 1000
Alex Beagley
Tom Hufton
Fern Duncan
About Midwich Group
Midwich is a specialist AV distributor to the trade market, with
operations in the UK and Ireland, Continental Europe and Asia
Pacific. The Group's long-standing relationships with over 400
vendors, including blue-chip organisations, support a comprehensive
product portfolio across major audio visual categories such as
large format displays, projectors, digital signage and professional
audio. The Group operates as the sole or largest in-country
distributor for a number of its vendors in their respective product
sets.
The Directors attribute this position to the Group's technical
expertise, extensive product knowledge and strong customer service
offering built up over a number of years. The Group has a large and
diverse base of over 17,000 customers, most of which are
professional AV integrators and IT resellers serving sectors such
as corporate, education, retail, residential and hospitality.
Although the Group does not sell directly to end users, it believes
that the majority of its products are used by commercial and
educational establishments rather than consumers.
Initially a UK only distributor, the Group now has 900 employees
across the UK and Ireland, Continental Europe and Asia Pacific. A
core component of the Group's growth strategy is further expansion
of its international operations and footprint into strategically
targeted jurisdictions.
For further information, please visit
www.midwichgroupplc.com
Chairman's Statement
I am pleased to report that the Group has continued to deliver
strong results in 2018, achieving both revenue and profit growth
across all its markets and geographies.
Revenue of GBP573.7 million was 21.6% ahead of prior year (21.4%
at constant currency) and reflects an impressive level of organic
growth across the business along with contributions from the
successful acquisitions during the year and the full year impact of
those acquisitions completed in 2017.
Gross profit margin again improved and adjusted profit before
tax grew by 19.7% to GBP29.1 million. Adjusted earnings per share
increased by 19.3% to 27.28 pence per share.
Healthy operating cash flow performance, slightly above our
long-term average, helped us maintain a strong balance sheet. We
also increased our bank borrowing facilities to support our
acquisition strategy.
The Board remains focused on delivering profitable growth and
enhancing the capabilities and reach of the Group in its core
business areas.
Organic growth in revenues, before the impact of acquisitions,
was 8.7% reflecting the strong performance across all our
geographic markets. The Displays, LED and Technical Video product
ranges were particularly strong contributors to this growth.
During 2018 we successfully further expanded the reach of the
Group through acquisitions, adding specialist broadcast businesses
in Germany and Asia Pacific and an audio business in France. These
businesses are being integrated as expected, are already
contributing to both sales and profit and have added to our
capabilities. After the year-end, we completed two acquisitions
entering new markets in Switzerland, with MobilePro AG, and in
Italy, with Prase Engineering S.p.A ("Prase"). The Prase deal is
one of the largest undertaken by the Group and brings us a market
leading business in one of the largest European AV territories.
Prase has a very strong heritage in the audio segment and has been
integral to the successful delivery of a number of high profile and
complex installations in Italy and further afield.
Our strategy of delivering organic growth while adding
capability and scale to the business through acquisition is
unchanged and we continue to pursue a good pipeline of
opportunities.
Dividend
The Board is recommending a final dividend of 10.60 pence per
share (2017: 9.65 pence), which if approved will be paid on 21 June
2019 to shareholders on the register on 17 May 2019. With the
interim dividend declared in September 2018, this represents a
total dividend for the year to 31 December 2018 of 15.20 pence per
share and growth of 10% on the prior year 13.82 pence per share.
The proposed dividend is covered 1.8 times by adjusted
earnings.
The Board has adopted a progressive dividend policy to reflect
the Group's strong earnings and cash flow. While there is no hard
or fixed target, in order to allow for continued investment in
targeted acquisitions intends to pay future dividends within a
cover range of 2 to 2.5 times adjusted earnings.
Board
In our 2017 evaluation of Board effectiveness, we identified the
opportunity to further strengthen the Board with the appointment of
a third independent non-executive director. We were pleased to
welcome Hilary Wright to the Board on 9 March 2018. Hilary is an HR
professional with a background in international businesses and
brings a wealth of complementary experience to the team.
2018 also saw a change in Group Finance Director. Following the
retirement of Anthony Bailey, we were pleased to welcome Stephen
Lamb to the Board. Having overseen the Group's IPO and initial
period of operation as a new public company, Anthony left the
business to pursue personal interests. We are grateful to him for
his commitment and contribution to the business. Stephen Lamb, who
is also appointed as Company Secretary, brings considerable
experience gained in senior finance roles in international
businesses.
The Board once again completed a self-evaluation exercise during
2018, reinforcing our commitment to and success in establishing a
strong corporate governance framework. We took the opportunity of
this review to confirm strong and effective governance and
reaffirmed the role of the Board and its individual members in
ensuring compliance with the revised provisions of the QCA code.
There were no major issues or concerns raised about the
effectiveness of the Board or its individual members.
In formally adopting the QCA code (as revised April 2018) as its
governance framework, the Board has reviewed all aspects of
compliance and has acted to improve disclosures on the Group's
corporate website.
People
The success of any company is down to the quality of its
leadership and its people. The team at Midwich continues to
demonstrate great skill, commitment and drive and it is our people
that are the key to the Group's strong track record and continued
success.
During 2018, the Board has reviewed and approved changes in
organisation structure and capability through creation of
additional roles to ensure the Group is prepared for and capable of
further expansion. Specifically, we have strengthened the central
team responsible for acquisition and business integration.
Also, as part of the process of exposure to the business and
people throughout the Group, the Board has committed to visiting
and holding meetings with at least two subsidiary businesses in any
twelve month period. We continue to be pleased and impressed with
the engagement and quality of our teams.
On behalf of the Board, I would like to thank all employees and
our partners for their commitment and hard work and congratulate
them all on achieving these impressive results.
Andrew Herbert
Chairman
Managing Director's Review
Continued growth from a proven model
I am very pleased to report that in 2018 we again achieved
strong growth across all the Group's businesses and regions at both
a revenue and profit level. Our organic growth continued to be
strong, and we have continued to undertake targeted acquisitions to
drive future growth as well as build our expertise in a broader
range of markets and products.
Strong financial performance
Midwich has delivered strong growth performance in 2018 with
revenue for the year of GBP573.7 million (2017: GBP471.9 million),
an increase of 21.4% (2017: 24.2%) on a constant currency basis.
The performance resulted from revenue growth across all regions
within the Group, with particularly strong growth in our
Continental European business. The three acquisitions made in the
second half of the year (Sound Directions (trading as Perfect
Sound), Bauer & Trummer (trading as New Media) and Blonde
Robot) accounted for 1.9% of the 21.4% growth.
Group gross profit increased by 29.3% to GBP94.6 million (2017:
29.5% to GBP73.1 million). The growth in gross profit resulted from
a further strong increase in the Group's gross margin, from 15.5%
to 16.5%. This increase was delivered through the Group's focus on
margins, driving improvement through product mix and working
closely with vendors and customers alike to add value to both
throughout the supply chain. The growth in specialist Audio,
Technical Video, LED and Lighting categories particularly helped
improve margins. These product areas require a higher level of
investment in specialist knowledge, facilities and personnel, which
means that, although the improved gross profit margin does not
fully flow down to operating margins, the business is much more
specialist and therefore defensible. Midwich has now successfully
increased Group gross margin percentage every year for over 10
years.
Our adjusted operating profit margin remained in line with prior
year at 5.3% and adjusted profit before tax increased by 19.9% (at
constant currency) to GBP29.1 million. Adjusted profit after tax
increased 19.7% to GBP22.3 million (2017: 29.9% to GBP18.7 million)
and adjusted earnings per share increased 19.3% (2017: 22.7%) to
27.28 pence (2017: 22.86 pence). Reported profit before tax was
GBP21.1 million (2017: GBP18.9 million) and reported earnings per
share increased to 18.5 pence (2017: 17.1 pence).
I am particularly pleased to note that the Group's adjusted
profit before tax has doubled in the last three years, from GBP14.5
million in 2015 to GBP29.1 million in 2018.
Our business model
Midwich is a specialist distributor serving only the trade
market and specialising in audio-visual equipment. With initial
operations in the UK, the Group has expanded its footprint to
include Ireland, Continental European (Benelux, France, Germany and
Iberia, with businesses in Italy and Switzerland joining the Group
post year-end) and Asia Pacific (Australia, New Zealand, Hong Kong,
Malaysia and Singapore). The Group has a long-standing programme of
supplementing its organic growth with the acquisition of smaller
businesses which provide it with access to new products, sectors
and geographical markets. Our general strategy is to acquire
businesses which not only add to the Group's capabilities, but
which provide exciting opportunities for growth and widen our
addressable market. We continue to have significant success with
this strategy.
We believe that our primary role as a distributor is to
facilitate growth in the markets in which we operate.
We believe that our ability to help our manufacturer partners to
gain access and grow their businesses in geographical and vertical
markets is a particular strength of Midwich. This ability often
results in a number of manufacturers wishing to follow the Group as
it enters new markets; providing us with an ability to rapidly
develop newly acquired businesses.
The Group's long-standing relationships with over 400 vendors,
including blue-chip organisations such as Samsung, LG, Epson and
NEC, supports a comprehensive product portfolio across major
audio-visual categories such as large format displays, projectors,
technical and professional video, audio and digital signage. The
Group operates as the sole or largest in-country distributor for
many of its vendors in their respective product sets. We attribute
this position to the Group's technical expertise, extensive product
knowledge, focused sales capability and strong customer service
offering built up over many years.
The Group offers a range of support to our customers, including
demonstrating products, training their staff, providing technical
advice, logistics, and post-sales support. We have a large and
diverse base of over 17,000 customers, most of which are
professional AV integrators and IT resellers serving sectors such
as corporate, education, retail, residential and hospitality.
Although the Group does not sell directly to end users, we believe
that the majority of our products are used by commercial and
educational establishments rather than consumers.
Midwich has an established track record of acquiring
complementary businesses and then assisting them to grow
significantly. Over the past five years around one third of revenue
and profit growth has been derived from acquired businesses, with
the majority of growth being organic. Between 2006 and 2008 our
acquisition strategy was focused primarily on adding more technical
businesses into the UK segment. From 2009 the focus turned to
expanding the business outside the UK, with a primary drive to have
a presence in the three largest European AV markets (the UK, France
and Germany) and then expanding the business further across Europe.
The Group trades as Sidev in France, Kern & Stelly and New
Media in Germany, Earpro in Iberia, van Domburg in the Benelux,
Prase in Italy, MobilePro in Switzerland and Square One
Distribution in Ireland. Our businesses in Australia and New
Zealand trade under the Midwich name and also as Blonde Robot.
A continually evolving and growing market sector
Our addressable market in professional audio-visual solutions
covers areas such as sound, video, lighting, display and projection
systems. These solutions are prevalent and relied upon in many
areas of daily life - at home, in transit, at the workplace and in
a wide range of retail, leisure and recreational uses. The
application of AV systems is found in areas such as workplace
collaboration, conferencing and digital signage solutions, with end
users broadly covering the corporate, events, government,
education, retail, hospitality, healthcare and residential markets.
The increased use of this technology is being driven by a number of
inter-related factors, such as an increased pace of both
technological advancements and technology adoption, changes to
working day practices, continued technology convergence, and
evolving social and consumer trends.
Economic recovery since the global recession has also been
beneficial for the AV market, albeit even a more benign corporate
and consumer investment environment failed to significantly dampen
growth in the market. Fundamentally, we believe that AV solutions
are used to enhance efficiency or provide organisations with a
competitive advantage - they therefore have an appeal in periods of
economic growth and more challenging times.
In addition to this increased use of our core product sets by
end users, the recent trend in the AV market has been towards
increased use by large manufacturers of distributors as
intermediaries in the AV supply chain, driven by economic factors
(vendors trying to reduce costs and financial risk) and growth
aspirations (vendors seeking to maximise growth prospects for
expanded product lines by an increased distribution reach).
Key events in 2018
This year has seen a number of important events for our
business, including:
-- Continued development of our broadcast and professional video capabilities;
-- Expansion of our audio business in the UK and Ireland and France;
-- Three acquisitions: Sound Directions (trading as Perfect
Sound), Bauer & Trummer (trading as New Media) and Blonde
Robot, which added additional product specialisms into our French,
German and Australasian businesses respectively;
-- Entry into the South East Asian market through the acquisition of Blonde Robot;
-- Strong full year performance from each of the three
businesses acquired in 2017 (Earpro, van Domburg and Sound
Technology);
-- Recruitment of Stephen Lamb as Group Finance Director; and
-- Strengthening of the Group's central team, which should
enable us to acquire and integrate businesses quicker and more
effectively.
We acquired New Media in August 2018. Headquartered in
Nuremburg, New Media is a specialist distributor of broadcast and
professional video products including cameras, recording hardware,
editing software and accessories. New Media predominantly serves
the German, Austrian and Swiss markets and is believed to be the
leading distributor of its kind in this region. After the
successful purchase of Holdan Limited in the UK in 2016, the
acquisition underlines the Group's investment in broadcast
technology, which continues to converge with the traditional market
covered in Germany by Kern & Stelly.
Perfect Sound is a value-added distributor of professional audio
products based in France and serves predominantly the French and
French speaking Swiss markets. Headquartered in St Etienne, Perfect
Sound has a particular focus on the audio integration market, and
is a strong complementary fit with Sidev, the Group's French
business.
Blonde Robot was acquired shortly before the year end and is a
value-add distributor of professional video, broadcast and
photography products. Headquartered in Melbourne, Australia, with
subsidiaries in Hong Kong, Malaysia and Singapore, Blonde Robot
distributes product in a number of countries across the Asia
Pacific region, including Australia, New Zealand, Hong Kong,
Singapore, Thailand and Malaysia.
Operational review
The Group operates on a geographical basis with entities in the
relevant jurisdiction to service the local market.
UK and Ireland
The UK and Ireland segment is our most established division. We
achieved revenue of GBP315.8 million, an improvement of 11.3%
compared to last year (2017: GBP283.7 million), helped by the full
year effect of the acquisition of Sound Technology Limited in
December 2017. Underlying revenue growth (excluding the effects of
the acquisition in the prior year) was 1.8% (2017: 5.6%).
The audio, lighting and technical video product sets grew
particularly strongly in the UK and Ireland segment, as did some of
the more specialist display categories such as interactive and LED.
Such changes to the product mix in the UK & Ireland led to an
improvement in the gross profit margin from 16.2% to 17.4% and an
increase in the adjusted operating profit of 17.2% to GBP19.6
million (2017: 25.0% to GBP16.7 million).
Continental Europe
The Continental European division comprises our businesses in
the Benelux, France, Germany and Iberia. Post period end we
expanded our Continental European division to include businesses in
Switzerland and Italy.
We improved revenue by 42.2% in the year to GBP222.0 million
(2017: 60% to GBP156.2 million), helped by the full year effect of
the acquisitions of Earpro and Gebroeders van Domburg in 2017 and
New Media and Perfect Sound in the second half of 2018. Underlying
revenue growth (excluding the effects of the acquisition in the
current and prior year) was 20.4% (2017: 26.5%).
Revenue in France and Germany increased by 27% and 23%
respectively, and our Iberian and Benelux businesses, which were
acquired in 2017 contributed an additional GBP33.7 million of
revenue in 2018.
All product categories grew strongly in Continental Europe, with
technical video, audio and lighting showing the greatest
improvement. The gross margins in each of these categories are
above average for the division. Overall changes to the product mix
in Continental Europe led to an improvement in the gross profit
margin from 13.9% to 14.9% and an increase in the adjusted
operating profit of 36.9% to GBP10.2 million (2017: 51.2% to GBP7.5
million).
Asia Pacific
Asia Pacific achieved an 11.8% (2017: 25.7%) growth in sales
from GBP32.1 million to GBP35.9 million. The gross margin
percentage increased from 17.7% to 18.4% in the year as a
combination of stronger sales and margins in the displays category,
including particularly interactive and LED displays, offset to some
degree by lower audio sales. Adjusted operating profit in Asia
Pacific increased by 14% (2017: 60.8%) from GBP2.6 million to
GBP2.9 million.
Product offering
The Group distributes and provides technical support for a
comprehensive range of technologies. The range of products varies
across the geographies, with the UK and Ireland offering the
largest suite of product options.
Technologies
The Displays category is the largest technology category for the
Group, accounting for 43.3% of Group revenue in 2018 (2017: 42.6%).
This category grew 23.7% (2017: 30.4%) in the year, with strong
growth in interactive sales across the Group, large format displays
in Germany and the full year impact of Large Format Displays
("LFD") sales in the Benelux and Iberia.
Projection represented 18.4% of Group revenue (2017: 22.1%),
with sales remaining broadly flat in the year (2017: growth 17.5%).
We believe that the overall long-term trend is for certain parts of
the projector market to be replaced by LFD.
Sales of technical products, which include Audio, Broadcast,
Lighting, LED and Technical Video rose by an aggregate of 54.7%
(2017: 80.0%). Audio sales more than doubled, helped significantly
by the full year impact of the acquisitions of Earpro and Sound
Technology in 2017. Lighting and LED sales also increased
significantly. Technical Video product revenue increased in every
territory. In aggregate, these technical product categories
constituted 26.4% of Group sales in the year (2017: 20.5%), with
most technical product categories enjoying gross margins in excess
of the Group average. We believe that our technical expertise,
focus and scale mean that the Group is the defacto distributor of
choice for customers and vendors involved in complex, technically
challenging projects.
Summary of Group strategy
The Group's growth strategy has been, and continues to be, both
organic and inorganic. Our success in sourcing, executing and
integrating our chosen acquisitions underpins this growth strategy.
The Group takes a disciplined approach to acquisitions, seeking to
add capital value without an adverse impact on the existing
business. We have a strong ongoing pipeline of opportunities.
Our overall strategy focuses on:
-- technology, product and vendor selection in established
markets, in order to maximise the value we can add to
customers;
-- gaining profitable market share in developing markets; and
-- identifying profitable new markets (whether geographical,
customer or technology) which the Group can enter, either through
acquisition or through a new start-up.
Outlook
We continue to see exciting growth opportunities across all of
our markets and geographies driven by increasing demand from end
users as well as continued innovation and new products from our
manufacturer partners. There is also a continued trend in the
increasing use and need for high quality distributors such as
Midwich to support the professional AV market. As a result, we
continue to exploit a significant number of organic growth
opportunities from targeting new vendors while continuing to grow
our customer base.
We are pursuing acquisition opportunities that would fit within
our strategic focus of adding new product ranges, capabilities or
geographies to our existing portfolio. Shortly after the year end
we established a presence in Switzerland through the acquisition of
MobilePro and entered the Italian market through the acquisition
Prase.
The Board is continuing to pursue its established strategy and
is pleased with the progress made during 2018. Trading in the first
two months of 2019 has built on the good growth we saw through last
year, giving the Board confidence in delivering a 2019 performance
in line with its existing expectations.
Stephen Fenby
Managing Director
Financial Review
Summary
We achieved further strong growth in 2018 with revenue
increasing by 21.6% to GBP573.7 million (2017: GBP471.9 million).
Excluding the impact of acquisitions and currency movements,
organic revenue growth was 8.7% (2017: 11.9%). Our gross profit
margin increased by 1.0% (2017: 0.2%) to 16.5% (2017: 15.5%).
The GBP5.2 million (2017: GBP6.5 million) additional adjusted
operating profit was an increase of 20.9% at constant currency
(2017: 31.3%) year on year. Operating profit before adjustments
grew from GBP20.8 million to GBP24.7 million.
Statutory financial highlights
Year to Year to Total growth
31 December 2018 31 December %
GBPm 2017
GBPm
Revenue 573.7 471.9 21.6%
Gross profit 94.6 73.1 29.3%
Operating profit 24.7 20.8 18.9%
Profit before tax 21.1 18.9 11.5%
Profit after tax 15.3 14.0 9.3%
Basic EPS - pence 18.53 17.06 8.6%
Adjusted financial highlights(1)
Year to Year to Total growth Growth at
31 December 31 December % constant currency
2018 2017 %
GBPm GBPm
Revenue 573.7 471.9 21.6% 21.4%
Gross profit 94.6 73.1 29.3% 29.2%
Gross profit margin
% 16.5% 15.5%
Adjusted operating
profit 30.2 25.0 20.8% 20.9%
Adjusted profit before
tax 29.1 24.3 19.7% 19.9%
Adjusted profit after
tax 22.3 18.7 19.7% 19.8%
Adjusted EPS - pence 27.28 22.86 19.3%
(1) Definitions of the alternative performance measures are set
out on page 30
Currency movements had a limited impact across the Group in
2018. On a constant currency basis, growth in revenue was 21.4%
(2017: 24.2%) and growth in adjusted profit after tax was 19.8%
(2017: 26.4%).
Segmental reporting
The Board has taken the decision to amend the presentation of
segmental information to more closely fit the management structure
of the Group. Accordingly, our mainland European businesses have
now been amalgamated for presentation purposes into Continental
Europe. Following our investment in Blonde Robot, which has a
presence in both Australia and South East Asia, our Australasia
region has been renamed Asia Pacific ('APAC'). Group costs have
also been separated from the UK & Ireland segment.
Each of the trading segments performed strongly.
UK & Ireland
GBPmillion Year to Year to
31 December 31 December
2018 2017
Revenue 315.8 283.7
Adjusted operating profit 19.6 16.7
The UK and Ireland segment revenue grew 11.3% (2017: 14.9%) to
GBP315.8 million (2017: GBP283.7 million) generating gross profit
of GBP54.9 million (2017: GBP45.8 million) at a gross profit margin
of 17.4% (2017: 16.2%). This resulted in an adjusted operating
profit of GBP19.6 million (2017: GBP16.7 million), an increase of
17.2% (2017: 25.0%) on the prior year. Organic revenue growth
excluding the effects of acquisitions in the current and prior
period was 1.8% (2017: 5.6%).
Continental Europe
GBPmillion Year to Year to
31 December 31 December
2018 2017
Revenue 222.0 156.2
Adjusted operating profit 10.2 7.5
The Continental Europe segment revenue grew 42.2% (2017: 59.9%)
to GBP222.0 million (2017: GBP156.2 million). Gross profit
increased to GBP33.1 million (2017: GBP21.6 million) at a gross
profit margin of 14.9% (2017: 13.9%) leading to an adjusted
operating profit of GBP10.2 million (2017: GBP7.5 million) that has
increased 36.9% (2017: 51.2%) on the prior year. In constant
currency, revenue grew by 40.5% (2017: 49.5%) and adjusted
operating profit grew 35.6% (2017: 41.7%). Organic revenue growth,
excluding the effects of acquisitions in the current and prior
period, increased by 20.4% (2017: 26.5%).
Asia Pacific
GBPmillion Year to Year to
31 December 31 December
2018 2017
Revenue 35.9 32.1
Adjusted operating profit 2.9 2.6
The Asia Pacific segment revenue grew 11.8% to GBP35.9 million
(2017: GBP32.1 million) generating gross profit of GBP6.6 million
(2017: GBP5.7 million) at a gross profit margin of 18.4% (2017:
17.7%). This has resulted in an adjusted operating profit of GBP2.9
million (2017: GBP2.6 million), an increase of 14.0% (2017: 60.8%)
on the prior year. In constant currency, revenue grew by 18.0%
(2017: 17.4%) and adjusted operating profit grew 20.4% (2017:
50.0%). Organic revenue growth, excluding the effects of
acquisitions in the current and prior period, increased by 13.4%
(2017: 17.4%).
Group costs
Group costs for the year were GBP2.5 million (2017: GBP1.7
million). The increase reflects additional investment in legal,
compliance, information technology and acquisition and business
integration capabilities to support the Group's growth
strategy.
Profit before tax
Profit before tax for the year increased by 11.5% (2017: 56.2%)
to GBP21.1 million (2017: GBP18.9 million), while adjusted profit
before tax increased by 19.9% (2017: 31.9%), at constant currency,
to GBP29.1 million (2017: GBP24.3 million).
Tax
The adjusted effective tax rate was 23.3% in 2018, representing
a small increase on 2017 (23.2%) which reflects an increase in the
mix of profits arising in higher tax jurisdictions.
Earnings per share
Basic earnings per share is calculated on the total profit of
the Group attributable to shareholders. Basic EPS for the year was
18.53p (2017: 17.06p), representing growth of 9% (2017: 56%).
Diluted EPS was 18.36p (2017: 17.0p). Adjusted EPS grew by 19.3%
(2017: 22.7%) to 27.28 pence (2017: 22.86 pence).
Dividend
The Board has recommended a final dividend of 10.60p per share
(2017: 9.65p) which, together with the interim dividend of 4.60p
paid in October 2018 gives a final dividend of 15.20p for 2018
(2017: 13.82p). If approved by shareholders at the general meeting,
the final dividend will be paid on 21 June 2019 to those
shareholders on the register on 17 May 2019.
Cash flow
GBPmillion Year to Year to
31 December 31 December
2018 2017
Adjusted operating profit 30.2 25.0
Add back depreciation 2.5 1.8
------------- -------------
Adjusted EBITDA 32.7 26.8
Increase in adjusted stocks (9.4) (7.2)
Increase in adjusted debtors (3.2) (12.0)
Increase in adjusted creditors 10.0 14.7
------------- -------------
Adjusted cash flow from operations 30.1 22.3
------------- -------------
EBITDA cash conversion 91.9% 83.4%
The Group's adjusted operating cash flow conversion, calculated
comparing adjusted cash flow from operations with adjusted EBITDA,
increased to 91.9% compared to 83.4% for the prior year. The
performance for the current year reflected a very strong close to
the year and resulted in an operating cash conversion ahead of our
longer-term average of between 70-80%.
Gross capital spend on tangible assets was GBP2.4 million (2017:
GBP3.1 million). Rental assets accounted for GBP1.3 million (2017:
GBP2.2 million) of this spend. Capital expenditure on plant and
equipment was GBP1.0 million (2017: GBP0.9 million). Intangible
asset additions in 2018 include GBP0.6 million (2017: nil) in
relation to the Group's new ERP solution.
Net debt
At 31 December 2018, the Group had net debt of GBP25.7 million
(2017: GBP22.3 million). The Group has a strong balance sheet with
closing net debt/adjusted EBITDA ratio of 0.8 (2017: 0.8). This,
combined with the Group's underlying cash generation, equips the
Group well to fund short term swings in working capital as the
Group delivers organic growth as well as continue to pursue
accretive acquisitions. Year-end borrowings of GBP42.4 million
(2017: GBP50.5 million) compare to facilities totalling GBP92
million (2017: GBP73 million) at that date. During the year the
Group added a GBP15 million revolving credit facility to support
its buy and build acquisition strategy where appropriate
opportunities arise. This was increased to GBP20 million after the
year end.
Goodwill and intangible assets
The Group's goodwill and intangible assets of GBP36.0 million
(2017: GBP31.4 million) arise from the various acquisitions
undertaken. Each year the Board reviews goodwill for impairment
and, as at 31 December 2018, the Board believes there are no
indications of impairment. The intangible assets arising from
business combinations, for exclusive supplier contracts, customer
relationships and brands, are amortised over an appropriate
period.
Working capital
Working capital management is a core part of the Group's
performance. At 31 December 2018, the Group had working capital
(Trade and other receivables plus inventories less trade and other
payables) of GBP59.8 million (2017: GBP54.7 million). This
represented 10.4% of current year revenue (2017: 11.6%).
Adjustments to reported results
2018 2017
GBP000 GBP000
Operating profit 24,747 20,809
Acquisition costs 365 336
Share based payments 1,120 551
Employer taxes on share based payments 221 118
Amortisation 3,792 3,230
Adjusted operating profit 30,245 25,044
=========== ===========
Profit before tax 21,077 18,898
Acquisition costs 365 336
Share based payments 1,120 551
Employer taxes on share based payments 221 118
Amortisation 3,792 3,230
Finance costs - deferred and contingent consideration 2,219 (81)
Finance costs - put option 311 1,257
Adjusted profit before tax 29,105 24,309
=========== ===========
Profit after tax 15,285 13,979
Acquisition costs 365 336
Share based payments 1,120 551
Employer taxes on share based payments 221 118
Amortisation 3,792 3,230
Finance costs - deferred and contingent consideration 2,219 (81)
Finance costs - put option 311 1,257
Tax impact (981) (726)
Adjusted profit after tax 22,332 18,664
=========== ===========
Profit after tax 15,285 13,979
Non-controlling interest (561) (422)
Profit after tax attributable to owners of the
Parent Company 14,724 13,557
=========== ===========
Number of shares for EPS 79,448,200 79,448,200
Reported EPS - pence 18.53 17.06
Adjusted EPS - pence 27.28 22.86
The directors present adjusted operating profit, adjusted profit
before tax, and adjusted profit after tax as alternative
performance measures in order to provide relevant information
relating to the performance of the Group. Adjusted profits are a
reflection of the underlying trading profit and are important
measures used by directors for assessing Group performance. The
definitions of the alternative performance measures are set out on
page 30.
Principal risks
Dependence on key personnel
The Group is dependent upon key senior management personnel who
have extensive experience and knowledge of the Group, the Group's
markets, product and service offering, vendor portfolio and
customer base. The successful delivery of the Group's strategy
depends on the continuing availability of senior management and the
Group's ability to attract, motivate and retain other qualified
employees.
The Group actively measures the retention of talent within the
business, actively engages with employees by focusing on training
and development and conducts an annual assessment of remuneration
packages to ensure market position is maintained. In addition, the
Group has adopted share plans to align the interests of senior
management and the broader employee workforce with those of
Shareholders.
The Board has made succession planning a key agenda item.
Expected benefits from acquisitions may not be realised
The Group intends to continue executing its strategy of entering
new jurisdictions through carefully targeted acquisitions. The
Group also intends to pursue targeted acquisitions in its current
markets in order to bolster product offerings and sector
penetration, increase scale and to gain access into new market
segments.
Acquisitions give rise to inherent execution and integration
risk. The process of integration may produce unforeseen operating
difficulties and expenditures, and may absorb significant attention
of the Group's management. They also may involve unforeseen
liabilities, difficulties in realising costs or revenues, loss of
key employees and customer relationship issues. A poorly
implemented acquisition could damage the Group's reputation, brand
and financial position.
The Group only enters into acquisitions after a thorough due
diligence exercise which will involve a detailed review of
operational resource, financial trends and forecasts, as well as a
thorough analysis of the target's compliance record. Numerous
personal visits to the target will take place in order to establish
the viability of accommodating it and its senior management into
the Group. The structure of most acquisitions will involve a
significant financial incentive for departing shareholders to
perform toward certain financial targets in the first three years
after acquisition in order to maximize their disposal value.
Full business appraisal and diligence reports are prepared and
presented to the Board.
Loss of key customers
Most of the Group's customers contract with the Group on a deal
by deal basis with no formal ongoing purchasing commitment. As such
they have a voluntary right to terminate their contractual
relationships with the Group without notice or penalties. There is
therefore a lack of certainty in respect of the retention of
existing customers who may elect not to continue contracting with
the Group.
The Group does have a very large customer base of over 17,000 AV
integrators and IT resellers many of whom have long-term
relationships with it. The diversity of the Group's customer base
is demonstrated by the fact that that no customer accounted for
more than 2.0% (2017: 2.0%) of overall Group revenues for the year
ended 31 December 2018. By providing a best in class service in
terms of stock availability, logistics and credit capacity, the
Group intends to continue to keep our customer base satisfied.
Loss of key vendors
There is no formal ongoing contractual commitment to the Group
by the majority of vendors. As such they have a right to terminate
their contractual relationships with the Group without notice or
penalties. In addition, certain vendors provide the Group with
incentives in the form of rebates, marketing developments funds,
early payment discounts and price protections which enable the
Group to manage profitability. There can be no assurance that the
Group will continue to receive the same level of income in
future.
Many of the Group's vendor relationships are long-term,
established and now cover a number of territories. By bringing
projects to our vendors and enabling them to fulfil their market
share aspirations the Group will continue to maintain strong
relationships with its vendors.
Regulatory risk
The Group is subject to an increasingly complex regulatory
environment. A failure to follow regulatory laws, orders and codes
of practice requirements will expose the Group to regulatory
sanction and subsequent reputational damage.
The Group has defined policy statements which articulate the
protocols adopted to minimise the risk of a breach. Staff training
takes place on a regular basis to ensure behavioural alignment with
these policies. Acquired businesses are subject to a
post-acquisition onboarding process which includes improvement of
compliance protocols where necessary. The Board is regularly
updated on compliance matters. This includes a full review across
the Group on an annual basis.
Brexit uncertainty
The Group operates across multiple geographies and relies on the
availability of physical goods, the majority of which are
manufactured outside of the European Union ("EU"), but distributed
within the EU by its vendors. A "hard" Brexit could lead to
disruption in the availability of goods to the Group's UK and
Ireland businesses (55% of Group revenue in 2018).
The Board is monitoring Brexit risks and reviewing action plans,
although the outcome of Brexit negotiations is currently subject to
a high degree of uncertainty.
In the short-term, disruption to the supply of products could
affect the ability of UK and Ireland operations to meet customer
demand. The UK business expects to hold approximately two months'
inventory at the time of Brexit and is working closely with key
vendors to maintain availability of goods during any initial
post-Brexit disruption.
Longer-term risks include tariffs and divergence of regulation
and standards between the UK and the EU. Whilst the range of
tariffs for our principal products under World Trade Organisation
rules is from 0% to 14%, the average tariff is approximately 1.5%.
This is expected to affect the wider AV industry consistently. The
Group is, and will continue to, work closely with its vendors to
minimise any Brexit related disruption.
The Group currently services its Republic of Ireland business
from the UK. Following a review of alternatives, this model is
expected to continue, although direct EU to Ireland options will be
evaluated in the event of material tariffs or permanent disruptions
to the UK to Ireland supply chain.
The Group's European businesses each operate locally, with
export sales from the UK to Continental Europe representing less
than 5% of UK revenue. There are no significant dependencies on
migrant labour, cross border financing or centralised
infrastructure.
Based on the Board's review of the current Brexit risks the
directors do not believe, at this time, that Brexit will result in
any impairment of Group assets or materially impact the Group's
ability to continue as a going concern.
Consolidated income statement for the year ended 31 December
2018
Notes 2018 2017
GBP'000 GBP'000
Revenue 573,682 471,937
Cost of sales (479,120) (398,810)
---------- ----------
Gross profit 94,562 73,127
Distribution costs (56,329) (45,679)
Total administrative expenses (16,511) (9,470)
Other operating income 3,025 2,831
Operating profit 24,747 20,809
Comprising
------------------------------------------------ ------ ---------- ----------
Adjusted operating profit 30,245 25,044
Costs of acquisitions 3 (365) (336)
Share based payments (1,120) (551)
Employer taxes on share based payments (221) (118)
Amortisation (3,792) (3,230)
------------------------------------------------ ------ ---------- ----------
24,747 20,809
Finance income 81 5
Finance costs 4 (3,751) (1,916)
---------- ----------
Profit before taxation 21,077 18,898
Taxation (5,792) (4,919)
---------- ----------
Profit after taxation 15,285 13,979
========== ==========
Profit for the financial year attributable to:
The Company's equity shareholders 14,724 13,557
Non-controlling interest 561 422
---------- ----------
15,285 13,979
========== ==========
Basic earnings per share 18.53p 17.06p
Diluted earnings per share 18.36p 17.00p
Consolidated statement of comprehensive income for the year
ended 31 December 2018
2018 2017
GBP'000 GBP'000
Profit for the financial year 15,285 13,979
Other comprehensive income
Items that will be reclassified subsequently to profit or loss:
Foreign exchange gains on consolidation 158 974
-------- --------
Other comprehensive income for the financial year, net of tax 158 974
Total comprehensive income for the year 15,443 14,953
======== ========
Attributable to:
Owners of the Parent Company 14,894 14,531
Non-controlling interests 549 422
15,443 14,953
======== ========
Consolidated statement of financial position as at 31 December
2018
Notes 2018 2017
Assets GBP'000 GBP'000
Non-current assets
Goodwill 11,188 9,094
Intangible assets 24,766 22,310
Property, plant and equipment 7,391 7,692
Deferred tax assets 1,222 387
---------- ----------
44,567 39,483
Current assets
Inventories 74,379 62,984
Trade and other receivables 83,139 76,361
Derivative financial instruments 25 -
Cash and cash equivalents 16,685 28,203
---------- ----------
174,228 167,548
Current liabilities
Trade and other payables (97,729) (84,617)
Derivative financial instruments - (93)
Put option liabilities (1,746) -
Deferred consideration (4,005) (4,841)
Borrowings and financial liabilities 6 (35,151) (50,176)
Current tax (2,892) (2,873)
---------- ----------
(141,523) (142,600)
Net current assets 32,705 24,948
---------- ----------
Total assets less current liabilities 77,272 64,431
Non-current liabilities
Trade and other payables (736) (181)
Put option liabilities (4,654) (5,195)
Deferred consideration (757) (1,197)
Borrowings and financial liabilities 6 (7,211) (321)
Deferred tax liabilities (5,512) (4,445)
Other provisions (56) -
---------- ----------
(18,926) (11,339)
Net assets 58,346 53,092
========== ==========
Equity
Share capital 8 794 794
Share premium 25,855 25,855
Share based payment reserve 1,837 751
Investment in own shares (5) (5)
Retained earnings 27,766 24,331
Translation reserve 1,861 1,691
Put option reserve (4,532) (3,638)
Capital redemption reserve 50 50
Other reserve 150 150
---------- ----------
Equity attributable to owners of the Parent Company 53,776 49,979
Non-controlling interests 4,570 3,113
---------- ----------
Total equity 58,346 53,092
========== ==========
Consolidated statement of changes in equity for the year ended
31 December 2018
Share Equity
based Investment Put Capital attributable
Share Share payment in own Retained Translation option redemption Other to owners of Non-controlling
capital premium reserve shares earnings reserve reserve reserve reserve the Parent interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2018 794 25,855 751 (5) 24,331 1,691 (3,638) 50 150 49,979 3,113 53,092
Profit for the
year - - - - 14,724 - - - - 14,724 561 15,285
Other
comprehensive
income - - - - - 170 - - - 170 (12) 158
---------------- ---------
Total
comprehensive
income for
the year - - - - 14,724 170 - - - 14,894 549 15,443
Share based
payments - - 1,120 - - - - - - 1,120 - 1,120
Deferred tax
on share
based
payments - - (34) - - - - - - (34) - (34)
Acquisition of
subsidiary
(note 10) - - - - - - (894) - - (894) 908 14
Dividends paid - - - - (11,289) - - - - (11,289) - (11,289)
Balance at 31
December 2018 794 25,855 1,837 (5) 27,766 1,861 (4,532) 50 150 53,776 4,570 58,346
======== ======== ======== =========== ========= ============ ======== =========== ========= ============= ================ =========
For the year ended 31 December 2017
Share Equity
based Investment Put Capital attributable
Share Share payment in own Retained Translation option redemption Other to owners of Non-controlling
capital premium reserve shares earnings reserve reserve reserve reserve the Parent interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2017 794 25,855 84 (5) 19,765 717 (1,770) 50 150 45,640 952 46,592
Profit for the
year - - - - 13,557 - - - - 13,557 422 13,979
Other
comprehensive
income - - - - - 974 - - - 974 - 974
---------------- --------
Total
comprehensive
income for the
year - - - - 13,557 974 - - - 14,531 422 14,953
Acquisition of
non-controlling
interest (note
9) - - - - (79) - 681 - - 602 (602) -
Share based
payments - - 551 - - - - - - 551 - 551
Deferred tax on
share based
payments - - 116 - - - - - - 116 - 116
Acquisition of
subsidiary
(note 10) - - - - - - (2,549) - - (2,549) 2,341 (208)
Dividends paid - - - - (8,912) - - - - (8,912) - (8,912)
Balance at 31
December 2017 794 25,855 751 (5) 24,331 1,691 (3,638) 50 150 49,979 3,113 53,092
======== ======== ======== =========== ========= ============ ======== =========== ========= ============= ================ ========
Consolidated statement of cash flows for the year ended 31
December 2018
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 21,077 18,898
Depreciation 2,504 1,793
Amortisation 3,792 3,230
Loss/(gain) on disposal of assets 27 (21)
Share based payments 1,120 551
Foreign exchange losses 4 156
Finance income (81) (5)
Finance costs 3,751 1,916
--------- ---------
Profit from operations before changes in working capital 32,194 26,518
Increase in inventories (9,468) (7,217)
Increase in trade and other receivables (3,221) (11,954)
Increase in trade and other payables 10,246 14,724
--------- ---------
Cash inflow from operations 29,751 22,071
Income tax paid (7,377) (4,784)
--------- ---------
Net cash inflow from operating activities 22,374 17,287
Cash flows from investing activities
Acquisition of businesses, net of cash and debt acquired (5,152) (6,254)
Deferred consideration paid (5,507) (1,511)
Purchase of intangible assets (778) (48)
Purchase of plant and equipment (2,360) (3,064)
Proceeds on disposal of plant and equipment 382 528
Interest received 81 5
--------- ---------
Net cash used in investing activities (13,334) (10,344)
Net cash flows from financing activities
Acquisition of non-controlling interest - (751)
Dividends paid (11,289) (8,912)
Invoice financing (outflows)/inflows (8,704) 5,673
Proceeds from borrowings 10,668 -
Repayment of loans (2,107) (26)
Interest paid (1,362) (647)
Interest on finance leases (28) (4)
Capital element of finance lease payments (99) (121)
--------- ---------
Net cash outflow from financing activities (12,921) (4,788)
Net (decrease)/increase in cash and cash equivalents (3,881) 2,155
Cash and cash equivalents at beginning of financial year 20,010 17,201
Effects of exchange rate changes 228 654
--------- ---------
Cash and cash equivalents at end of financial year 16,357 20,010
========= =========
Comprising:
Cash at bank 16,685 28,203
Bank overdrafts (328) (8,193)
--------- ---------
16,357 20,010
========= =========
Notes to the consolidated financial statements
1. Accounting policies
General information and nature of operations
The principal activity of Midwich Group plc, a public limited
liability company, and its subsidiary companies is the distribution
of Audio-Visual Solutions to trade customers. It is registered in
England and Wales. Midwich Group plc's shares are listed on the
London Stock Exchange's Alternative Investment Market (AIM).
Basis of preparation
The consolidated financial statements of Midwich Group plc ("the
Group") have been prepared in accordance with International
Financial Reporting Standards ("IFRSs"), as adopted by the EU,
IFRIC interpretations and with those parts of the Companies Act
2006 applicable to companies reporting under IFRS.
IFRS is subject to amendment and interpretation by the IASB and
the IFRS Interpretations Committee, and there is an on-going
process of review and endorsement by the European Commission. These
accounting policies comply with each IFRS that is mandatory for
accounting periods ending on 31 December 2018.
The financial statements have been prepared under the historical
cost convention as modified for financial instruments at fair value
and in accordance with applicable accounting standards.
The directors consider that the Company 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 financial statements.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of
Midwich Group plc ("the Company") and entities controlled by the
Company (its subsidiaries).
A subsidiary is a Company controlled directly by the Group.
Control is achieved where the Group has the power over the
investee, rights to variable returns and the ability to use the
power to affect the investee's returns.
Income and expenses of subsidiaries acquired during the year are
included in the consolidated income statement from the effective
date of control. When necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting
policies into line with those used by the Parent Company.
The Group applies the acquisition method of accounting to
account for business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair value of the assets
transferred, the liabilities incurred, and the equity interests
issued by the Group. Identifiable assets acquired, and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date.
The Group recognises identifiable assets acquired and liabilities
assumed in a business combination regardless of whether they have
been previously recognised in the acquiree's financial statements
prior to the acquisition.
Goodwill is stated after separate recognition of identifiable
intangible assets. It is calculated as the excess of the sum of a)
fair value of consideration transferred, b) the recognised amount
of any non-controlling interest in the acquiree and c)
acquisition-date fair value of any existing equity interest in the
acquiree, over the acquisition-date fair values of identifiable net
assets. If the fair values of identifiable net assets exceed the
sum calculated above, the excess amount (i.e. gain on a bargain
purchase) is recognised in profit or loss immediately.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those
interests at the date of the original business combination and the
non-controlling shareholders' share of changes in equity since the
date of the combination.
Non-controlling interests are measured initially at fair
value.
Acquisition-related costs are expensed as incurred.
All intra-group transactions, balances, income and expenses are
eliminated in full on consolidation.
Acquisition of interests from non-controlling shareholders
Acquisitions of non-controlling interests in subsidiaries are
accounted for as transactions between shareholders. There is no
re-measurement to fair value of net assets acquired that were
previously attributable to non-controlling shareholders.
Going concern
The Board takes all reasonable steps to review and consider any
factors that may affect the ability of the Group to continue as a
going concern. The Group's forecasts and projections, taking
account of reasonably possible changes in trading performance, show
that the Group is able to generate sufficient liquidity to continue
in operational existence for the foreseeable future. During 2018
the company agreed to a revolving credit facility (RCF) to support
the acquisitive growth strategy. At the end of 2018 the directors
considered the working capital of the business to be adequate for
its needs, and the Group therefore continues to adopt the going
concern basis in preparing consolidated financial statements. In
February 2019, the Group increased both its working capital
facilities and revolving credit facility to increase headroom for
future growth.
Revenue
The majority of revenue arises from the sale of goods, rental of
products and ancillary services including the provision of support
services, transport, warranties, and repairs.
To determine whether to recognise revenue, the Group follows a
5-step process;
-- Identifying the contract with a customer;
-- Identifying the performance obligations;
-- Determining the transaction price;
-- Allocating the transaction price to the performance obligations; and
-- Recognising revenue when/as performance obligation(s) is/are satisfied.
The Group often enters into transactions involving a range of
the Group's products and services, for example for the supply of
goods and provision of services. In all cases, the total
transaction price for a contract is allocated amongst the various
performance obligations based on their relative stand-alone selling
prices. The transaction price for a contract excludes any amounts
collected on behalf of third parties.
Revenue is recognised either at a point in time or over time,
when (or as) the Group satisfies performance obligations by
transferring the promised goods or services to its customers.
The Group recognises contract liabilities for consideration
received in respect of unsatisfied performance obligations and
reports these amounts as other liabilities in the statement of
financial position. Similarly, if the Group satisfies a performance
obligation before it receives the consideration, the Group
recognises either a contract asset or a receivable in its statement
of financial position, depending on whether something other than
the passage of time is required before the consideration is
due.
The sale of goods for a fixed fee is recognised when or as the
Group transfers control of the assets to the customer. Invoices for
goods or services transferred are due upon receipt by the
customer.
For stand-alone sales of goods that are neither customised by
the Group nor subject to significant integration services, control
transfers at the point in time the goods are despatched. When such
items are either customised or sold together with significant
integration services, the goods and services represent a single
combined performance obligation over which control is considered to
transfer over time. This is because the combined product is unique
to each customer (has no alternative use) and the Group has an
enforceable right to payment for the work completed to date.
Revenue for these performance obligations is recognised over time
as the customisation or integration work is performed, using the
cost-to-cost method to estimate progress towards completion. As
costs are generally incurred uniformly as the work progresses and
are considered to be proportionate to the entity's performance, the
cost-to-cost method provides a faithful depiction of the transfer
of goods and services to the customer.
Supplier income and vendor rebates
Promotional income is recognised on completion of the
promotional activity in-line with when it is contractually earned,
and recorded separately in other operating income. Vendor rebates
are recognised on completion of the contractual obligation and
recorded within cost of sales.
Finance income and costs
Interest income and expense is recognised using the effective
interest method which calculates the amortised cost of a financial
asset or liability and allocates the interest income or expense
over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts or payments
through the expected life of the financial asset or liability to
the net carrying amount of the financial asset or liability.
Other finance costs include the changes in fair value of
derivatives and other financial instruments measured at fair value
through profit or loss.
Goodwill
Goodwill represents the future economic benefits arising from
business combinations which are not individually identified and
separately recognised.
Goodwill is carried at cost as established at the date of
acquisition of the business less accumulated impairment losses, if
any.
Intangible assets other than goodwill
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value as at the date of
acquisition.
Following initial recognition, intangible assets are carried at
cost less any accumulated amortisation and accumulated impairment
losses, if any.
The useful lives of other intangible assets are assessed as
finite.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life are reviewed at least at the end of
each reporting period. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate, and are treated as
changes in accounting estimates. The amortisation expense on
intangible assets with finite lives is recognised in profit or loss
in administrative expenses.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
profit or loss when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the
estimate useful life of the asset as follows:
Patent licences 3-10 years
Software 3-10 years
Brands 5-15 years
Customer relationships 5-15 years
Exclusive supplier contracts 5-15 years
Property, plant and equipment
Property, plant and equipment are stated at historical cost less
depreciation less any recognised impairment losses. Cost includes
expenditure that is directly attributable to the acquisition or
construction of these items. Subsequent costs are included in the
asset's carrying amount only when it is probable that future
economic benefits associated with the item will flow to the Group
and the costs can be measured reliably. All other costs, including
repairs and maintenance costs, are charged to the income statement
in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment
and is calculated on a straight-line basis as follows:
Land Not depreciated
Freehold buildings 50 years
Leasehold improvements Period of the lease
Plant and equipment (including rental assets) 3-10 years
Depreciation is provided on cost less residual value. The
residual value, depreciation methods and useful lives are annually
reassessed.
Each asset's estimated useful life has been assessed with regard
to its own physical life limitations and to possible future
variations in those assessments. Estimates of remaining useful
lives are made on a regular basis for all machinery and equipment,
with annual reassessments for major items. Changes in estimates are
accounted for prospectively.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets. However,
when there is no reasonable certainty that ownership will be
obtained by the end of the lease term, assets are depreciated over
the shorter of the lease term and their useful lives.
The gain or loss arising on disposal or scrapping of an asset is
determined as the difference between the sales proceeds, net of
selling costs, and the carrying amount of the asset and is
recognised in the income statement.
Impairment of non-financial assets including goodwill
For the purposes of impairment testing, goodwill is allocated to
each of the Group's cash-generating units that is expected to
benefit from the synergies of the combination. Each unit to which
goodwill is allocated represents the lowest level within the Group
that independent cash flows are monitored. A cash-generating unit
to which goodwill has been allocated is tested for impairment
annually, or more frequently when there is indication that the unit
may be impaired.
At each balance sheet date, the directors review the carrying
amounts of the Group's non-current assets, other than goodwill, to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss, if any. Where the asset does not
generate cash flows that are independent from other assets, the
directors estimate the recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of
disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset or cash-generating unit is
estimated to be less than its carrying amount, the carrying amount
of the asset or cash-generating unit is reduced to its recoverable
amount. The impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to
the other assets of the unit pro rata based on the carrying amount
of each asset in the unit.
An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in
subsequent periods.
Where an impairment loss on other non-financial assets
subsequently reverses, the carrying amount of the asset or
cash-generating unit is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset or cash-generating
unit in prior periods. A reversal of an impairment loss is
recognised in the income statement immediately.
Inventory
Inventory is valued at the lower of cost and net realisable
value, after making due allowance for obsolete and slow-moving
items. Cost comprises purchase price and directly attributable
costs incurred in bringing products to their present location and
condition. Some goods are held on behalf of customers and are not
included within the Group's inventory.
Financial instruments
Financial instruments are comprised of financial assets and
financial liabilities, which are recognised when the Group becomes
party to the contractual provisions of the instrument.
Financial assets are derecognised when the contractual rights to
the cash flows from the financial assets expire or substantially
all the risks and rewards of ownership of the financial asset are
transferred. Financial liabilities are derecognised when
extinguished.
Financial assets
Financial assets include trade and other receivables, cash and
cash equivalents, and derivative financial instruments with a
positive market value.
The Group classifies financial assets into three categories:
-- financial assets measured at amortised cost;
-- financial assets measured at fair value through other comprehensive income; and
-- financial assets measured at fair value through profit or loss.
The classification of a financial asset depends on the Group's
business model for managing the asset and the contractual cash flow
characteristics associated with the asset.
Financial assets with embedded derivatives are recognised as
hybrid contracts. Hybrid contracts are classified in their entirety
and not in separate components.
Investments in equity instruments that are not held for trading
are classified as financial assets measured at fair value through
profit and loss unless the Group makes an irrevocable election on
initial recognition to classify the asset as measured at fair value
through other comprehensive income.
Trade receivables that do not contain a significant financing
component are initially measured at transaction price. All other
financial assets classified as either financial assets measured at
amortised cost, or financial assets measured at fair value through
other comprehensive income are initially measured at fair value
plus transaction costs directly attributable to the acquisition of
the financial asset.
Financial assets measured at fair value through profit and loss
are initially measured at fair value and any transaction costs
directly attributable to the acquisition of the financial asset are
recognised in the profit and loss.
Financial assets measured at amortised cost are subsequently
measured using the effective interest method. The effects of
discounting within the effective interest method are omitted if
immaterial. Where the contractual cash flows of the financial asset
are renegotiated or otherwise modified the financial asset is
recalculated at the present value of the modified contractual cash
flows discounted at the financial asset's original effective
interest rate.
Financial assets measured at fair value through other
comprehensive income and financial assets measured at fair value
through profit and loss are subsequently measured at fair
value.
Expected credit loss impairments are recognised in respect of
financial assets measured at amortised cost and financial assets
measured at fair value through other comprehensive income
immediately on initial recognition of the respective financial
asset being impaired.
Expected credit losses are measured using an expected credit
loss model. The expected credit loss model reflects a probability
weighted amount derived from a range of possible outcomes that are
discounted for the time value of money and based on reasonable and
supportable information.
Where trade receivables contain a significant financing
component the Group applies the simplified approach to measure the
loss allowance at an amount equal to lifetime expected credit
losses.
Financial liabilities
Financial liabilities include trade and other payables; put
option liabilities; deferred consideration; bank loans, overdrafts
and invoice discounting facilities; and derivative financial
instruments with a negative market value.
The Group classifies financial liabilities into six
categories:
-- financial liabilities measured at amortised cost;
-- financial liabilities measured at fair value through profit or loss;
-- financial liabilities that arise when a transfer of a
financial asset does not qualify for derecognition or when the
continuing involvement approach applies;
-- financial guarantee contracts;
-- commitments to provide loans at below market interest rates; and
-- contingent consideration recognised in a business combination.
Financial liabilities measured at fair value through profit or
loss are initially measured at fair value and any transaction costs
directly attributable to the issue of the financial liability are
recognised in the profit and loss.
Financial liabilities that arise when a transfer of a financial
asset does not qualify for derecognition or when the continuing
involvement approach applies are initially measured at the amount
of the consideration received in respect of the financial
asset.
All other financial liabilities are initially measured at fair
value minus transaction costs directly attributable to the issue of
the financial liability.
Financial liabilities measured at amortised cost are
subsequently measured using the effective interest method. The
effects of discounting within the effective interest method are
omitted if immaterial. Where the contractual cash flows of the
financial liability are renegotiated or otherwise modified the
financial liability is recalculated at the present value of the
modified contractual cash flows discounted at the financial
liability's original effective interest rate.
Financial liabilities measured at fair value through profit and
loss are subsequently measured at fair value.
The subsequent measurement of financial liabilities that arise
when a transfer of a financial asset does not qualify for
derecognition or when the continuing involvement approach applies
depends upon whether the transferred asset is measured at amortised
cost or fair value. If the transferred asset is measured at
amortised cost then associated liability is measured in such a way
that the net carrying amount of the transferred asset and the
associated liability is the amortised cost of the rights and
obligations retained by the entity. However, if the transferred
asset is measured at fair value the associated liability is
measured in such a way that the net carrying amount of the
transferred asset and the associated liability is equal to the fair
value of the rights and obligations retained by the entity when
measured on a stand-alone basis.
Financial guarantee contracts are subsequently measured at the
higher of the amount of the loss allowance calculated in accordance
with the expected credit loss model and the amount of the initially
recognised.
Commitments to provide loans at below market interest rates are
subsequently measured at the higher of the amount of the loss
allowance calculated in accordance with the expected credit loss
model and the amount initially recognised.
Contingent consideration recognised in a business combination is
subsequently measured at fair value.
Trade and other receivables
Trade and other receivables are financial assets recognised when
the Group becomes party to the contractual provisions of the
instrument.
Trade receivables that do not contain a significant financing
component are initially measured at transaction price, which is
equivalent to fair value. All other trade and other receivables are
initially measured at fair value plus transaction costs directly
attributable to the acquisition of the financial asset. Trade and
other receivables are subsequently measured at amortised cost using
the effective interest method, less loss allowances.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less from
inception.
Borrowings
Borrowings include bank loans and overdrafts, loan notes,
amounts advanced under invoice factoring arrangements, and finance
leases. Bank loans and overdrafts, loan notes, and amounts advanced
under invoice factoring arrangements are financial liabilities that
are recognised when the Group becomes party to the contractual
provisions of the instrument.
Bank loans and overdrafts, loan notes, and amounts advanced
under invoice factoring arrangements are initially measured at fair
value minus transaction costs directly attributable to the issue of
the financial liability.
Bank loans and overdrafts, loan notes, and amounts advanced
under invoice factoring arrangements are subsequently measured
using the effective interest method. The effects of discounting
within the effective interest method are omitted if immaterial.
Where the contractual obligations of financial instruments
(including share capital) are equivalent to a similar debt
instrument, those financial instruments are classified as financial
liabilities.
Trade and other payables
Trade and other payables are financial liabilities recognised
when the Group becomes party to the contractual provisions of the
instrument.
Trade and other payables are initially measured at fair value
minus transaction costs directly attributable to the issue of the
financial liability. Trade and other payables are subsequently
measured at amortised cost using the effective interest method.
Derivative financial instruments
Derivative financial instruments are recognised when the Group
becomes party to the contractual provisions of the instrument.
Derivative financial instruments are initially and subsequently
measured at fair value. Any transaction costs directly attributable
to the acquisition of the financial asset are recognised in the
profit and loss. The fair values are determined by reference to
active markets or using a valuation technique where no active
market exists.
Put option liabilities
Put options to acquire non-controlling interests of subsidiaries
are initially recognised at present value and subsequently measured
at amortised cost, being the present value of future payments
discounted at the original effective interest rate. Details of the
measurement of put options are given in the accounting judgements
and key sources of estimation uncertainty accounting policy.
Foreign currency
The presentation currency for the Group's consolidated financial
statements is Sterling. Foreign currency transactions by group
companies are recorded in their functional currencies at the
exchange rate at the date of the transaction. Monetary assets and
liabilities have been translated at rates in effect at the balance
sheet date, with any exchange adjustments being charged or credited
to the income statement, within administrative expenses.
The Parent Company's functional currency is Sterling. On
consolidation the assets and liabilities of the subsidiaries with a
functional currency other than Sterling are translated into the
Group's presentational currency at the exchange rate at the balance
sheet date and the income and expenditure account items are
translated at the average rate for the period. The exchange
difference arising on the translation from functional currency to
presentational currency of subsidiaries is classified as other
comprehensive income and is accumulated within equity as a
translation reserve.
The balance of the foreign currency translation reserve relating
to a subsidiary that is disposed of, or partially disposed of, is
recognised in the income statement at the time of disposal.
Current taxation
Current tax payable or recoverable is based on taxable profit
for the year. Taxable profit differs from profit as reported in the
income statement because some items of income or expense are
taxable or deductible in different years or may never be taxable or
deductible. The Group's liability for current tax is calculated
using UK and foreign tax rates and laws that have been enacted or
substantively enacted by the end of reporting period date.
Deferred taxation
Deferred taxation is calculated using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. However, if the deferred tax arises from the
initial recognition of an asset or liability in a transaction other
than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss, it is not
accounted for. No deferred tax is recognised on initial recognition
of goodwill or on investment in subsidiaries. Deferred tax is
determined using tax rates and laws that have been enacted or
substantively enacted by the balance sheet date and are expected to
apply when the related deferred tax asset is realised, or the
deferred tax liability is settled.
Deferred tax liabilities are provided in full and are not
discounted.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the income statement, except where
they relate to items that are charged or credited directly to
equity in which case the related deferred tax is also charged or
credited directly to equity.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Employment benefits
Provision is made in the financial statements for all employee
benefits. Liabilities for wages and salaries, including
non-monetary benefit and annual leave obliged to be settled within
12 months of the balance sheet date, are recognised in
accruals.
Contributions to defined contribution pension plans are charged
to the income statement in the period to which the contributions
relate.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. The interest element of finance lease
payments is charged to profit or loss as finance costs over the
period of the lease. All other leases are classified as operating
leases.
Operating lease payments are recognised as an expense on a
straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction of
rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares
issued.
-- "Share premium" represents amounts subscribed for share
capital, net of issue costs, in excess of nominal value.
-- "Investment in own shares" represents amounts of the Parent
Company's own shares held within an Employee Benefit Trust.
-- "Share based payment reserve" represents the accumulated
value of share-based payments expensed in the income statement.
-- "Retained earnings" represents the accumulated profits and
losses attributable to equity shareholders.
-- "Translation reserve" represents the exchange differences
arising from the translation of the financial statements of
subsidiaries into the Group's presentational currency.
-- "Put option reserve" represents the initial present value of
written put and call options over shares in a subsidiary held by
non-controlling interest shareholders accounted for as contracts
over own shares.
-- "Capital redemption reserve" represents the nominal value of
shares repurchased by the Parent Company.
-- "Other reserve" relates to the Employee Benefit Trust.
-- "Non-controlling interest" represents the share of a
subsidiary's profit or loss and net assets that is not held by the
Group. The Group attributes total comprehensive income or loss of
subsidiaries between the owners of the Parent and the
non-controlling interests based on their respective ownership
interests.
Share-based payments
Equity-settled share-based payments to employees and directors
are measured at the fair value of the equity instrument. The fair
value of the equity-settled transactions with employees and
directors is recognised as an expense over the vesting period. The
fair value of the equity instruments are determined at the date of
grant, taking into account market based vesting conditions. The
fair value of goods and services received are measured by reference
to the fair value of options.
The fair values of share options are measured using the Black
Scholes model. The expected life used in the models is adjusted,
based on management's best estimate of the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees (or other beneficiaries)
become fully entitled to the award ("the vesting date").
The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group's
best estimate of the number of equity instruments that will
ultimately vest.
The income statement charge or credit for a period represents
the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or
not the market condition is satisfied, provided that all other
performance and/or service conditions are satisfied. Where the
terms of an equity-settled award are modified, the minimum expense
recognised is the expense as if the terms had not been modified. An
additional expense is recognised for any modification, which
increases the total fair value of the share-based payment
arrangement, or is otherwise beneficial to the employee as measured
at the date of modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a
new award is substituted for the cancelled award, and designated as
a replacement award on the date that it is granted, the cancelled
and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
Where an equity-settled award is forfeited during the vesting
period, the cumulative charge expensed up to the date of forfeiture
and is credited to the income statement.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trust (EBT)
have been included in the Group and Company financial statements.
Any assets held by the EBT cease to be recognised on the group
balance sheet when the assets vest unconditionally in identified
beneficiaries.
The costs of purchasing own shares held by the EBT are shown as
a deduction within shareholders' equity. The proceeds from the sale
of own shares are recognised in shareholders' equity. Neither the
purchase nor sale of own shares leads to a gain or loss being
recognised in the income statement.
Segment reporting
An operating segment is a component of an entity that engages in
business activities from which it may earn revenues and incur
expenses (including revenues and expenses related to transactions
with other components of the same entity), whose operating results
are regularly reviewed by the entity's Chief Operating Decision
Maker to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete
financial information is available. The Chief Operating Decision
Maker has been identified as the Managing Director, at which level
strategic decisions are made.
Details of the Group's reporting segments are provided in note
2.
New and amended International Financial Reporting Standards
adopted by the Group
The Group adopted IFRS 9 'Financial instruments' and IFRS 15
'Revenue from contracts with customers' on 1 January 2018. The
Group has elected to apply the modified retrospective approach to
the transition to both IFRS 9 and IFRS 15. The modified
retrospective approach requires the transition to be implemented
without restatement of the prior year results. The new standards
have not had a material impact on the reported results and there is
no adjustment to equity at 1 January 2018 as a result of the
implementation of the new standards.
International Financial Reporting Standards in issue but not yet
effective
The new and amended standards and interpretations that are
issued, but not yet effective, up to the date of issuance of the
Group's financial statements are disclosed below. The Group intends
to adopt these new and amended standards and interpretations, if
applicable, when they become effective.
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, which is effective for annual periods beginning on or
after 1 January 2019, requires lessees and lessors to make more
extensive disclosures than under IAS 17.
Transition to IFRS 16
The Group plans to adopt IFRS 16 retrospectively to each prior
reporting period presented. The Group will elect to apply the
standard to contracts that were previously identified as leases
applying IAS 17 and IFRIC 4. The Group will therefore not apply the
standard to contracts that were not previously identified as
containing a lease applying IAS 17 and IFRIC 4.
The Group will elect to use the exemptions proposed by the
standard on lease contracts for which the lease terms ends within
12 months as of the date of initial application, and lease
contracts for which the underlying asset is of low value. The Group
has leases of certain office equipment (i.e., personal computers,
printing and photocopying machines) that are considered of low
value.
During 2018, the Group has performed a detailed impact
assessment of IFRS 16. In summary the impact of IFRS 16 adoption is
expected to be, as follows:
Impact on the statement of financial position as at 31 December
2018:
GBP000
Assets
Goodwill 380
Property, plant and equipment (right-of-use assets) 9,732
Deferred tax 199
---------
10,311
Liabilities
Lease liabilities (10,538)
Impact on net assets and equity (227)
=========
Impact on the income statement for 2018:
GBP000
Income statement
Increase in depreciation expense 1,654
Increase in foreign exchange gain (4)
Decrease in operating lease expense (1,847)
--------
Increase in operating profit (197)
Increase in finance costs 239
Decrease in tax cost (18)
Decrease in profit for the year 24
========
Due to the adoption of IFRS 16, the Group's operating profit
will improve, while its interest expense will increase. This is due
to the change in the accounting for expenses of leases that were
classified as operating leases under IAS 17.
Use of alternative performance measures
The Group has defined certain measures that it uses to
understand and manage performance. These measures are not defined
under IFRS and they may not be directly comparable with other
companies' adjusted measures. These non-GAAP measures are not
intended to be a substitute for any IFRS measures of performance,
but management has included them as they consider them to be key
measures used within the business for assessing the underlying
performance.
Growth at constant currency: This measure shows the year on year
change in performance after eliminating the impact of foreign
exchange movement, which is outside of management's control.
Organic growth: This is defined as growth at constant currency
growth excluding acquisitions until the first anniversary of their
consolidation.
Adjusted operating profit: Adjusted operating profit is
disclosed to indicate the Group's underlying profitability. It is
defined as profit before acquisition related expenses, share based
payments and associated employer taxes and amortisation of
intangible assets.
Adjusted EBITDA: This represents adjusted operating profit plus
the reported depreciation charge for the period.
Adjusted profit before tax: This is profit before tax adjusted
for acquisition related expenses, share based payments and
associated employer taxes, amortisation of intangible assets,
changes in contingent consideration and financing fair value
remeasurements.
Adjusted profit after tax: This is profit after tax adjusted for
acquisition related expenses, share based payments and associated
employer taxes, amortisation of intangible assets, changes in
contingent consideration and financing fair value remeasurements
and the tax thereon.
Adjusted EPS: This is adjusted profit after tax less profit,
amortisation and tax thereon due to non-controlling interests
divided by the number of shares in issue.
Accounting judgements and sources of estimation uncertainty
The preparation of financial statements in accordance with the
principles of the IFRSs requires the directors to make judgements
and use estimation techniques in order to provide a fair
presentation of the Group's financial position and performance.
Accounting judgements represent the accounting decisions made by
the directors that have the most significant effect on amounts
recognised in the financial statements. Sources of estimation
uncertainty represent the assumptions made by management that carry
significant risks of a material adjustment to the value of assets
and liabilities within the next financial year.
Judgements and estimates are evaluated based on historic
experience, on-going developments within the Group, and reasonable
expectations of future events. Judgements and estimates are subject
to regular review by the directors.
The following are the significant accounting judgements made by
the Group in preparing the financial statements:
Symmetrical put and call options
As a result of a some of the acquisitions the Group has issued a
number of symmetrical put and call options over non-controlling
interests held by local management.
The liability is recorded at the present value of the redemption
amount and is accounted for as a separate component in equity on
the basis that the directors have judged that the Group does not
currently hold the risks and rewards associated with ownership of
these shares. The key judgements in determining whether the risks
and rewards regarding control have passed were the proportionate
right to dividends and determining if there is exposure to changes
in value of shares.
The following are the significant sources of estimation
uncertainty facing the Group in preparing the financial
statements:
Aged inventory provisions
Aged inventory provisions are recognised in order to record
inventory at the lower of cost and net realisable value. In order
to determine aged inventory provisions the Group is required to
estimate the future sales volumes, sales prices, costs to sell
inventory, and shrinkage.
Fair value of separately identifiable intangible assets in
business combinations
The Group is required to calculate the fair value of
identifiable assets and liabilities acquired in business
combinations. In order to estimate the fair value of separately
identifiable assets in business combinations certain assumptions
must be made about future trading performance, royalty rates,
customer attrition rates, and supplier contract renewal rates. The
fair values of assets and liabilities acquired in business
combinations are disclosed in note 10.
Contingent considerations and put option liabilities
The Group is required to record contingent considerations at
fair value. The Group initially measures put option liabilities at
present value and subsequently measures put option liabilities at
amortised cost using the effective interest rate method. Where the
contractual cash flows of the put option liability are renegotiated
or otherwise modified the financial liability is recalculated at
the present value of the modified contractual cash flows discounted
at the financial liability's original effective interest rate. The
Group use a range of present valuation techniques including both
the discount rate adjustment technique and the expected present
value technique in order to determine the fair values of contingent
considerations and the present values of put option
liabilities.
2. Segmental reporting
Operating segments
For the purposes of segmental reporting, the Group's Chief
Operating Decision Maker ("CODM") is the Managing Director. The
Group is a distributor of audio-visual solutions to trade
customers. The Board reviews attributable revenue, expenses, assets
and liabilities by geographic region and makes decisions about
resources and assesses performance based on this information.
Therefore, the Group's operating segments are geographic in
nature.
On 1 January 2018 the Group restructured its internal reporting
and combined the results of its previously reported segments into
three main trading segments.
UK & Continental APAC Other Total
Ireland Europe
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---- ---------- ------------ --------- ---------- ----------
Revenue 315,808 222,017 35,857 - 573,682
Gross profit 54,890 33,086 6,586 - 94,562
Gross profit % 17.4% 14.9% 18.4% - 16.5%
Adjusted operating profit 19,567 10,227 2,936 (2,485) 30,245
Costs of acquisitions - - - (365) (365)
Share based payments (557) (382) (106) (75) (1,120)
Employer taxes on share based
payments (72) (109) (14) (26) (221)
Amortisation (2,672) (1,050) (70) - (3,792)
Operating profit 16,266 8,686 2,746 (2,951) 24,747
--------------------------------- ---- ---------- ------------ --------- ---------- ----------
Interest (3,670)
----------
Profit before tax 21,077
==========
Other segmental information
UK & Continental APAC Other Total
Ireland Europe
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 115,529 84,858 18,066 342 218,795
Segment liabilities (101,431) (45,705) (12,957) (356) (160,449)
--------------------------------- ---- ---------- ------------ --------- ---------- ----------
Segment net assets 14,098 39,153 5,109 (14) 58,346
Depreciation 1,644 778 82 - 2,504
UK International Total
Other segmental information GBP'000 GBP'000 GBP'000
----------------------------- --------- -------------- ---------
Non-current assets 21,853 22,714 44,567
UK & Continental APAC Other(1) Total
Ireland(1) Europe(1)
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---- ------------ ------------ --------- --------- ----------
Revenue 283,712 156,163 32,062 - 471,937
Gross profit 45,830 21,637 5,660 - 73,127
Gross profit % 16.2% 13.9% 17.7% - 15.5%
Adjusted operating profit 16,701 7,470 2,576 (1,703) 25,044
Costs of acquisitions - - - (336) (336)
Share based payments (351) (142) (50) (8) (551)
Employer taxes on share based
payments (66) (50) - (2) (118)
Amortisation (2,450) (730) (50) - (3,230)
Operating profit 13,834 6,548 2,476 (2,049) 20,809
--------------------------------- ---- ------------ ------------ --------- --------- ----------
Interest (1,911)
----------
Profit before tax 18,898
==========
Other segmental information
UK & Continental APAC Other(1) Total
Ireland(1) Europe(1)
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 122,259 73,242 11,223 307 207,031
Segment liabilities (108,312) (38,847) (6,693) (87) (153,939)
--------------------------------- ---- ------------ ------------ --------- --------- ----------
Segment net assets 13,947 34,395 4,530 220 53,092
Depreciation 1,281 385 127 - 1,793
UK International Total
Other segmental information GBP'000 GBP'000 GBP'000
----------------------------- --------- -------------- ---------
Non-current assets 25,135 14,348 39,483
(1) Restated to combine France, Germany and the Rest of Europe
into one segment and show Group office functions within the Other
segment due to internal restructuring undertaken on 1 January
2018.
Revenue from the UK, being the domicile of the Parent Company
amounted to GBP295,067k (2017: GBP264,514k).
Segment revenues above are generated from external customers.
The accounting policies of the reportable segments have been
consistently applied. Segment profit represents the operating
profit by each segment after amortisation of intangibles arising on
consolidation.
Intersegment sales during the year were as follows:
2018
GBP'000 Selling segment:
---------------- ------------------------------------------
Buying segment: UK & Ireland Continental APAC Other
Europe
---------------- ------------- ------------ ----- ------
UK & Ireland - 108 - -
Continental 280 - - -
Europe
APAC - - - -
Other - - - -
================ ============= ============ ===== ======
2017
GBP'000 Selling segment:
---------------- ---------------------------------------------
Buying segment: UK & Ireland Continental APAC Other(1)
Europe(1)
---------------- ------------- ------------ ----- ---------
UK & Ireland - 294 - -
Continental 201 - - -
Europe(1)
APAC - - - -
Other(1) - - - -
================ ============= ============ ===== =========
(1) Restated to combine France, Germany and the Rest of Europe
into one segment and show Group office functions within the Other
segment due to internal restructuring undertaken on 1 January
2018.
Information about major customers
Included in revenues arising in 2018 are revenues of GBP9.0m
(2017: GBP9.3m) that arose from sales to the Group's largest
customer, which is based in Germany. No single customer contributed
10% or more to the Group's revenue in any period presented.
3. Administrative expenses
Administrative expenses in the period include GBP365k of
acquisition related costs (2017: GBP336k). For details of
acquisitions in the year see note 10.
4. Finance costs
2018 2017
GBP'000 GBP'000
Interest on overdraft and invoice discounting 1,042 666
Interest on finance leases 28 4
Interest on other loans 151 70
Interest, foreign exchange and other finance costs of deferred and contingent
considerations 2,219 (81)
Interest, foreign exchange and other finance costs of put option liabilities 311 1,257
3,751 1,916
======== ========
5. Earnings per share
Basic earnings per share is calculated by dividing the profit
after tax attributable to equity shareholders of the Company by the
weighted average number of shares in issue during the year.
Diluted earnings per share is calculated by dividing the profit
after tax attributable to equity shareholders of the Company
adjusted for the fair value (measured in accordance with IFRS 2) of
any goods or services to be supplied to the Group in the future
under the share options granted by the balance sheet date by the
weighted average number of shares in issue during the year adjusted
for the effects of all dilutive potential ordinary shares.
2018 2017
Profit attributable to equity holders of the Group (GBP'000) 14,724 13,557
Weighted average number of shares in issue 79,448,200 79,448,200
Potentially dilutive effect of the Group's share option schemes 725,002 305,464
----------- -----------
Weighted average number of diluted ordinary shares 80,173,202 79,753,664
=========== ===========
Basic earnings per share 18.53p 17.06p
=========== ===========
Diluted earnings per share 18.36p 17.00p
=========== ===========
6. Borrowings
2018 2017
GBP'000 GBP'000
Secured - at amortised cost
* Bank overdrafts and invoice discounting 33,157 49,727
* Bank loans 8,689 236
* Finance leases 242 369
-------- --------
42,088 50,332
======== ========
Unsecured - at amortised cost
* Unsecured loan notes 274 165
======== ========
Total secured and unsecured borrowings 42,362 50,497
======== ========
Current 35,151 50,176
Non-current 7,211 321
42,362 50,497
======== ========
Summary of borrowing arrangements:
The Group has overdraft facilities which comprised GBP328k at
the end of 2018 (2017: GBP8,193k). The facilities are uncommitted
and secured with fixed and floating charges over the assets of the
Group. Included within overdraft facilities as at 31 December 2018
is GBP196K that was an overdraft facility acquired as part of the
Blonde Robot acquisition.
The Group has invoice discounting facilities which comprised
GBP32,829k at the end of 2018 (2017: GBP41,534k). The facilities
comprise fully revolving receivables financing agreements which are
secured on the underlying receivables and have no fixed repayment
dates.
The Group has loans of GBP8,963k at the end of 2018 (2017:
GBP401k). The loans are secured with fixed and floating charges
over the assets of the Group with the exception of GBP274k (2017:
GBP165k), which is unsecured. Included within loans as at 31
December 2018 is GBP1,445k that were loans acquired as part of the
New Media, Perfect Sound, and Blonde Robot acquisitions. The Group
is subject to covenants under its Revolving Credit Facility and if
the Group defaults under these covenants, it may not be able to
meet its payment obligations.
The Group has finance leases of GBP242k at the end of 2018
(2017: GBP369k). Included within finance leases as at 31 December
2018 is GBP20K that were finance leases acquired as part of the
Blonde Robot acquisition.
Reconciliation of liabilities arising from financing
activities
Long term borrowings Short term borrowings Finance leases Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 165 49,963 369 50,497
Cash flows:
(Repaid)/advanced 5,199 (15,206) (149) (10,156)
Non-cash:
Acquisitions 1,781 218 22 2,021
--------------------- ---------------------- --------------- ---------
7,145 34,975 242 42,362
===================== ====================== =============== =========
7. Financial instrument risk exposure and management
The Group's operations expose it to degrees of financial risk
that include liquidity risk, credit risk, interest rate risk, and
foreign currency risk.
This note describes the Group's objectives, policies and process
for managing those risks and the methods used to measure them.
Credit risk
The Group's credit risk is primarily attributable to its cash
balances and trade receivables. The Group does not have a
significant concentration of risk, with exposure spread over a
number of third parties. The risk is further mitigated by insurance
of the trade receivables.
The credit risk on liquid funds is limited because the third
parties are large international banks with a credit rating of at
least A.
The Group's total credit risk amounts to the total of the sum of
the trade receivables and cash and cash equivalents. At 31 December
2018 total credit risk amounted to GBP94,821k (2017:
GBP101,528k).
Interest rate risk
The interest on borrowings, being overdraft and invoice
discounting facilities with HSBC Bank plc, a loan and invoice
discounting facility with Barclays Bank PLC, and an invoice
discount facility with Lloyds Bank Commercial Finance Ltd, is
variable. During the year the Group moved an invoice discounting
facility with Coöperatieve Rabobank U.A. to HSBC Bank plc.
Based on year end balances a 1% increase in interest rates would
impact profit and equity by GBP421k (2017: GBP500k).
The interest received on the cash held on deposit is
immaterial.
Foreign exchange risk
The Group is largely able to manage its exchange rate risk
through the natural matching of payments and receipts denominated
in the same currencies. Any exposure tends to be on the payment
side and is mainly in relation to the Sterling strength relative to
the Euro or US Dollar. This transactional risk is considered
manageable as the proportion of Group procurement that is not
sourced in local currency is small. However, on occasions the Group
does buy foreign currency call options and forward contracts to
mitigate this risk.
The Group does hold material non-domestic balances on occasions
and currently does not take any action to mitigate this risk.
Inter-company balances between trading entities tend to be short
term and repaid within the month. The Group is able to manage its
exchange rate risk through the natural matching of payments and
receipts denominated in the same currencies.
The Group reports in Pounds Sterling (GBP) but has significant
revenues and costs as well as assets and liabilities that are
denominated in Euros (EUR) and Australia Dollars (AUD). The table
below sets out the prevailing exchange rates in the periods
reported.
Annual average Year end
2018 2017 2018 2017
EUR/GBP 1.129 1.145 1.115 1.126
AUD/GBP 1.780 1.688 1.809 1.725
NZD/GBP 1.923 1.814 1.902 1.895
USD/GBP 1.337 1.289 1.277 1.349
Applying the current period foreign exchange rates to the
reported results for 2017 had the following effect:
Currency EUR AUD NZD
GBP000 GBP000 GBP000
Increase/(decrease) in revenue due to movement
in foreign exchange rate: 1,871 (1,516) (154)
Increase/(decrease) in profit before tax due
to movement in foreign exchange rate: 87 (113) (14)
Increase/(decrease) in net debt due to movement
in foreign exchange rate: 69 (8) (1)
The following table illustrates the sensitivity of the reported
profit before tax and equity for 2018 to material exchange rate
movements in the pound relative to the Euro, Australian dollar and
New Zealand dollar.
It assumes a +/- 10% change in GBP relative to the average and
closing rates for these currencies employed in 2018.
If the GBP had strengthened against the above currencies by 10%,
the impact, in GBP terms, on the 2018 financial statements would
have been:
2018 EUR AUD NZD USD
GBP'000 GBP'000 GBP'000 GBP'000
Profit before tax (1,105) (222) (25) (2)
Equity (2,799) (269) (32) (8)
If the GBP had weakened against the above currencies by 10%, the
impact, in GBP terms, on the 2018 financial statements would have
been:
2018 EUR AUD NZD USD
GBP'000 GBP'000 GBP'000 GBP'000
Profit before tax 1,350 272 28 3
Equity 3,423 331 37 4
Liquidity risk
Prudent liquidity risk management includes maintaining
sufficient cash balances to ensure the Group can meet liabilities
as they fall due, and ensuring adequate working capital using bank
borrowing arrangements.
In managing liquidity risk, the main objective of the Group is
therefore to ensure that it has the ability to pay all of its
liabilities as they fall due. The Group monitors its levels of
working capital to ensure that it can meet its liability payments
as they fall due.
The tables below show the undiscounted cash flows on the Group's
financial liabilities as at 31 December 2018 and 2017, on the basis
of their earliest possible contractual maturity:
At 31 December 2018
Within After
Within 2 2 -6 Between 6 - 12 Between 1-2 than
Total months months months years 2 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 75,614 68,530 6,826 5 253 -
Other payables 582 582 - - - -
Put option liabilities 7,082 - - 1,875 4,102 1,105
Finance lease payables 266 33 65 97 71 -
Accruals 11,506 10,300 407 316 8 475
Bank overdrafts, loans and
invoice discounting 42,120 32,865 804 1,306 6,725 420
Deferred consideration 4,905 - 3,373 673 9 850
-------- --------- -------- --------------- ------------ ---------
142,075 112,310 11,475 4,272 11,168 2,850
======== ========= ======== =============== ============ =========
At 31 December 2017
Within After
Within 2 2 -6 Between 6 - 12 Between 1-2 than
Total months months months years 2 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 66,117 54,510 11,262 345 - -
Other payables 486 486 - - - -
Derivative financial
instruments 93 93 - - - -
Put option liabilities 5,461 - - - 1,684 3,777
Finance lease payables 384 105 47 70 108 54
Accruals 8,673 7,502 695 295 67 114
Bank overdrafts, loans and
invoice discounting 50,128 49,933 12 18 165 -
Deferred consideration 6,038 - 4,841 - 1,197 -
-------- --------- -------- --------------- ------------ ---------
137,380 112,629 16,857 728 3,221 3,945
======== ========= ======== =============== ============ =========
8. Share capital
The total allotted share capital of the Parent Company is:
Allotted, issued and fully paid
2018 2017
Number GBP'000 Number GBP'000
Issued and fully paid ordinary Shares of GBP0.01 each
At 1 January 79,448,200 794 79,448,200 794
----------- -------- ----------- --------
At 31 December 79,448,200 794 79,448,200 794
=========== ======== =========== ========
There were no share transactions effected during the current or
prior year.
Employee benefit trust
The Group's employee benefit trust was allocated 480,700
ordinary shares in 2016. As at 31 December 2018 325,300 of these
shares were distributed to the SIP trust, leaving 155,400 ordinary
shares in the employee benefit trust as at 31 December 2018 (2017:
241,700).
9. Acquisition of non-controlling interest
On 3 October 2017, the Group acquired 10.5% of the 21%
non-controlling interest in Holdan Limited, which had a value of
GBP602k, for a consideration of GBP750k. GBP681k of the put option
reserve was transferred to retained earnings when this element of
the put option was extinguished.
10. Business combinations
Acquisitions have been completed by the Group to increase scale,
broaden its addressable market and widen the product offering.
Subsidiaries acquired:
Acquisition Principal activity Date of acquisition Proportion Fair value
acquired of consideration
(%) GBP'000
------------------ ------------------------------------ --------------------- ----------- ------------------
Distribution of professional
broadcast equipment to trade 23 August
New Media customers 2018 100% 3,311
------------------ ------------------------------------ --------------------- ----------- ------------------
Distribution of professional 5 September
Perfect Sound audio products to trade customers 2018 100% 682
------------------ ------------------------------------ --------------------- ----------- ------------------
Distribution of audio-visual 4 December
Blonde Robot products to trade customers 2018 65% 1,687
------------------ ------------------------------------ --------------------- ----------- ------------------
Distribution of audio-visual
and lighting products to 27 March
Earpro trade customers. 2017 88.5% 8,311
------------------ ------------------------------------ --------------------- ----------- ------------------
Distribution of audio-visual
and lighting products to 6 September
van Domburg trade customers. 2017 70% 2,942
------------------ ------------------------------------ --------------------- ----------- ------------------
Distribution of professional
audio, musical and lighting 30 November
Sound Technology products to trade customers 2017 100% 3,858
================== ==================================== ===================== =========== ==================
2018 acquisitions
Fair value of consideration transferred:
2018 New Media Perfect Blonde
Sound Robot
GBP'000 GBP'000 GBP'000
Cash 1,354 628 1,687
Deferred contingent consideration 1,957 54 -
---------- -------- --------
Total 3,311 682 1,687
========== ======== ========
Acquisition costs of GBP119k in relation to the acquisition of
New Media, GBP47k in relation to the acquisition of Perfect Sound,
GBP83k in relation to the acquisition of Blond Robot, and GBP116k
in relation to other acquisitions not completed before the end of
the year were expensed to the income statement during the year
ended 31 December 2018.
On acquisition of Blonde Robot the Group recognised GBP894k in
relation to the initial present value of the put option liabilities
to acquire the remaining non-controlling interest.
Fair value of acquisitions
2018 New Media Perfect Sound Blonde Robot
GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 1,004 173 924
Intangible assets - customer relationships 1,051 105 1,808
Intangible assets - supplier contracts 1,349 159 427
Intangible assets - brands 337 18 270
Intangible assets - other 15 - -
Plant and equipment 140 23 86
---------- -------------- -------------
3,896 478 3,515
Current assets
Inventories 702 61 1,164
Trade and other receivables 550 698 2,309
Cash and cash equivalents 327 211 -
---------- -------------- -------------
1,579 970 3,473
Current liabilities
Trade and other payables (1,045) (628) (1,746)
Current tax - - (53)
Derivative financial instruments - - (23)
Borrowings and financial liabilities (216) (44) (1,761)
---------- -------------- -------------
(1,261) (672) (3,583)
Non-current liabilities
Deferred tax (903) (94) (752)
Other provisions - - (58)
---------- -------------- -------------
(903) (94) (810)
Non-controlling interests - - (908)
---------- -------------- -------------
Fair value of net assets acquired attributable to equity
shareholders of the Parent Company 3,311 682 1,687
========== ============== =============
Goodwill acquired in 2018 relates to the workforce, synergies
and sales know how. Goodwill arising on the New Media and Perfect
Sound acquisitions has been allocated to the Continental Europe
segment. Goodwill arising on the Blonde Robot acquisition has been
allocated to the APAC segment.
Gross contractual amounts of trade and other receivables
acquired in 2018 were GBP3,589k, with bad debt provisions of
GBP32k.
Net cash outflow on acquisition of subsidiaries
New Media Perfect Sound Blonde Robot
GBP'000 GBP'000 GBP'000
Consideration paid in cash 1,354 628 1,687
Less: cash and cash equivalent balances acquired (327) (211) -
Plus: borrowings acquired 216 44 1,761
---------- -------------- -------------
Net cash outflow 1,243 461 3,448
========== ============== =============
Post-acquisition contribution
Acquired subsidiaries made the following contributions to the
Group's results for the year in which they were acquired, from
their respective acquisition dates:
2018
New Media Perfect Sound Blonde Robot
GBP'000 GBP'000 GBP'000
Date acquired 23 Aug 5 Sep 4 Dec
Post-acquisition contribution to Group revenue 6,563 916 1,430
Post-acquisition contribution to Group profit after tax 90 90 103
Proforma full year contribution
Acquired subsidiaries would have made the following contributions to the Group's results for
the year in which they were acquired if they were acquired on 1 January 2018:
New Media Perfect Sound Blonde Robot
GBP'000 GBP'000 GBP'000
Full year revenue(1) 17,851 3,016 17,364
Full accounting period profit
after tax(1) 26 190 337
If the acquisitions had occurred on 1 January 2018, revenue of
the Group for the year would have been GBP603,004k and profit after
tax for the year would have been GBP15,555k.
(1) These amounts have been calculated using the results of
subsidiaries and adjusting them for differences between the
accounting policies and Generally Accepted Accounting Principles
applicable to the subsidiaries and the accounting policies and IFRS
reporting requirements of the Group. The translation adjustments to
modify the reported results of the subsidiaries have been applied
as if the Group's accounting policies and IFRS reporting
requirements had always been applied. The translation adjustments
include the additional depreciation and amortisation charges
relating to the fair value adjustments to property, plant and
equipment and intangible assets assuming the fair values recognised
on acquisition were valid on 1 January 2018, together with the
consequential tax effects.
2017 acquisitions
Fair value of consideration transferred:
2017 Earpro van Domburg Sound
Technology
GBP'000 GBP'000 GBP'000
Cash 4,987 1,522 2,600
Deferred consideration 3,324 - 1,258
Deferred contingent consideration - 1,420 -
-------- ------------ ------------
Total 8,311 2,942 3,858
======== ============ ============
Acquisition costs of GBP81k in relation to the acquisition of
Earpro, GBP164k in relation to the acquisition of van Domburg,
GBP84k in relation to the acquisition of Sound Technology and GBP7k
in relation to the prior year acquisition of Holdan were expensed
to the income statement during the year ended 31 December 2017.
On acquisition of Earpro and van Domburg the Group recognised
GBP1,033k and GBP1,516k in relation to the initial present value of
the put option liabilities to acquire the remaining non-controlling
interest in each acquisition.
Fair value of acquisitions
2017 Earpro van Domburg Sound Technology
GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 1,009 2,667 851
Intangible assets - customer relationships 740 2,178 -
Intangible assets - supplier exclusivity 1,488 - 1,553
Intangible assets - trade name 104 158 153
Intangible assets - other 58 - 52
Property, plant and equipment 66 1,765 28
-------- ------------ -----------------
3,465 6,768 2,637
Current assets
Inventories 2,053 2,878 2,694
Trade and other receivables 4,003 3,526 4,132
Cash and cash equivalents 3,172 - 65
Current tax - - 6
-------- ------------ -----------------
9,228 6,404 6,897
Current liabilities
Trade and other payables (2,723) (5,334) (3,655)
Derivative financial instruments - - (128)
Borrowings and financial liabilities - (2,877) (1,617)
Current tax - (4) -
-------- ------------ -----------------
(2,723) (8,215) (5,400)
Non-current liabilities
Borrowings - (170) -
Deferred tax (579) (584) (276)
-------- ------------ -----------------
(579) (754) (276)
Non-controlling interests (1,080) (1,261) -
-------- ------------ -----------------
Fair value of net assets acquired attributable to equity
shareholders of the Parent Company 8,311 2,942 3,858
======== ============ =================
Goodwill acquired in 2017 relates to the workforce, synergies
and sales know how. Goodwill arising on the Earpro acquisition has
been allocated to the Continental Europe operating segment,
goodwill arising on the van Domburg acquisition has been allocated
to the Continental Europe operating segment and goodwill arising on
the Sound Technology acquisition has been allocated to the United
Kingdom and Ireland operating segment.
Gross contractual amounts of trade and other receivables
acquired in 2017 were GBP14,271k, with bad debt provision of
GBP2,610k.
Net cash outflow on acquisition of subsidiaries
Earpro van Domburg Sound Technology
GBP'000 GBP'000 GBP'000
Consideration paid in cash 4,987 1,522 2,600
Plus: overdraft borrowings - 200 -
Less: cash and cash equivalent balances acquired (2,989) - (65)
-------- ------------ -----------------
Net cash outflow 1,998 1,722 2,535
======== ============ =================
Post-acquisition contribution
Acquired subsidiaries made the following contributions to the
Group's results for the year in which they were acquired, from
their respective acquisition dates:
2017
Earpro van Domburg Sound Technology
GBP'000 GBP'000 GBP'000
Date acquired 27 March 6 September 30 November
Post-acquisition contribution to Group revenue 15,081 8,870 1,901
Post-acquisition contribution to Group profit after
tax 1,103 174 61
Proforma full year contribution
Acquired subsidiaries would have made the following contributions to the Group's results for
the year in which they were acquired if they were acquired on 1 January 2017:
Earpro van Domburg Sound Technology
GBP'000 GBP'000 GBP'000
Full year revenue(1) 20,530 26,600 21,497
Full accounting period profit after tax(1) 1,388 456 637
If the acquisitions had occurred on 1 January 2017, revenue of
the Group for the year would have been GBP514,712k and profit after
tax for the year would have been GBP14,840k.
(1) These amounts have been calculated using the results of
subsidiaries and adjusting them for differences between the
accounting policies and Generally Accepted Accounting Principles
applicable to the subsidiaries and the accounting policies and IFRS
reporting requirements of the Group. The translation adjustments to
modify the reported results of the subsidiaries have been applied
as if the Group's accounting policies and IFRS reporting
requirements had always been applied. The translation adjustments
include the additional depreciation and amortisation charges
relating to the fair value adjustments to property, plant and
equipment and intangible assets assuming the fair values recognised
on acquisition were valid on 1 January 2017, together with the
consequential tax effects.
11. Related party transactions
Transactions and outstanding balances between the Group
companies have been eliminated on consolidation.
Key management personnel are identified as the executive and
non-executive directors, and their remuneration is disclosed as
follows:
2018 2017
GBP'000 GBP'000
Remuneration of key management
Remuneration 924 804
Social security costs 121 80
Company pension contributions to defined contributions scheme 5 20
-------- --------
1,038 904
======== ========
During the year Mr S Lamb was granted 100,000 share options
under the LTIP scheme.
Dividends on ordinary shares were paid to key management and
close members of their family as follows:
2018 2017
GBP'000 GBP'000
Mr S B Fenby 3,035 2,513
Mr A M G Bailey(1) 307 359
Mr S Lamb - -
Mr A C Herbert 5 2
Mr M Ashley - -
Ms H Wright - -
-------- --------
3,347 2,874
======== ========
(1) Includes dividends up to the date of resignation of 30 June
2018.
There were no related party borrowing or share transactions
during the current or prior year.
12. Dividends
The Company paid dividends in the year of GBP11,289k (2017:
GBP8,912k), excluding the effects of waived dividends this equated
to 14.25 (2017: 11.26) pence per share.
The Board has recommended a final dividend of 10.60 pence per
share (2017: 9.65) which, if approved will be paid on 21 June 2019
to shareholders on the register on 17 May 2019. With the interim
dividend declared in September 2018, this represents a total
dividend for the year to 31 December 2018 of 15.20 pence per share
(2017: 13.82).
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
FR UARSRKOAOAAR
(END) Dow Jones Newswires
March 12, 2019 03:00 ET (07:00 GMT)
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