TIDMPNX
RNS Number : 0787G
Phoenix IT Group PLC
03 June 2013
3 June 2013
Phoenix IT Group plc
Audited Preliminary Results for the year ended 31 March 2013
Phoenix IT Group plc, ("Phoenix" or the "Group"), the UK IT
services company, announces its preliminary results for the year
ended 31 March 2013.
FINANCIAL OVERVIEW
Underlying Financial Performance(1)
-- Group revenues GBP250.0m (2012 restated: GBP260.8m)
-- Underlying EBITDA(2) GBP32.8m (2012 restated: GBP38.1m)
-- Underlying profit from operations(3) GBP19.0m (2012 restated: GBP24.1m)
-- Underlying profit before tax(4) GBP14.9m (2012 restated: GBP20.0m)
-- Underlying diluted earnings per share(4) 13.9p (2012 restated: 19.4p)
-- Proposed final dividend of 4.0p (2012: 7.2p) per share and
total dividend of 7.7p (2012: 10.9p) per share
-- Net debt (including finance leases) GBP71.3m (2012 restated: GBP68.8m)
-- Order book GBP318.6m (2012: GBP314.7m)
-- Annual contract value GBP191.9m (2012: GBP199.1m)
(1) To assist in the understanding of the underlying performance
of the Group, statutory profit has been adjusted to exclude
non-recurring items and amortisation of acquired intangibles
(2) EBITDA is Group underlying operating profit GBP19.0m (2012
restated: GBP24.1m) plus depreciation GBP13.8m (2012 restated:
GBP14.0m)
(3) Underlying - adjusted for non-recurring items GBP71.8m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
(4) Underlying - adjusted for non-recurring items GBP72.1m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
Statutory Performance
-- Loss from operations GBP54.4m (2012 restated: GBP0.8m loss)
-- Loss before tax GBP58.8m (2012 restated: GBP4.9m loss)
-- Diluted loss per share 79.1p (2012 restated: 4.9p loss)
-- Basic loss per share 79.1p (2012 restated: 4.9p loss)
-- Non-recurring costs GBP72.1m (2012: GBP22.0m)
BUSINESS OVERVIEW
-- In November, we signed a five year contract with a major
Global IT Services provider - in excess of GBP40.0m over the five
years.
-- Successful re-financing of our GBP90.0m banking facilities
and our overdraft with our existing lenders giving us committed
facilities for a further three years.
-- There have been no further adjustments in respect of the
previously announced accounting irregularities at the Servo Limited
business and its subsidiaries. The forensic investigation concluded
that the misstatements were attributable to profit overstatement
and not cash misappropriation.
-- One-off GBP68.1m (31 March 2012: GBPnil) non-cash charge for
impairment of goodwill and other intangible assets has been made in
respect of the accounting irregularities in Servo Limited and its
subsidiaries.
Commenting on these results, Peter Bertram, Executive Chairman
of Phoenix, said:
"This was a challenging year for the Group. The difficult
economic climate, a disruptive reorganisation and the discovery of
accounting irregularities all had a detrimental effect on the
business and the results for the year. There are issues affecting
the Group, which whilst being resolved, will continue to negatively
impact in the short term. We are planning for revenue growth,
particularly from the second half of the current financial year,
and believe the Group can recover from the difficulties of last
year."
Enquiries:
Phoenix Tel: +44 (0)1604 769000
Peter Bertram Executive Chairman
Jane Aikman Chief Operating Officer & Chief
Financial Officer
FTI Consulting Tel: +44 (0)20 7831 3113
Charles Palmer
Chris Lane
Forward Looking Statements
Any forward looking statements made within this statement have
been made in good faith by the directors based on the information
available up to the date of the director's approval of this report,
and these forward looking statements should be treated with caution
due to the inherent uncertainties, including macroeconomic, and IT
services market uncertainties, and business risk factors which may
affect the outcome.
This statement has been prepared for the Phoenix IT Group as a
whole and therefore it gives greater emphasis to those matters
which are significant to Phoenix IT Group plc and its subsidiary
undertakings when viewed as a whole.
CHAIRMAN'S STATEMENT
Review of the Year
This was a challenging year for Phoenix IT Group. The continuing
difficult economic climate along with a disruptive reorganisation
and the discovery of accounting irregularities in one part of our
Group has led to disappointing results for the Group.
From 1 April 2012, the Group has operated under a single Phoenix
brand and was reorganised to create five market-facing Business
Units, a centralised service delivery function and centralised
support functions. The disruption caused by the reorganisation led
to a drop in service levels and subsequently increased cost in
restoring these to traditionally high levels. Significant
investment was made in the sales functions, particularly in the
Mid-market division, to focus on new business and larger deals.
This unfortunately distracted the focus away from the traditional
mid-sized customer base and didn't deliver sufficient revenue
growth to offset the negative effects this caused. This, along with
the drop in service levels, led to higher levels of attrition in
our annuity contract base.
In January 2013, we simplified the customer facing units of our
business by merging the System Integrators and Communications
business units. Both of these units go to market via large systems
integrators and partners and by combining the units we could better
and more efficiently service these customer groups. In addition, in
February 2013, we merged the Managed Services and Hosting business
units. Our customers increasingly expect to see elements of
hosting, service desk, distributed services and monitoring in our
bids and we believe that by merging these two business units we are
better able to service our customers, as a single, market facing
unit.
We believe that our three Business Units are well placed to take
advantage of the growth drivers in their markets. We are
increasingly seeing the large integrators move towards outsourcing
solutions and our Systems Integrators and Communications Business
Unit is well positioned to play a key role in this development. The
mid-market is growing rapidly as companies move increasingly
towards cloud solutions in the provision of their IT services. Our
Managed Services and Hosting Business Unit is expected to benefit
from this market growth. Our Business Continuity Business Unit is
already one of the key players in its market and we expect it to
continue to perform within our expectations. Our annual contract
value and strong pipeline are indicators of the strength of the
underlying business.
We were disappointed to announce that we had uncovered
accounting irregularities at Servo Limited and its subsidiaries in
September 2012. We appointed PricewaterhouseCoopers LLP ("PwC") and
Nabarro LLP ("Nabarro") to conduct a forensic investigation. This
investigation found that the misstatements primarily arose from the
deliberate and repeated circumvention of control processes and
found no evidence of cash misappropriation.
In order to strengthen our control environment, we appointed PwC
to perform a control review across the entire business and are
implementing their recommendations. We have relocated the Servo
Limited accounting and finance function to a shared service team
based in Northampton and have strengthened the internal audit
function. We appointed KPMG to review our internal audit practices
and to act as our Internal Audit advisers. We are in the process of
implementing their recommendations.
The discovery of the accounting irregularities has revealed to
us that the Mid-market has been under-performing. As a result we
have carried out a profitability review of this business segment in
order to restore it to profitability. This is discussed in more
detail in the Business Review section.
We are pleased to announce the successful refinancing of our
GBP90.0m banking facilities and our overdraft with existing lenders
giving us committed facilities for a further three years.
A review of the year's trading and results is given in the
Business Review.
Results(1)
Group revenues decreased by 4.1% to GBP250.0m (2012 restated:
GBP260.8m) and statutory loss before tax increased to GBP58.8m
(2012 restated: GBP4.9m loss), largely due to non-recurring items
of GBP72.1m (2012: GBP22.0m). Underlying (3) profit before tax
decreased to GBP14.9m in the year (2012 restated: GBP20.0m).
Statutory diluted loss per share was 79.1p (2012 restatement: 4.9p
loss per share) and underlying diluted earnings per share(3) was
13.9p (2012 restated: 19.4p).
Dividend
The Board is proposing a final dividend of 4.0p per share (2012:
7.2p) which, if approved at the Annual General Meeting, will be
paid on 9 August 2013 to shareholders on the register at 14 June
2013. Combined with the interim dividend of 3.7p (2012: 3.7p) per
share paid on 9 January 2013 this would make a total dividend per
share for the year of 7.7p (2012: 10.9p). This represents 53% of
the underlying(3) profit after tax for the year, which is a higher
payout ratio than our dividend policy which sets the level of
distribution at between 35% and 45%. We are committed to
distributing a dividend which is commensurate with the underlying
performance of the business. We do not believe that this year's
results are representative of this and are confident of the
strength of the business going forward.
Board Changes
There have been a number of changes to the Board in the year. On
6 August 2012 Jane Aikman was appointed as Chief Financial Officer,
following the resignation of Steve Clutton on 25 May 2012. On the 4
October 2012 David Courtley resigned as Chief Executive Officer and
as a result I assumed the role of Executive Chairman, Jane Aikman
took on additional duties to become Chief Operating Officer and
Chief Financial Officer and David Garman became the Senior
Independent Director.
We have recently commenced an external search for a
non-executive director to chair the Audit Committee.
Corporate Governance
The Board of Directors is committed to the principles of
corporate governance contained in the UK Corporate Governance Code
(the 'Code') issued by the Financial Reporting Council in June
2010. A detailed explanation of how those principles are applied is
provided in the Corporate Governance section of the annual
report.
Employees
On behalf of the Board and the Shareholders I would like to
thank all our staff for their continued hard work and
commitment.
Annual General Meeting
The Annual General Meeting will be held at the Group's office in
Swedbank House, 42 New Broad Street, London, EC2M 1JD, on 1 August
2013 at 10.30am.
Outlook
This was a challenging year for the Group. The difficult
economic climate, a disruptive reorganisation and the discovery of
accounting irregularities all had a detrimental effect on the
business and the results for the year. There are issues affecting
the Group, which whilst being resolved, will continue to negatively
impact in the short term. We are planning for revenue growth,
particularly from the second half of the current financial year,
and believe the Group can recover from the difficulties of last
year.
Peter Bertram
Executive Chairman
31 May 2013
(1) To assist in the understanding of the underlying performance
of the Group, statutory profit has been adjusted to exclude
non-recurring items and amortisation of acquired intangibles
(2) Underlying - adjusted for non-recurring items GBP71.8m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
(3) Underlying - adjusted for non-recurring items GBP72.1m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
BUSINESS REVIEW
Phoenix IT Group plc is a UK leader in providing IT
infrastructure services to help businesses innovate and grow while
cutting costs and risk. The business is well established in the UK
market and enjoys good long standing customer relationships.
Summary of Results
Group revenues decreased by 4.1% to GBP250.0m (2012 restated:
GBP260.8m). The continuing macro-economic uncertainty has led to a
lengthening of the time taken for customers to reach purchasing
decisions, particularly in the Partner Services segment, which has
had a detrimental effect on revenue in the year. In addition, the
business suffered from disruption on the transition to a new
structure which temporarily adversely affected customer service
levels causing attrition rates on contracts to increase and a focus
on non-revenue generating activities. As a result, growth stalled
in the Mid-market and Business Continuity segments and revenue
therefore stayed relatively flat for the year. The majority of the
revenue decrease was in the Partner Services segment. This is due
to the effect of slippage on new contract signings combined with
the impact of contracts ending in the previous financial year and
contract reductions over the last 12 months, particularly across
the more traditional desktop and network revenue service lines.
Underlying profit from operations(3) decreased by 20.6% to
GBP19.0m (2012 restated: GBP24.1m) due to lower revenues year on
year, additional costs being incurred to restore customer service
levels following the period of disruption as a result of the
reorganisation of the Group's operations, combined with downward
margin pressure on a number of annuity business wins and contract
renewals during the year. The Group underlying operating margin
reduced to 7.6% (2012 restated: 9.2%).
Operational Structure and Segmental Reporting
From 1 April 2012 the Group has operated under a single Phoenix
brand. The Group structure was reorganised into 5 market-facing
Business Units with a single service delivery function organised
into a series of Capability Units and centralised support functions
operating across the Group. This Group structure was to enable
greater market focus and better efficiency within the service
delivery and support functions.
In January 2013, we simplified the customer facing units of our
business by merging the System Integrators and Communications
Business Units. Both of these units go to market via large systems
integrators and partners and by combining the units we could better
and more efficiently service these customer groups. In addition, in
February 2013, we merged the Managed Services and Hosting business
units. Our customers increasingly expect to see elements of
hosting, service desk, distributed services and monitoring in our
bids and we believe that by merging these two business units we are
better able to service our customers, as a single market facing
unit.
Our current Business Units are as follows:
-- System Integrators and Communications (Partner Services)
-- Managed Services and Hosting (Mid-market)
-- Business Continuity (Business Continuity)
Our simplified customer facing units are now more closely
aligned with our traditional business divisions as previously
reported in our Annual Report. We are in the process of aligning
these more closely during the current financial year whilst we
maintain our centralised service delivery and support functions. As
a result of these changes and in particular as a result of the
accounting irregularities uncovered within the Mid-market business,
the Board has continued to monitor performance and make decisions
about resources based on the traditional business divisions of the
Group. As a result we will continue to report on these business
divisions in our Annual Report.
Review of Operations
The Group comprised three Divisions at the end of the year:
Business Continuity, Mid-market and Partner Services. These
performed as follows for the year under review.
Business Continuity
Year ended Year ended Change
31 March 31 March
2013 2012
Revenue GBP54.2m GBP56.3m (GBP2.1m)
Underlying profit from operations GBP14.9m GBP14.2m GBP0.7m
Underlying operating margin 27.5% 25.2%
Order book GBP85.5m GBP101.7m (GBP16.2m)
Annual contract value GBP53.3m GBP55.7m (GBP2.4m)
----------------------------------- ----------- ----------- -----------
The Business Continuity business provides the design,
implementation and hosting of business resilience and disaster
recovery services.
Revenues for the year were GBP54.2m (2012: GBP56.3m), a decrease
of 3.7%. Economic uncertainty, together with slower decision making
by our customers, continues to be the key driver behind delays in
larger potential deals materialising and has held back revenue
growth during the year.
Underlying profit from operations increased by 5.0% to GBP14.9m
(2012: GBP14.2m). Tighter cost control at our properties has
assisted the underlying profit margin increase to 27.5% from
25.2%.
Whilst annual contract values have remained relatively stable
during the year, the order book has decreased by GBP16.2m to
GBP85.5m (2012: GBP101.7m). This is largely due to a number of our
larger contracts, which are due for renewal in the future, rolling
off one more year of life in the order book.
Dedicated seat utilisation was broadly flat at 95.6% at 31 March
2013 (2012: 96.2%) and syndicated seat utilisation decreased to
48.4% (2012 restated: 53.5%). In May 2013, we closed our Old Street
facility in London and relocated our customers to alternative
premises. This will have a positive impact on our syndicated seat
utilisation.
Mid-market
Year ended Year ended Change
31 March 31 March
2013 2012
(restated)
Revenue GBP86.6m GBP87.3m (GBP0.7m)
Underlying loss from operations (GBP4.4m) (GBP1.2m) (GBP3.2m)
Underlying operating margin (5.0%) (1.5%)
Order book GBP58.4m GBP69.0m (GBP10.6m)
Annual contract value GBP39.5m GBP45.8m (GBP6.3m)
--------------------------------- ----------- ------------- -------------
The Mid-market business comprises the provision of managed
services, professional services and hosting services together with
product sales directly to end users in the Mid-market.
Revenues remained relatively stable in the year from GBP87.3m
(restated) to GBP86.6m despite a difficult year for the division.
Significant investment was made in the sales team to focus on
selling large managed service deals. As a result, product sales
volume along with associated professional services suffered and the
reduced focus on the traditional mid-market caused attrition on
these contracts to increase. The traditionally higher margin
professional services and mid-market annuity sales were substituted
by lower margin professional services on one large contract.
Underlying loss from operations increased by GBP3.2m to a
GBP4.4m loss in the year. The underlying operating margin also
reduced to (5.0%) from (1.5%). The mix of sales, referred to above,
had a detrimental effect on margin for the division. In addition,
the significant investment in the sales team did not produce
sufficient return and therefore also impacted the margin of the
division in the year. As a result of the disruption caused by the
reorganisation, costs were incurred in the service delivery teams
in order to restore customer service levels and also on remediation
on certain contracts. The discovery of the accounting
irregularities in this division in September 2012 also temporarily
distracted the management and contributed to the poor performance
in the year.
Contract wins in the year were below the normal levels expected,
contributing to a decrease of the order book by GBP10.6m to
GBP58.4m (2012: GBP69.0m). Annual contract value also decreased to
GBP39.5m from GBP45.8m.
The discovery of the accounting irregularities has revealed that
the Mid-market division has been under-performing. We have carried
out a profitability review of this division and are taking the
following actions to bring this division back to profitability:
-- We have made a number of senior management changes in the
division both in the business unit and in the service delivery
teams.
-- We are re-focussing the sales function back to the
traditional mid-market sized deals along with related product and
professional services and have realigned the team size and cost
accordingly, whilst still retaining the skills to carry out larger
deals.
-- We are improving our processes around the pricing and
approval of contracts to ensure that we fully understand our costs
and maximise our margins.
-- We have reviewed the mix of sales in the Mid-market business
and are working progressively to improve this mix and therefore the
divisional margin.
-- We are making a significant investment in the Hosting service
delivery team and platform during the current year to improve the
delivery of Hosting services.
Partner Services
Year ended Year ended Change
31 March 31 March
2013 2012
----------------------------------- ----------- ----------- --------------
Revenue GBP109.2m GBP117.2m (GBP8.0m)
Underlying profit from operations GBP10.9m GBP14.5m (GBP3.6m)
Underlying operating margin 10.0% 12.4%
Order book GBP174.7m GBP144.0m GBP30.7m
Annual contract value GBP99.1m GBP97.6m GBP1.5m
----------------------------------- ----------- ----------- --------------
The Partner Services business provides a full range of IT
services and support to large partner organisations.
Revenues decreased year on year from GBP117.2m to GBP109.2m
despite the significant contract win detailed below. Disruption
caused by the reorganisation caused a drop in customer service
levels which had an adverse effect on volumes and attrition rates
in the year. In addition, certain larger contracts slipped due to
the partners taking longer in their purchasing decisions, which
reduced the amount of revenue generation in the year.
The reduction in underlying profit from operations to GBP10.9m
(2012: GBP14.5m) reflects the effect of the contract reductions
mentioned above. Additional costs were also incurred to restore
customer service levels back to normal high levels after a
reduction caused by the disruption of the reorganisation.
Furthermore, the underlying operating margin has decreased to 10.0%
from 12.4% reflecting the increased number of lower margin
outsourcing contracts and the attrition of more traditional higher
margin maintenance contracts.
As previously announced, on 26 November 2012 a new five year
contract with one of the major Global IT Services providers was
signed to undertake a range of desk-side engineering support
services. This new contract contributed to the increase in the
order book from GBP144.0m to GBP174.7m. The annual contract value
has also increased by GBP1.5m to GBP99.1m.
Financial Review
Summary of Results
Revenues were GBP250.0m down 4.1% from GBP260.8m in 2012
(restated) and underlying profit from operations(3) decreased by
20.6% to GBP19.0m. The Group continues to operate well within its
banking facilities of GBP100.0m. Net debt (including finance
leases) increased to GBP71.3m (2012 restated: GBP68.8m) at 31 March
2013 reflecting a lower underlying trading result, cash expended on
exceptional costs including the reorganisation and some increase in
our underlying working capital.
A summary of the Group's financial performance for the year is
provided in the table below:
2012
2013 (restated) Change
GBPm GBPm
--------------------------------------- -------- ------------ -----------
Underlying(1)
Revenue 250.0 260.8 (4.1%)
Underlying EBITDA(2) 32.8 38.1 (13.6%)
Underlying profit from operations(3) 19.0 24.1 (20.6%)
Underlying profit before tax(4) 14.9 20.0 (25.3%)
Underlying diluted earnings per
share(4) 13.9p 19.4p (28.4%)
Dividend (p) 7.7p 10.9p (29.4%)
Statutory
Loss before tax (58.8) (4.9) (GBP53.9m)
Loss from operations (54.4) (0.8) (GBP53.6m)
Diluted earnings per share (79.1p) (4.9p) (74.2p)
Basic earnings per share (79.1p) (4.9p) (74.2p)
Non-recurring costs 72.1 22.0 227.7%
Other Key Performance Indicators
Net Debt (including finance leases) (71.3) (68.8) (GBP2.5m)
Annual contract value 191.9 199.1 (GBP7.2m)
Order book 318.6 314.7 GBP3.9m
--------------------------------------- -------- ------------ -----------
(1) To assist in the understanding of the underlying performance
of the Group, statutory profit has been adjusted to exclude
non-recurring items and amortisation of acquired intangibles
(2) EBITDA is Group underlying operating profit GBP19.0m (2012
restated: GBP24.1m) plus depreciation GBP13.8m (2012 restated:
GBP14.0m)
(3) Underlying - adjusted for non-recurring items GBP71.8m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
(4) Underlying - adjusted for non-recurring items GBP72.1m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
Accounting Irregularities
Following organisational changes within the finance function and
internal reviews into working capital in the year, information came
to light indicating the misstatement of a number of accounting
balances within Servo Limited and its subsidiaries, which largely
constitutes the Mid-market division.
The Board appointed PricewaterhouseCoopers LLP ("PwC") and
Nabarro LLP ("Nabarro") to conduct a forensic investigation and to
validate the Group's findings following a review of the impacted
areas. The key findings of the investigation and the impact of the
accounting irregularities is contained within the Directors'
Report.
In addition to the forensic investigation work undertaken by PwC
and Nabarro, the following actions have been taken and are in the
process of being taken:
-- A number of recommendations made by PwC to strengthen our
internal control processes have been implemented, with further
detailed report findings to be implemented during the first half of
the current financial year.
-- The finance function has been restructured, partly through
the relocation of the accounting and finance activities of Servo
Limited and its subsidiaries to a new centralised shared service
function based in Northampton. The process has been facilitated
through the strengthening of the finance function with the
recruitment of senior employees across all areas. A new accounting
system will be implemented during the current year, bringing the
Group on to the same system, resulting in more efficient, controls
focused processes. The relocation of the current accounting and
financing activities of Servo Limited and its subsidiaries,
together with the increased skill base and single system approach,
will result in synergistic benefits as the Group moves towards a
single shared service centre where internal controls can be more
closely monitored.
-- Particular focus has been applied to strengthening the
Internal Audit function and ensuring the function delivers robust
monitoring of internal controls. We have appointed a new Internal
Audit, Risk and Compliance Manager, and are in the process of
appointing a further Internal Auditor to increase the resources and
improve the skill base of the team. KPMG have been appointed as
Internal Audit advisers to the Group and will act as a further
flexible resource. As part of the scope of their work, KPMG have
undertaken an internal audit effectiveness review with clear
recommendations on how the Internal Audit function can be
strengthened. They will carry out further periodic reviews as the
Internal Audit function becomes more established. The appointment
of KPMG to act in this capacity enables a flexible solution and the
ability for the Group to implement current and best practices into
the Internal Audit function.
-- The Financial Controller and Divisional Finance Director of
Servo Limited have left the Company.
We have carried out a comprehensive review into the accounting
irregularities and have implemented changes to strengthen our
internal control environment. The review of the profitability of
the Servo business has given greater transparency into its
activities and enabled the implementation of a number of profit
improving initiatives.
There have been no further adjustments made in respect of the
restatement following our interim results announcement on 29
November 2012. We are currently operating within our existing
banking covenants and the Board is confident in the Group's ability
to continue to meet its requirements going forwards.
Earnings and Dividends
Underlying diluted earnings per share(4) decreased by 28.4% to
13.9p (2012 restated: 19.4p). On a statutory basis, the diluted
loss per share was 79.1p (2012 restated: 4.9p loss) and the basic
loss per share was also 79.1p (2012 restated: 4.9p loss).
The Board is proposing a final dividend of 4.0p per share (2012:
7.2p) which, combined with the interim dividend of 3.7p per share
(2012: 3.7p), would give a total dividend per share for the year of
7.7p (2012: 10.9p).
We are committed to distributing a dividend which is
commensurate with the underlying performance of the business. We do
not believe that this year's results are representative of this and
are confident of the strength of the business going forward.
If approved, the final dividend will be paid on 9 August 2013 to
shareholders on the register at 14 June 2013.
Investment Income and Finance Costs
Finance costs, net of investment income remained stable at
GBP4.1m (2012: GBP4.1m) excluding non-recurring interest costs of
GBP0.3m (2012: GBPnil).
Other items included in finance costs are finance lease interest
of GBP0.2m (2012: GBP0.3m), net pension income of GBP0.1m (2012:
GBP0.2m), and amortisation of loan issue costs of GBP0.5m (2012:
GBP0.5m).
Non-recurring Items
Total non-recurring items during the year were GBP72.1m (2012:
GBP22.0m). A full analysis of non-recurring items is set out in
note 7 and are also summarised in the table below.
2013 2012
GBPm GBPm
---------------------------------------------------- ------- -------
Impairment of goodwill and other intangible assets
in the Mid-market segment (68.1) -
Impairment loss on property held for sale (0.1) (0.4)
Intangible asset de-recognition - (8.1)
---------------------------------------------------- ------- -------
Sub-total non-recurring items with no cash impact (68.2) (8.5)
Legal and professional fees in relation to pension
equalisation (a) (0.1) (0.7)
Costs of re-organisation of the Group (b) (1.7) (6.8)
Contract provisions (c) (0.5) (6.0)
Costs relating to the restatement (d) (1.3) -
Sub-total cash charges (3.6) (13.5)
Sub-total other non-recurring items (71.8) (22.0)
Non-recurring interest costs (0.3) -
Total non-recurring items (72.1) (22.0)
---------------------------------------------------- ------- -------
During the Financial Year ended 31 March 2013 the Group paid a
total of GBP7.0m (2012: GBP1.4m) in respect of non-recurring cash
items. Of this GBP7.0m, GBP3.1m related to non-recurring cash items
charged in the Financial Year ended 31 March 2013 and GBP3.9m
related to non-recurring cash items charged in the Financial Year
ended 31 March 2012.
Included in the total non-recurring items for the year are a
number of non-cash items relating to the impairment of the carrying
value of goodwill and other intangible assets in the Mid-market
segment as previously announced of GBP68.1m (2012: nil) and the
impairment of property held for sale of GBP0.1m (2012:
GBP0.4m).
In addition to non-cash items of GBP68.2m (2012: GBP8.5m)
non-recurring cash items excluding interest in the year were
GBP3.6m (2012: GBP13.5m). These items were (a) GBP0.1m (2012:
GBP0.7m) for legal and professional fees in relation to pension
equalisation (b) GBP1.7m (2012: GBP6.8m) in relation to the
reorganisation of the Group's operations during the year which
comprised a headcount reduction programme, the re-location of the
accounting and finance activities of Servo Limited and a GBP0.1m
net charge for onerous leases as part of a property rationalisation
programme (c) GBP0.5m (2012: GBP6.0m) additional provision in
relation to the expected life-time losses in respect of a
co-location facility in our Partner Services Division. This
represents a re-evaluation of the amount of expected further
contracted sales that would be achieved at the site, and (d)
GBP1.3m (2012: GBPnil) of professional fees relating to the
independent forensic investigation of the accounting irregularities
previously announced.
As a result of the accounting irregularities and subsequent
restatement, the margin payable on our banking facility increased
which crystallised a further GBP0.3m of interest payable. The
charge has been recognised as a non-recurring interest cost by
virtue of it being caused by the accounting irregularities. The
interest was paid in April 2013.
Taxation
The underlying(4) effective tax rate for the year was 26.3%
compared to the 2012 restated rate of 23.8%. On a statutory basis,
the taxation charge for the year was GBP0.8m (2012 restated:
GBP1.3m credit), a full analysis of which is set out in note
12.
The Finance Act 2012 was enacted during the year and included a
reduction in the main rate of corporation tax from 24% to 23% with
effect from 1 April 2013. The impact on the annual effective rate
is a reduction of 0.2% (2012 restated: 8.3%).
Borrowing Facilities and Liquidity
As at 31 March 2013 the Group had total net bank borrowings
(excluding finance leases and other loans) of GBP68.8m (2012
restated: GBP64.1m) consisting of GBP84.8m drawn down on the
revolving credit facility and GBP16.0m of cash and cash
equivalents.
On 31 May 2013, the Group successfully completed the refinancing
of its bank facility. The new facility, consisting of a GBP40.0m
term loan and a GBP50.0m revolving credit facility ("RCF"), remains
with the Group's existing lenders: Barclays Bank plc, HSBC Bank
plc, the Royal Bank of Scotland plc and Clydesdale Bank plc. The
final maturity date of the new facility is 30 June 2016. The Royal
Bank of Scotland plc will continue to provide an overdraft facility
which is renewable annually in June. Further details of the new
facility are set out in note 42.
The Group has complied with the terms of its outgoing borrowing
agreement at the date of this report. At 31 March 2013 the leverage
financial ratio (net debt:EBITDA) was 2.15x and the interest cover
ratio (EBITDA:net finance costs) was 7.70x, both within the
covenant limits.
Cash Flow and Net Debt
Net debt (including finance leases) increased by GBP2.5m to
GBP71.3m at 31 March 2013. Net cash from operating activities
decreased to GBP15.8m (2012 restated: GBP17.1m) due to further
investment in working capital during the year of GBP10.4m (2012:
GBP4.0m generated). This was offset by a net tax refund position of
GBP1.6m due to the accounting irregularities generating a refund of
tax over paid in the previous financial years, which compares to a
net tax payment position of GBP8.4m in the previous financial
year.
Working capital increased by GBP10.4m in the year. Stocks
decreased by GBP2.5m due to lower investment required as a result
of a shift towards outsourcing revenue. Receivables increased by
GBP5.3m primarily as a result of certain large customer balances
being collected shortly after the year end. Payables decreased by
GBP4.9m principally as a result of higher than usual trade creditor
balances at the prior year end coupled with a release of the
reorganisation provision in the year. Delayed billing in some
annuity contracts and the recognition of revenue on some longer
term annuity contracts have contributed to the GBP2.7m decrease in
deferred income.
Capital expenditure net of proceeds from disposals was GBP9.5m
(2012: GBP13.9m). Dividend payments in the year were GBP8.2m (2012:
GBP8.0m). Both of these cash outflows further contributed to the
increase in net debt during the year.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out above along with the financial position of the Group,
its cash flows, liquidity position and borrowing facilities. In
addition notes 18 and 19 to the financial statements include the
Group's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposure to
market, credit and liquidity risk.
Alongside the factors noted above, the Directors have considered
the Group's future cash forecasts and revenue projections for a
period in excess of 12 months from the date of signing the
accounts, which they believe are based on prudent market data and
past experience. Reasonably possible sensitivities have been
carried out on these projections which have taken into account the
principal risks and uncertainties of the Group.
The Directors are satisfied that the Group has an acceptable
level of headroom within the new facility and covenants. The
Directors therefore have formed a judgement that at the time of
approving these financial statements, there is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
financial statements.
Capital Expenditure
Total capital expenditure for the year, net of proceeds from
disposals was GBP9.5m (2012: GBP13.9m). The expenditure on
intangible assets was GBPnil (2012: GBPnil). A further GBP1.3m
(2012: GBP1.7m) of capital expenditure had been incurred but not
paid for at 31 March 2013. The majority of the spend is in our
business continuity segment where we incurred a significant element
of our capital expenditure expanding capacity at one of our
recovery centres and supporting customer contracts. Investment has
also been made in hosting platforms in our Mid-market division.
Assets Held for Sale
The Group has several freehold properties that continue to be
held for sale. Despite active marketing throughout the year, only
one of the properties with a carrying value of GBP0.7m was sold. A
further property with a carrying value of GBP0.5m was brought back
into use and as such reclassified to non-current assets.
Independent valuations were performed on each of the remaining
properties at 31 March 2013 which indicated an impairment to the
book value of GBP0.1m, this has reduced the book value of the
assets to GBP1.0m (2012: GBP2.3m). The impairment has been included
as a non-recurring item as detailed in note 7.
Pension Scheme
On the acquisition of ICM in 2007, the Group acquired a defined
benefit pension scheme for certain of its employees, The ICM
Computer Group Pension and Assurance Scheme, (the 'Scheme'). In
calculating the defined benefit obligation under IAS 19 at 31 March
2013 the actuary has assumed that the equalisation of retirement
ages between men and women to age 65 was effective from 1997. As
previously announced, this assumption has been challenged by the
Trustees of the scheme who believe that the effective date of
equalisation may be 2005.
The Company and the Trustees have continued to take professional
advice and are yet to agree a definitive position. It is still
estimated that GBP0.8m of legal and professional fees will be
incurred to resolve the issue.
The pension deficit at 31 March 2013 was GBPnil (2012: GBP0.8m)
and further details relating to the pension scheme are presented in
note 10. The deficit has decreased during the year principally due
to better than expected investment returns partially offset by
unfavourable movements in discount rates applied to the Scheme's
future liabilities. The Group made incremental contributions of
GBP1.5m under the revised funding plan agreed with the Trustees on
6 June 2010.
The last triennial actuarial review in April 2012 identified
that the Group has a deficit of GBP6.5m on a funding basis
(compared to the IAS19 accounting basis shown in note 10). The
Group agreed with the trustees that it would aim to eliminate the
deficit over a four year period and the Group will contribute
GBP1.7m to the defined benefit pension scheme in the next financial
year.
Treasury Policies and Objectives
The Group operates within policies and guidelines approved by
the Board using conventional financial instruments and specified
derivatives. It is the Board's preference to manage market risks
without the use of derivatives but they will be used where
necessary and appropriate to reduce the levels of volatility to
both income and equity. The use of derivatives is strictly
controlled and they are not permitted to be used for speculative or
trading purposes.
The Group's main treasury risks relate to the availability of
funds to meet its future requirements. The Group's policy with
respect to facilities is to ensure that these are sufficient to
cover the expected needs of the Group, having reflected the
inherent uncertainty of projections and forecasts.
Whilst the Group maintains uncommitted facilities to maintain
short-term flexibility its principal debt funding comprises
committed bank facilities which are detailed above.
Principal Risks and Uncertainties
As a result of the contracted revenues in the order book, the
Group has a high degree of forward visibility of its revenues over
the next twelve months. Nonetheless, there are a number of
potential risks and uncertainties, which could have a material
impact on the Group's performance over the next financial year and
which could cause the Group's actual results to materially deviate
from historical and expected results. These principal risks have
not changed during the year under review and have been analysed
as:
Risk Potential impact Mitigation
--------------- ----------------------------------------------------------------- ------------------------------------------------------------------
Macroeconomic
risk * Failures among our key customers resulting in * The Group has a high proportion of long-term
The economic contract cancellations. contracted annuity business, meaning that we could
conditions withstand a certain level of cancellations.
continue to
be * Lengthening of the decision-making cycle between
unpredictable prospect and new contract. * The Group has a range of customers across different
and the business sectors.
spending
review
by the
Government
continues
to create a
certain
degree
of
uncertainty
in terms
of public
sector
spending
levels.
Loss of key
locations * Could result in a material loss of contracts. * The 'primary' sites, which are critical to our
The Group's success, have been identified and provisions put in
business place to manage our continued access in line with
continuity business requirements.
business is
reliant on a
number of
facilities in
strategic
locations
around the
UK.
Liquidity risk
The Group may * Limit the Group's ability to execute its strategy. * On 31 May the Group entered into a new GBP90.0m
not have facility consisting of a GBP40.0m term loan and a
access to GBP50.0m RCF expiring on 30 June 2016. The Group also
sufficient has a GBP10m overdraft available, all of which
funds. provide it with sufficient headroom for the
foreseeable future.
Interest rate
risk * Reduction in future profitability and cash flow. * The Group entered into an interest rate swap on 28
Market rates April 2011, which hedges GBP30.0m until 28 April 2014
could and GBP15.0m between 29 April 2014 and 28 April 2016.
fluctuate
significantly.
* As part of the new facility the Group will continue
to review its exposure to interest rate fluctuations
in line with the Group's hedging policy.
Credit risk
The risk that * Reduction in future profitability and cash flow if a * Credit checks on customers.
a counterparty counterparty gets into financial difficulty.
defaults on
its * Rigorous credit control.
obligations.
* Only using financing institutions with high
credit-ratings assigned by international credit
rating agencies.
Competitor
risk * Loss of market share. * Phoenix has a strong track record and long heritage
The IT in providing high quality services.
services
industry * Loss of material contracts.
is highly * Strong partner relationships with potential
competitive. competitors.
Several * Renegotiation of price levels or a general reduction
competitors, in revenues of the Group and hence future
including, in profitability. * Work with customers to manage their future
some cases, technological requirements.
Phoenix's
partners, may
have longer * Continued investment in people to facilitate the
operating process of innovation.
histories,
higher brand
recognition
and greater
financial,
technical,
marketing,
personnel
and other
resources than
the Group. In
addition,
the Group may
experience
increased
competition
from low cost
outsourcing
centres,
including
offshore
centres, and
new or
existing
niche market
participants
whose costs
may be lower.
It is also
important
to maintain
innovation
in a fast
moving
technological
industry.
Service
delivery risk * Contracts cancelled or not renewed. * The Group has a broad spread of customers across
The Group's several market sectors and there are no clients upon
large customer which the Group is critically dependent.
base could be * Renegotiation of price levels and hence future
eroded profitability.
if service * The high level of recurring revenues and repeat
levels and business are evidence of the Group's success.
value were not
maintained.
Financial
control risk * Inaccurate information published to stakeholders. * Strengthening of the internal audit function resource
Financial and skill base.
controls could
be inadequate * Reputational damage could result.
and as * Independent 3rd party review of internal audit
such do not effectiveness.
ensure * Loss of shareholder, customer and/or supplier
accurate confidence.
and timely * Creation of a single financial shared service
financial function with common processes, systems and control.
information. * Resultant effect of financial loss as a result of
lost custom, higher supplier costs and/or share pric
e * Finance function strengthened through recruitment of
diminution. high quality employees.
Employee risk
Employees need * Loss of key employees. * In house and external technical and management
to be training programmes.
sufficiently
experienced * Poor productivity of existing employees.
and motivated * Effective communication and consultation with
to keep employees, informing them of the progress and
them engaged * Errors in market facing information. policies of the Group.
and to
maintain
high retention * Reputational damage. * An apprenticeship programme has recently been
of staff initiated.
across all
levels.
* Employee incentive arrangements including a
Performance Share Plan and a Share Incentive Plan.
Key Performance Indicators ('KPIs')
The Group uses a number of KPI's to monitor the performance of
the business. The more important KPI's are set out below.
Profitability
The Group's principal profitability KPIs are underlying profit
from operations and underlying diluted earnings per share.
Underlying profit from operations(3) decreased in the year by 20.6%
to GBP19.0m (2012 restated: GBP24.1m) while underlying diluted
earnings per share(4) have decreased by 28.4% to 13.9p (2012
restated: 19.4p).
EBITDA
This represents the Group's underlying profit from operations(3)
plus depreciation. Group underlying EBITDA decreased from GBP38.1m
at 31 March 2012 to GBP32.8m at 31 March 2013.
Operating margin
This represents the Group's underlying profit from operations(3)
divided by Group revenues. For the year ended 31 March 2013, Group
underlying operating margin(3) decreased in comparison to the prior
year to 7.6% (2012 restated: 9.2%).
Annual contract value
This represents the annualised value of the Group's contracted
revenue in place at any given time. Annual contract value decreased
in the year by 3.6% to GBP191.9m (2012: GBP199.1m).
Order book value
This represents the minimum value of the Group's contracted
revenue in place at any given time. Order book value increased in
the year by 1.2% to GBP318.6m (2012: GBP314.7m).
Net debt (including finance leases)
The Group monitors the net debt position in order to ensure it
has sufficient facilities to support future growth. Net debt
(including finance leases) increased by GBP2.5m to GBP71.3m at 31
March 2013 (2012 restated: GBP68.8m).
(1) To assist in the understanding of the underlying performance
of the Group, statutory profit has been adjusted to exclude
non-recurring items and amortisation of acquired intangibles
(2) EBITDA is Group underlying operating profit GBP19.0m (2012
restated: GBP24.1m) plus depreciation GBP13.8m (2012 restated:
GBP14.0m)
(3) Underlying - adjusted for non-recurring items GBP71.8m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
(4) Underlying - adjusted for non-recurring items GBP72.1m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m)
Peter Bertram Jane Aikman
Executive Chairman Chief Operating Officer & Chief Financial
Officer
31 May 2013 31 May 2013
Responsibility Statement
The responsibility statement below has been prepared in
connection with the Company's full annual report for the year ended
31 March 2013. Certain parts thereof are not included within this
announcement.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the management report, which is incorporated into the
Directors' Report and the Business Review, includes a fair review
of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
Consolidated Statement of Income
For the year ended 31 March 2013
2013 2012
(restated, note 40)
Amortisation
Amortisation & non-
Before & non-recurring Before recurring
amortisation items amortisation items
& non-recurring (note & non-recurring (note
items 7) Total items 7) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Revenue 5 250.0 - 250.0 260.8 - 260.8
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Profit/(loss) from
operations
before
amortisation of
intangibles 19.0 (71.8) (52.8) 24.1 (22.0) 2.1
Amortisation of
intangibles 16 - (1.6) (1.6) - (2.9) (2.9)
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Profit/(loss) from
operations 8 19.0 (73.4) (54.4) 24.1 (24.9) (0.8)
Investment income 11 1.2 - 1.2 1.3 - 1.3
Finance costs 11 (5.3) (0.3) (5.6) (5.4) - (5.4)
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Profit/(loss)
before tax 14.9 (73.7) (58.8) 20.0 (24.9) (4.9)
Taxation 12 (3.9) 3.1 (0.8) (4.7) 6.0 1.3
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Profit/(loss) for
the
year 34 11.0 (70.6) (59.6) 15.3 (18.9) (3.6)
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Earnings/(loss) per
share
Basic 13 14.5p (79.1p) 20.1p (4.9p)
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Diluted 13 13.9p (79.1p) 19.4p (4.9p)
-------------------- ----- ----------------- ----------------- -------- ----------------- ------------- -------
Consolidated Statement of Comprehensive Income/(Expense)
For the year ended 31 March 2013
2013 2012
(restated,
note 40)
Note GBPm GBPm
--------------------------------------- ----- ------- -----------
Loss for the year 34 (59.6) (3.6)
--------------------------------------- ----- ------- -----------
Actuarial loss on defined benefit
pension scheme 10 (0.8) (2.0)
Loss taken to equity in respect of
cash flow hedges 33 - (1.4)
Tax on items taken directly to equity 0.1 0.7
--------------------------------------- ----- ------- -----------
Other comprehensive expenditure for
the year, net of tax (0.7) (2.7)
Total comprehensive expenditure for
the year (60.3) (6.3)
--------------------------------------- ----- ------- -----------
Consolidated Balance Sheet
As at 31 March 2013
2013 2012
(restated,
note 40)
Note GBPm GBPm
-------------------------------------- ----- -------- -----------
Non-current assets
Goodwill 15 114.2 181.4
Other intangible assets 16 2.3 4.8
Property, plant and equipment 17 59.0 62.7
175.5 248.9
-------------------------------------- ----- -------- -----------
Current assets
Inventories 22 10.6 13.1
Trade and other receivables 23 62.8 57.5
Current tax assets 2.2 6.0
Deferred tax assets 29 0.9 -
Cash and cash equivalents 24 16.0 15.2
92.5 91.8
Assets held for sale 20 1.0 2.3
-------------------------------------- ----- -------- -----------
93.5 94.1
-------------------------------------- ----- -------- -----------
Total assets 269.0 343.0
-------------------------------------- ----- -------- -----------
Current liabilities
Trade and other payables 26 (47.4) (49.6)
Obligations under finance leases and
hire purchase contracts 27 (1.4) (3.0)
Other loans (0.4) -
Provisions 28 (4.0) (5.9)
Deferred revenue (51.3) (53.0)
-------------------------------------- ----- -------- -----------
(104.5) (111.5)
-------------------------------------- ----- -------- -----------
Net current liabilities (11.0) (17.4)
-------------------------------------- ----- -------- -----------
Non-current liabilities
Obligations under finance leases and
hire purchase contracts 27 (0.7) (1.7)
Bank loans 25 (84.8) (79.3)
Provisions 28 (8.1) (9.5)
Deferred tax liabilities 29 - (0.5)
Derivative financial instruments 18 (1.4) (1.4)
Deferred revenue (1.8) (2.8)
Other non-current liabilities 26 (5.1) (4.5)
Retirement benefit obligations 10 - (0.8)
-------------------------------------- ----- -------- -----------
(101.9) (100.5)
-------------------------------------- ----- -------- -----------
Total liabilities (206.4) (212.0)
-------------------------------------- ----- -------- -----------
Net assets 62.6 131.0
-------------------------------------- ----- -------- -----------
Equity
Share capital 30 0.8 0.8
Share premium account 31 37.6 37.6
Merger reserve 32 57.5 57.5
Other reserves 33 1.5 1.5
Retained (losses)/earnings 34 (34.8) 33.6
-------------------------------------- ----- -------- -----------
Total equity 62.6 131.0
-------------------------------------- ----- -------- -----------
The financial statements were approved by the Board of Directors
and authorised for issue on 31 May 2013. They were signed on its
behalf by:
Jane Aikman
Chief Operating Officer and Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 March 2013
Share Retained
Share premium Merger Other earnings Total
capital account reserve reserves /(losses) equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
At 1 April 2011 as previously
stated 0.8 37.5 57.5 1.4 56.1 153.3
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Impact of restatement (note
40) - - - - (9.4) (9.4)
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
At 1 April 2011 (restated) 0.8 37.5 57.5 1.4 46.7 143.9
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Loss for the year (restated,
note 40) - - - - (3.6) (3.6)
Loss recognised on cash
flow hedge - - - (1.4) - (1.4)
Actuarial loss on defined
benefit pension scheme 10 - - - - (2.0) (2.0)
Tax on items taken directly
to equity 12 - - - 0.3 0.4 0.7
Total comprehensive expenditure
(restated) - - - (1.1) (5.2) (6.3)
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Exercise of share options 31 - 0.1 - - - 0.1
Share option expense 39 - - - 1.2 - 1.2
Dividends 14 - - - - (8.0) (8.0)
Deferred tax on share options 12 - - - 0.1 - 0.1
Transfer to retained earnings
on exercise of share options - - - (0.1) 0.1 -
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Total transactions with
owners - 0.1 - 1.2 (7.9) (6.6)
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
At 1 April 2012 (restated,
note 40) 0.8 37.6 57.5 1.5 33.6 131.0
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Loss for the year - - - - (59.6) (59.6)
Actuarial loss on defined
benefit pension scheme 10 - - - - (0.8) (0.8)
Tax on items taken directly
to equity 12 - - - - 0.1 0.1
Total comprehensive expenditure - - - - (60.3) (60.3)
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Share option expense 39 - - - 0.2 - 0.2
Dividends 14 - - - - (8.2) (8.2)
Deferred tax on share options 12 - - - (0.1) - (0.1)
Transfer to retained earnings
on exercise of share options - - - (0.1) 0.1 -
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Total transactions with
owners - - - - (8.1) (8.1)
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
At 31 March 2013 0.8 37.6 57.5 1.5 (34.8) 62.6
--------------------------------- ----- --------- --------- --------- ---------- ----------- --------
Consolidated Cash Flow Statement
For the year ended 31 March 2013
2013 2012
(restated,
note 40)
Note GBPm GBPm
-------------------------------------------- ----- -------- -----------
Net cash from operating activities 35 15.8 17.1
Investing activities
Purchases of property, plant and equipment (9.8) (14.0)
Proceeds on disposal of property,
plant and equipment 0.3 0.1
Proceeds on disposal of asset held
for sale 20 0.7 -
Net cash used in investing activities (8.8) (13.9)
-------------------------------------------- ----- -------- -----------
Financing activities
Dividends paid 14 (8.2) (8.0)
Net drawdown on rolling credit facilities 5.0 10.0
New other loan raised 1.0 -
Repayment of other loan (0.6) -
Repayment of obligations under finance
leases and hire purchase contracts (3.4) (4.7)
Net cash used in financing activities (6.2) (2.7)
-------------------------------------------- ----- -------- -----------
Net increase in cash and cash equivalents 0.8 0.5
Cash and cash equivalents at beginning
of year 15.2 14.7
-------------------------------------------- ----- -------- -----------
Cash and cash equivalents at end of
year 24 16.0 15.2
-------------------------------------------- ----- -------- -----------
Notes to the Consolidated Financial Statements
For the year ended 31 March 2013
1. General information
Phoenix IT Group plc is a company incorporated and domiciled in
the United Kingdom under the Companies Act 2006. The nature of the
Group's operations and its principal activities are set out in note
6 and in the Business Review.
These financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in
which the Group operates.
2. Adoption of new and revised Standards
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 March 2012.
The following new standards, amendments to standards or
interpretations are mandatory for the first time for the year
ending 31 March 2013 but have no material impact on the Group's
financial statements:
-- IFRS 7 'Financial instruments: Disclosures' (amended) -
amended to enhance the disclosures about transfers of financial
assets. Effective for accounting periods beginning on or after 1
July 2011.
At the date of authorisation of these financial statements,
certain new standards, interpretations and amendments to existing
standards are not yet effective and have not been adopted by the
Group. Those which are considered relevant to the Group's
operations are as follows:
-- IAS 19 Employee benefits (amended) - amended to provide a
clearer indication of an entity's obligations resulting from the
provision of defined benefit plans and how those obligations will
affect its financial position, financial performance and cash flow.
The amendments include:
-- The removal of the options to defer recognition of actuarial
gains and losses and for alternative presentation of gains and
losses by requiring immediate recognition of actuarial gains or
losses in full in other comprehensive income and the inclusion of
service and finance costs and plan administration costs in the
income statement;
-- The replacement of the expected return on pension plan assets
and interest expense on pension plan liabilities with a single net
interest component calculated on the net defined benefit liability
or asset using the discount rate used to determine the defined
benefit obligation; and
-- Additional disclosures to explain the characteristics of a
company's defined benefit plans, the amounts recognised in the
financial statements and the risk arising from defined benefit
plans.
The amendment is effective for the Group's accounting period
beginning on 1 April 2013. IAS 19 requires retrospective adoption
and therefore prior periods will be restated. The Group estimates
the impact on 2013 had the amendments applied would have been to
reduce the net finance income by GBP0.2m, with compensating
adjustments in other comprehensive income leaving equity unchanged.
The Group will also be required to make additional narrative
disclosures.
Other new standards, interpretations and amendments to existing
standards that are not yet effective and have not been adopted by
the Group but are considered relevant to the Group's operations are
as follows:
Presentation of financial statements
* IAS 1
Amendments to revise the way other comprehensive 1 July 2012
income is presented
Amendment to clarify the requirements 1 January
for comparative information 2013
Income taxes (amended) 1 January
* IAS 12 2013
Property, plant and equipment (amended) 1 January
* IAS 16 2013
Separate financial statements
* IAS 27
(previously IAS 27 'Consolidated and separate 1 January
financial statements') 2013
Financial instruments presentation
* IAS 32
Amendments clarifying tax effect of equity 1 January
distributions 2013
Amendments relating to the offsetting 1 January
of assets and liabilities 2014
Interim financial reporting (amended) 1 January
* IAS 34 2013
Financial instruments: Disclosures
* IFRS 7
Amendments enhancing disclosures about 1 January
offsetting of financial assets 2013
and financial liabilities
Amendments requiring disclosures about 1 January
the initial application of IFRS 9 2015
Financial instruments (amended) 1 January
* IFRS 9 2015
Consolidated financial statements 1 January
* IFRS 10 2013
Consolidated financial statements (amended) 1 January
2014
Fair value measurement 1 January
* IFRS 13 2013
Fair value measurement (amended) 1 January
2014
The adoption of these standards is not expected to have a
material impact on the reported results or financial
statements.
3. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union (EU), IFRIC Interpretations and the Companies
Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared on the historical
cost basis except for the defined benefit pension scheme (note 10),
derivative financial instruments (note 18), assets held for sale
(note 20) and share based payments (note 39). The principal
accounting policies adopted are set out below.
Basis of consolidation
Subsidiaries are all entities (including special purpose
entities) over which the Group has the power to govern the
financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether
the group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They cease to be consolidated from the date that control
ceases.
The Group uses 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. The consideration transferred includes the
fair value of any asset or liability resulting from a contingent
consideration agreement. Acquisition related costs are expensed as
incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed on a business combination are
measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquiree
on an acquisition-by-acquisition basis, either at fair value or at
the non-controlling interest's proportionate share of the
recognised amounts of the acquiree's identifiable net assets.
Goodwill is initially measured as the excess of the aggregate of
the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the
net assets of the subsidiary acquired, the difference is recognised
in profit or loss.
Inter-company transactions, balances, income and expenses on
transactions between group companies are eliminated. Profits and
losses resulting from inter-company transactions that are
recognised in assets are also eliminated. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Restatement for errors
The accounting irregularities discovered in the Mid-market
division are discussed in the Business Review and have been
reflected as prior year adjustments. The impact on the Group's
income, equity and cash flows is shown in note 40.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. Thus they continue to adopt the going concern basis of
accounting in preparing the financial statements. Further detail is
contained in the Business Review.
Assets held for sale
Cash-flows and expenditure that relate to assets classified as
held for sale are shown separately from continuing operations.
Assets classified as held for sale are measured at the lower of
carrying value and fair value less costs to sell. No depreciation
is charged on assets classified as held for sale.
Assets are classified as held for sale if their carrying amount
will be recovered through a sale transaction rather than through
continuing use. This condition is regarded as met only when the
sale is highly probable and the asset is available for immediate
sale in its present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Where an asset held for sale has not sold within one year, the
asset may remain classified as held for sale provided that the
delay is caused by events or circumstances beyond the Group's
control and management are still committed to the sale and the
above criteria are still met.
Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group's interest in the fair value of
the identifiable assets and liabilities of a subsidiary at the date
of acquisition.
Goodwill is recognised as an asset and reviewed for impairment
at least annually with cash generating units assessed by segment
(see note 15). Any impairment is recognised immediately in profit
for the year and is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
Goodwill arising on acquisitions before the date of transition
to IFRS as adopted by the European Union has been retained at the
previous UK GAAP amounts subject to being tested for impairment at
that date. Goodwill written off to reserves under UK GAAP in the
year ended 31 March 1999 and earlier periods has not been
reinstated and is not included in determining any subsequent profit
or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods
and services provided in the normal course of business, net of
discounts, VAT and other sales-related taxes.
Where a contract contains several elements, the individual
elements are accounted for separately where appropriate and revenue
thereon is measured at the fair value of the consideration
received.
Provision is made for all anticipated contract losses as soon as
they are identified.
Product revenue
Revenue is recognised when the significant risks and rewards of
ownership of the goods have passed to the buyer, usually on
delivery of goods.
Contract revenue
For fixed-fee maintenance contracts the revenue arising is
spread evenly over the term of the contract. The amount by which
revenue differs from payments on account is shown under receivables
as accrued income, or under payables as deferred revenue, as
appropriate. Costs related to the delivery of services under these
contracts are charged to the income statement as they arise
(typically these contracts are annual and costs arise evenly over
the contract term). An element of costs incurred in the initial set
up, transition or transformation phase of the contract are deferred
and recorded within current assets. These costs are then recognised
in the income statement on a straight line basis over the remaining
contractual term. These costs are directly attributable to specific
contracts, relate to future activity, will generate future economic
benefits and are assessed for recoverability on a regular
basis.
If the performance pattern is other than straight line, revenue
is recognised as services are provided, usually on an output or
consumption basis.
Other revenues
Other revenues are recognised when receivable following delivery
of a service.
Interest income
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying amount.
Leasing
Assets held under finance leases and hire purchase contracts are
recognised as assets of the Group at their fair value or, if lower,
at the present value of the minimum lease payments, each determined
at the inception of the lease. The corresponding liability to the
lessor is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges
and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance
charges are charged directly to the income statement.
Rentals payable under operating leases are charged to income on
a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into
an operating lease are also spread on a straight-line basis over
the lease term.
Foreign currencies
Transactions in currencies other than pounds sterling are
recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date.
Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rate
prevailing at the date when the fair value was determined. Gains
and losses arising on retranslation are included in net profit or
loss for the year.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale.
All other borrowing costs are recognised in the income statement
in the period in which they are incurred.
Retirement benefit costs
Defined contribution pension schemes
The principal subsidiary undertakings contribute to a number of
Group personal pension plans in respect of certain employees. These
plans are defined contribution plans and the annual charge to the
income statement is the contributions payable in the year.
Differences between contributions payable in the year and
contributions actually paid are shown as either accruals or
prepayments in the balance sheet.
Defined benefit pension scheme
The Group operates two defined benefit pension schemes; one was
entered into during the year resulting from the transfer of
employees under TUPE (Transfer of Undertakings (Protection of
Employment)) Regulations. Since the transfer the employees have
been accruing pension benefits and the Group has been paying
regular contributions into the scheme. However, the assets and
liabilities in relation to this scheme, both individually and in
aggregate, are not deemed material and as such no disclosure has
been made. The ICM Computer Group Pension and Assurance Scheme has
been closed to future service accrual.
The costs of providing pensions under the defined benefit funded
pension scheme are estimated on the basis of independent actuarial
advice, with full actuarial valuations carried out on a triennial
basis, and updated at each balance sheet date.
The operating and finance costs of the scheme are recognised
separately within the Consolidated Statement of Income. Actuarial
gains and losses are recognised in full in the period in which they
occur and are presented in the Consolidated Statement of
Comprehensive Income/(Expense).
The retirement benefit obligation recognised in the balance
sheet represents the present value of the defined benefit
obligation as adjusted for unrecognised past service costs, and as
reduced by the fair value of scheme assets. Any asset resulting
from the calculation is limited to the present value of economic
benefits available on the refunds and reduction in future
contributions to the plan.
Short-term employee benefits
The cost of short-term accumulating balances is charged to the
income statement over the period during which the entitlement is
earned, at an average pay rate plus social security costs.
Differences between the entitlement earned and the entitlement
actually paid are shown as either accruals or prepayments in the
balance sheet.
Taxation
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting
profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries except where the
Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and recognised impairment.
Cost includes the original purchase price of the asset and the
costs attributable to bringing the asset to its working condition
for its intended use.
Depreciation is charged so as to write off the cost of assets,
other than freehold land, over their estimated useful lives, using
the straight-line method, on the following bases:
Freehold buildings 50 years
Leasehold property Period of lease
Fixtures and equipment 2 to 5 years
Motor vehicles 4 years
Assets held under finance leases and hire purchase contracts are
depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, over the term of the relevant
lease.
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in other
income.
Intangible assets
Intangible assets are stated at cost less accumulated
amortisation and any accumulated impairment losses.
Development costs
Expenditure incurred in the development of software products or
enhancements, and their related intellectual property rights, is
capitalised as an intangible asset only when the future economic
benefits expected to arise are deemed probable and the costs can be
reliably measured. Development costs not meeting these criteria,
and all research costs, are expensed in the income statement as
incurred. Capitalised development costs are amortised on a straight
line basis over five years being their useful economic lives once
the related software product or enhancement is available for
use.
Other intangible assets
Intangible assets acquired through a business combination are
initially measured at fair value and are amortised on a systematic
basis over their estimated useful lives on the following bases:
Value of brand name 15 years
Customer contracts and relationships 5 to 10 years
Impairment policy
At each balance sheet date, the Group reviews the carrying
amounts of its property, plant and equipment and intangible assets
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
Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs. An intangible asset with an indefinite
useful life is tested for impairment annually and whenever there is
an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to
sell 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 (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is immediately recognised as
an expense.
Where an impairment loss on assets, other than goodwill,
subsequently reverses, the carrying amount of the asset
(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 (cash-generating
unit) in prior years. A reversal of an impairment loss is
immediately recognised as income.
Inventories
Inventories are stated at the lower of cost and net realisable
value.
Service stocks, other than consumable stocks, are provided
against over four years so as to reduce their value to nil at the
end of the period. Consumable stocks are expensed as they are
purchased.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets
Trade receivables are recognised initially at fair value, which
is usually the original invoiced amount and are subsequently
measured at amortised cost using the effective interest method,
less provision for impairment. A provision for impairment is
established when there is evidence of a risk of non-payment, taking
into account ageing, previous losses experienced and general
economic conditions.
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into.
Trade payables are recognised initially at fair value, which is
usually the original invoiced amount and are subsequently measured
at amortised cost using the effective interest method.
Borrowings are initially measured at fair value, net of direct
issue costs. They are subsequently measured at amortised cost.
Finance charges, including premiums payable on settlement or
redemption and direct issue costs, are accounted for on an accrual
basis to the income statement using the effective interest method
and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they
arise.
Equity instruments are any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Company are recorded
at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments such as interest
rate swaps to hedge risks associated with interest rate
fluctuations. Such derivative financial instruments are stated at
fair value. The fair values of interest rate swaps are determined
by reference to market rates for similar instruments.
In order to qualify for hedge accounting, the Group is required
to document from inception the relationship between the item being
hedged and the hedging instrument. The Group is also required to
document and demonstrate an assessment of the relationship between
the hedged item and the hedging instrument, which shows that the
hedge will be highly effective on an ongoing basis. This
effectiveness testing is performed at each period end to ensure
that the hedge remains highly effective.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, or no longer qualifies
for hedge accounting. At that time, any cumulative gain or loss on
the hedging instrument recognised in equity is retained in equity
until the highly probable forecast transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain
or loss recognised in equity is transferred to the Consolidated
Statement of Income for the period.
Cash flow hedges
Changes in the effective portion of the fair value of derivative
financial instruments that are designated as hedges of future cash
flows are recognised directly in equity, and the ineffective
portion is recognised immediately in the statement of income where
relevant. If the cash flow hedge of a firm commitment or forecast
transaction results in the recognition of a non-financial asset or
liability, then, at the time it is recognised, the associated gains
or losses on the derivative that had previously been recognised in
equity are included in the initial measurement. For hedges that
result in the recognition of a financial asset or liability,
amounts deferred in equity are recognised in the statement of
income in the same period in which the hedged item affects net
profit or loss.
Provisions and contingent liabilities
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. The provision is discounted to its present value where
the effect is material.
Contingent liabilities are possible obligations which arise from
past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the Group.
Onerous contract provision
An onerous contract is considered to exist where the Group has a
contract under which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits
expected to be received under it.
Restructuring provision
A restructuring provision is recognised when the Group has
developed a detailed formal plan for the restructuring and has
raised a valid expectation to those affected that it will carry out
the restructuring by starting to implement the plan. The
measurement of a restructuring provision includes only the direct
expenditures arising from the restructuring, which are those
amounts that are both necessarily entailed by the restructuring and
not associated with the ongoing activities of the entity.
Dilapidation provision
The provision relates to the obligation to reinstate certain
properties to their former condition at the end of the lease
term.
Non-recurring items
Non-recurring items are items of income or expenditure that, in
management's judgement, should be disclosed separately on the basis
that they are material, either by their nature or their size. Such
items are included within the income statement caption to which
they relate, and are separately disclosed either in the notes to
the consolidated financial statements or on the face of the
consolidated income statement.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based
Payments. In accordance with the transitional provisions, IFRS 2
has been applied to all grants of equity instruments after 7
November 2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group's
estimate of options that will eventually vest.
The fair value of the share-based payments (except for the total
shareholder return scheme) is measured by the use of the
Black-Scholes model. The fair value of the total shareholder return
(TSR) share-based payment scheme is measured by the use of a
Stochastic model. The expected life used in these models have been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
Shares purchased through the employee benefit trust (EBT) are
held at cost and are deducted from Shareholders' equity. The right
to a dividend on these shares has been waived.
4. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the financial statements requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates. Information about such judgements and estimation is
contained in the accounting policies or the notes to the accounts,
and the key areas are summarised below.
Areas of judgement that have the most significant effect on the
amounts recognised in the financial statements are:
Non-recurring items
Non-recurring items are items of income or expenditure that, in
management's judgement, should be disclosed separately on the basis
that they are material, either by their nature or their size, to an
understanding of the Group's financial performance and
significantly distort the comparability of financial performance
between periods. Items of income or expense that are considered by
management for designation as non-recurring items include such
items as significant restructuring; impairments of assets;
integration of acquired businesses; and gains and losses on
disposals of non-current assets. Details of non-recurring items are
included in note 7.
Valuation of intangible assets and useful life
The Group has made assumptions in relation to the potential
future cash flows to be determined from separable intangible assets
acquired as part of business combinations. This assessment involves
assumptions relating to potential future revenues, appropriate
discount rates and the useful life of such assets. These
assumptions impact the income statement over the useful life of the
intangible asset and are discussed further below.
Key sources of estimation uncertainty that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are:
Retirement benefits
The Group operates two defined benefit pension schemes which
have been accounted for in accordance with IAS 19 - Employee
Benefits. Application of IAS 19 requires the exercise of judgement
in relation to various assumptions including future pay rises in
excess of inflation, employer and pensioner demographics and the
future expected return on assets. The Group determines the
assumptions to be adopted in discussion with its actuaries, and
believes these assumptions to be in line with UK practice
generally, but the application of different assumptions could have
a significant effect on the amounts reflected in the financial
statements. Further details can be found in note 10.
Impairment of goodwill and intangible assets
Determining whether goodwill and intangible assets have been
impaired requires an estimation of the value in use of the
cash-generating units to which they have been allocated. The value
in use calculation requires the entity to estimate the future cash
flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate present value. Details
of the carrying amount of goodwill and intangible assets are shown
in notes 15 and 16 respectively.
Derivative financial instruments
IAS 39 requires interest rate swap contracts to be recorded on
the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in reserves when specific
hedge accounting criteria are met. The fair values of derivative
instruments are determined using forward price curves. Forward
price curves represent the Group's estimates of the prices at which
a buyer or seller could contract today for delivery or settlement
of the contracts at future dates and are therefore subjective.
Further details can be found in note 18.
Onerous contract provision
The onerous contract provision has been derived on the basis of
the most recent assessment of the likely net unavoidable costs to
the end of the contract term. Management have considered the future
costs of the contracts which can be determined with a high degree
of accuracy. However, the future economic benefits expected to be
received are based on forecasts which include uncertainties with
regards to revenue assumptions. Detailed sensitivity analysis has
been carried out on these calculations and management is confident
the liability is the best estimate of the net unavoidable costs.
The total provisions are disclosed in note 28.
Restructuring provision
The Group has developed a detailed formal plan for the
restructuring which is management's best estimate of the Group's
liability. The total provisions are disclosed in note 28.
Dilapidation provisions
Dilapidation provisions have been derived on the basis of the
most recent assessment of likely cost. Many of these obligations
will not arise for a number of years and the costs are difficult to
predict accurately. In making these assessments, the Group has
sought the aid of independent experts where appropriate. The total
provisions are disclosed in note 28.
5. Revenue
An analysis of the Group's revenue is as follows:
2013 2012
(restated,
note 40)
GBPm GBPm
---------------------- ------ -----------
Revenue - continuing
operations:
Product 20.0 25.8
Contract 188.3 198.4
Other revenues 41.7 36.6
---------------------- ------ -----------
250.0 260.8
---------------------- ------ -----------
6. Segmental reporting
The Board who is considered to be the Chief Operating Decision
Maker has determined its operating segments by business line, based
on the Group's management and internal reporting structure. In
January 2013 the Systems Integrators and Communications business
units were merged. Our customers increasingly expect to see
elements of hosting, service desk, distributed services and
monitoring in our bids so in February 2013 we also merged the
Managed Service and Hosting Business units.
The Group's operations are based entirely in the UK. The Group
has no significant concentration of sales to a particular
individual external customer.
Principal activities are as follows:
Business Continuity Provision of business continuity and IT disaster
recovery services
Mid-market Provision of information technology services and
systems
Partner Services Provision of information technology services,
networking support and infrastructure services
-------------------- -------------------------------------------------
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Corporate costs relate to central Group costs, including finance,
legal and employee costs that are not directly attributable to the
operating segments.
Inter segment turnover has been eliminated.
Business Partner
Continuity Mid-market Services Corporate Total
Year ended 31 March 2013 GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------------ ----------- ---------- ---------- --------
Revenue 54.2 86.6 109.2 - 250.0
--------------------------------------- ------------ ----------- ---------- ---------- --------
Profit/(loss) from operations
before amortisation of intangibles
and non-recurring items 14.9 (4.4) 10.9 (2.4) 19.0
--------------------------------------- ------------ ----------- ---------- ---------- --------
Amortisation of other intangible
assets (1.6)
Non-recurring items (71.8)
--------------------------------------- ------------ ----------- ---------- ---------- --------
Loss from operations (54.4)
--------------------------------------- ------------ ----------- ---------- ---------- --------
Investment income 1.2
Finance costs including non-recurring
item (5.6)
Loss before tax (58.8)
Capital expenditure on segment
assets 4.8 3.9 1.5 - 10.2
Depreciation and amortisation
in year 9.1 5.0 1.3 - 15.4
Impairment loss recognised on
property held for sale - 0.1 - - 0.1
Impairment of goodwill - 67.2 - - 67.2
Impairment of other intangible
assets - 0.9 - - 0.9
--------------------------------------- ------------ ----------- ---------- ---------- --------
Balance sheet
--------------------------------------- ------------ ----------- ---------- ---------- --------
Segment assets 131.1 41.3 77.3 0.1 249.8
Unallocated assets 19.2
--------------------------------------- ------------ ----------- ---------- ---------- --------
Total assets 269.0
--------------------------------------- ------------ ----------- ---------- ---------- --------
Segment liabilities (45.4) (29.7) (44.5) (0.6) (120.2)
Unallocated liabilities (86.2)
--------------------------------------- ------------ ----------- ---------- ---------- --------
Total liabilities (206.4)
--------------------------------------- ------------ ----------- ---------- ---------- --------
Business Partner
Continuity Mid-market Services Corporate Total
(restated) (restated)
Year ended 31 March 2012 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ ------------- ---------- ------------ -----------
Revenue 56.3 87.3 117.2 - 260.8
------------------------------------- ------------ ------------- ---------- ------------ -----------
Profit/(loss) from operations
before amortisation of intangibles
and non-recurring items 14.2 (1.2) 14.5 (3.4) 24.1
------------------------------------- ------------ ------------- ---------- ------------ -----------
Amortisation of other intangible
assets (2.9)
Non-recurring items (22.0)
------------------------------------- ------------ ------------- ---------- ------------ -----------
Loss from operations (0.8)
------------------------------------- ------------ ------------- ---------- ------------ -----------
Investment income 1.3
Finance costs (5.4)
Loss before tax (4.9)
Capital expenditure on segment
assets 4.2 5.8 2.0 - 12.0
Depreciation and amortisation
in year 10.1 5.5 1.3 - 16.9
Impairment loss recognised on
property held for sale - 0.4 - - 0.4
Intangible asset derecognition 3.4 4.7 - - 8.1
------------------------------------- ------------ ------------- ---------- ------------ -----------
Balance sheet
------------------------------------- ------------ ------------- ---------- ------------ -----------
Segment assets 133.2 111.5 77.0 0.1 321.8
Unallocated assets 21.2
------------------------------------- ------------ ------------- ---------- ------------ -----------
Total assets 343.0
------------------------------------- ------------ ------------- ---------- ------------ -----------
Segment liabilities (53.6) (22.6) (54.9) 0.3 (130.8)
Unallocated liabilities (81.2)
------------------------------------- ------------ ------------- ---------- ------------ -----------
Total liabilities (212.0)
------------------------------------- ------------ ------------- ---------- ------------ -----------
The analysis of total assets and liabilities excludes
inter-segment balances. Unallocated assets comprise of taxation and
cash and cash equivalents (2012: current tax assets and cash and
cash equivalents) and unallocated liabilities comprise of bank
loans and overdrafts and derivative financial liabilities (2012:
deferred tax liabilities, bank loans and overdrafts and derivative
financial liabilities).
7. Non-recurring items
2013 2012
GBPm GBPm
----------------------------------------------------- ------- -------
Impairment loss on property held for sale (note 20) (0.1) (0.4)
Legal and professional fees in relation to pension
equalisation (a) (0.1) (0.7)
Costs of reorganisation of the Group (b) (1.7) (6.8)
Contract provisions (c) (0.5) (6.0)
Intangible asset derecognition (note 16) - (8.1)
Impairment of goodwill (note 15) (67.2) -
Impairment of other intangible assets (note 16) (0.9) -
Costs relating to the restatement (d) (1.3) -
(71.8) (22.0)
----------------------------------------------------- ------- -------
Non-recurring interest costs (e) (0.3) -
----------------------------------------------------- ------- -------
(72.1) (22.0)
----------------------------------------------------- ------- -------
Non-recurring items in the years ending 31 March 2013 and 31
March 2012 comprise:
(a) The assumption regarding the 1997 effective date of the
equalisation of retirement ages between men and women has been
challenged by the Trustees of the scheme who believe that the
effective date of equalisation may be 2005. The Company and the
Trustees have continued to take professional advice and because
they have been unable to agree a definitive position it has been
necessary to seek direction from the courts on the matter. A
further GBP0.1m has been incurred in the year relating to legal and
professional fees to resolve the issue (2012: GBP0.7m).
(b) The Group continues to re-organise its operations and a
charge of GBP1.7m is reflected as a non-recurring expense in the
year. The headcount reduction programme, which also now encompasses
the re-location of the accounting and finance activities of Servo
Limited, represents a net GBP1.6m of the charge, with a further
GBP0.1m net charge being recognised for onerous leases as part of
the property rationalisation. During the prior year there were
GBP6.8m of costs associated with the restructuring which comprised:
a headcount reduction programme, property rationalisation and
consolidation of brands under the Phoenix trading name.
(c) An additional GBP0.5m charge has been recognised in relation
to exceptional contract exposures in the year (2012: GBP6.0m). The
charge relates to the expected life-time losses in respect of a
co-location facility in our Partner Services Division, where we
recognised a GBP5.0m charge in the previous financial year. The
additional provision represents a re-evaluation of the amount of
expected further contracted sales that would be achieved at the
site.
(d) Costs incurred in relation to the independent forensic
investigation comprised of GBP1.2m of professional fees and GBP0.1m
of other costs (2012: GBPnil).
(e) The accounting irregularities and subsequent restatement
increased the historic margin on the banking facility, thus
crystallising a further GBP0.3m of interest payable (2012:
GBPnil).
8. Loss from operations
2013 2012
(restated,
note 40)
GBPm GBPm
----------------------------------------------------- -------- -----------
Revenue 250.0 260.8
Raw materials and consumables (7.1) (7.8)
Staff costs (note 9) (90.3) (96.7)
Depreciation of property, plant and equipment (note
17) (13.8) (14.0)
Amortisation of other intangible assets (note 16) (1.6) (2.9)
Impairment of goodwill (note 15) (67.2) -
Impairment of intangible assets (note 16) (0.9) -
Loss on disposal of property, plant and equipment (0.3) (0.8)
Intangible asset derecognition (note 7, 16) - (8.1)
Other operating charges (123.2) (131.3)
----------------------------------------------------- -------- -----------
(54.4) (0.8)
----------------------------------------------------- -------- -----------
The following fees were paid or are payable to the Company's
auditors, PricewaterhouseCoopers LLP (2012: Deloitte LLP):
2013 2012
GBPm GBPm
----------------------------------------------------- ------ ------
Fees payable to the Company's auditor for the audit
of the parent Company and consolidated financial
statements 0.1 0.1
Fees payable to the Company's auditor for other
services to the Group:
Audit of the Company's subsidiaries 0.1 0.1
Total audit fees 0.2 0.2
----------------------------------------------------- ------ ------
Taxation compliance services - 0.1
Other services 1.1 -
Total non-audit fees 1.1 0.1
----------------------------------------------------- ------ ------
1.3 0.3
----------------------------------------------------- ------ ------
Other services represent fees payable to PricewaterhouseCoopers
LLP for their independent forensic investigation into the
accounting irregularities and a review of the Group's accounting
and control processes.
9. Staff costs
2013 2012
GBPm GBPm
----------------------------------------- ----- -----
Their aggregate remuneration comprised:
Wages and salaries 78.4 83.2
Social security costs 9.3 10.0
Other pension costs (note 10) 2.4 2.3
Share-based payments (note 39) 0.2 1.2
----------------------------------------- ----- -----
90.3 96.7
----------------------------------------- ----- -----
The average monthly number of employees (including Directors)
was:
Number Number
------------------------ ------- -------
Business continuity 196 226
Mid-market 418 514
Partner services 1,636 1,764
Central administration 15 17
2,265 2,521
------------------------ ------- -------
The remuneration of the key management personnel of the Group,
is set out below in aggregate for each of the categories specified
in IAS 24 Related Party Disclosures. Further information about the
remuneration of individual Directors is provided in the audited
part of the Directors' Remuneration Report.
2013 2012
GBPm GBPm
------------------------------ ------ -----
Directors
Short-term employee benefits 0.9 1.0
Post-employment benefits 0.1 0.1
Termination benefits 0.3 -
Share based payments (0.1) 0.5
------ -----
1.2 1.6
------------------------------ ------ -----
10. Retirement benefit schemes
Defined contribution scheme
The Group operates a defined contribution retirement benefit
scheme. The assets of this scheme are held separately from those of
the Group.
Pension costs for defined contribution schemes are as
follows:
2013 2012
GBPm GBPm
----------------------------- ----- -----
Defined contribution scheme 2.4 2.3
----------------------------- ----- -----
Defined benefit scheme
The Group has a defined benefit pension scheme for certain of
its employees. The defined benefit pension scheme was closed to
future service accrual with an effective date of 30 September 2010.
Members of the scheme have been invited to make contributions into
the defined contribution plan.
Under the scheme the employees are entitled to retirement
benefits varying between 1.25% and 1.67% of final salary,
multiplied by number of years of pensionable service, on attainment
of a retirement age of 65. No other post retirement benefits are
provided. The scheme is a funded scheme.
The most recent full actuarial valuation of the scheme's defined
benefit obligation was carried out at 6 April 2009 and updated to
31 March 2012 by a qualified independent actuary for IAS 19
purposes. The projected unit method was used in all valuations and
assets were taken into account using market values.
The major assumptions used by the actuary were:
2013 2012
% %
--------------------------------------------- --------------- -------------
Discount rate 4.70 4.80
Expected return on equities, bonds and cash 4.89 5.39
Expected rate of salary increases 4.15 4.05
Future pension increases 3.25 3.20
Inflation (RPI) 3.50 3.40
Inflation (CPI) 2.50 2.40
Mortality tables used 100% of S1PxA PCxA00(YOB)
With CMI_2011 Males 0.8LC
improvements Females
(1.2% pa) 0.6LC
--------------------------------------------- --------------- -------------
The Group uses CPI as the measure for inflation in increasing
deferred pensions prior to retirement.
In calculating the defined benefit obligation under IAS 19 the
actuary has assumed that equalisation of retirement benefits
between men and women was effective from 1997. This assumption has
been challenged by the trustees of the scheme who believe that the
effective date of equalisation may be 2005. The Group has not yet
been able to agree a definitive position with the trustees of the
scheme and it has been necessary for the Group to seek direction
from the courts to resolve this issue. Taking into account the
legal advice received by the Group, this possible change has not
been reflected in the IAS 19 assumptions used at 31 March 2013. If
such a change in assumption were to be made the effect would be an
increase in the present value of the defined benefit obligation as
at 31 March 2013 of approximately GBP2.5m - GBP3.0m.
The current life expectancies post retirement (in years)
underlying the value of the accrued liabilities for defined benefit
pension scheme are:
2013 2012
Male Female Male Female
------------------------- ----- ------- ----- -------
Member currently age 65 22.5 24.7 23.1 24.6
Member currently age 40 24.6 27.0 25.5 26.9
------------------------- ----- ------- ----- -------
Amounts recognised in the income statement in respect of the
defined benefit scheme are as follows:
2013 2012
GBPm GBPm
---------------------------------- ------ ------
Interest cost 1.1 1.1
Expected return on scheme assets (1.2) (1.3)
---------------------------------- ------ ------
(0.1) (0.2)
---------------------------------- ------ ------
Actuarial losses of GBP0.8m (2012: GBP2.0m) have been reported
in the consolidated statement of comprehensive income/(expense).
The cumulative amount of actuarial losses recognised in other
comprehensive income/(expense) is GBP6.0m (2012: GBP5.2m).
The amount included in the balance sheet arising from the
Group's obligations in respect of its defined benefit scheme is as
follows:
2013 2012
GBPm GBPm
----------------------------------------------------------- ------- -------
Present value of defined benefit obligations (25.0) (23.4)
Fair value of scheme assets 26.8 22.6
----------------------------------------------------------- ------- -------
Surplus/(deficit) in plan 1.8 (0.8)
Unrecognised surplus (1.8) -
----------------------------------------------------------- ------- -------
Deficit in scheme and liability recognised in the balance
sheet - (0.8)
----------------------------------------------------------- ------- -------
The present value of the economic benefits of the IAS 19 surplus
in the pension scheme of GBP1.8m available on a reduction of future
contributions is GBPnil. As a result the Group has not recognised
this IAS 19 surplus on the balance sheet.
The Group will contribute GBP1.7m to the defined benefit pension
scheme in the next financial year to eliminate the deficit over a
four year period.
Movements in the present value of defined benefit obligations
were as follows:
2013 2012
GBPm GBPm
------------------------------------------------ ------ -----
At 1 April 2012 and 2011 23.4 20.7
Interest cost 1.1 1.1
Actuarial losses on defined benefit obligation 0.7 1.6
Benefits paid (0.2) -
------------------------------------------------ ------ -----
At 31 March 2013 and 2012 25.0 23.4
------------------------------------------------ ------ -----
Movements in the fair value of scheme assets were as
follows:
2013 2012
GBPm GBPm
------------------------------------------ ------ ------
At 1 April 2012 and 2011 22.6 20.0
Expected return on scheme assets 1.2 1.3
Contributions by employer 1.5 1.7
Actuarial gain/(losses) on scheme assets 1.7 (0.4)
Benefits paid (0.2) -
------------------------------------------ ------ ------
At 31 March 2013 and 2012 26.8 22.6
------------------------------------------ ------ ------
The fair value of the scheme assets at the balance sheet date is
analysed as follows:
2013 2012
GBPm GBPm
---------- ----- -----
Equities 13.5 13.8
Bonds 13.1 8.8
Cash 0.2 -
26.8 22.6
---------- ----- -----
The scheme assets do not include any of the Group's own
financial instruments, nor any property occupied or other assets
used by the Group.
The expected rate of return on the equities was determined by
reference to long term historic out performance of this asset class
over bonds so a view was taken that it was appropriate to take a
future return rate on equities of 6.05% (2012: 6.30%) p.a. The
investment return in relation to these assets is variable and as
such they are considered riskier investments. This results in 'the
equity risk premium' which is included in the yield on the equity
investment and compensates investors for the additional risk of
holding this type of investment. There is significant uncertainty
about the expected size of this risk premium and this risk is
managed by holding assets which are less risky in nature but have a
corresponding lower return.
The expected rate of return on bonds was determined by taking a
blend between the gross redemption yields on corporate and
government bonds, which were the two types of bonds held within the
scheme at 31 March 2013, resulting in a return rate on bonds of
3.80% (2012: 4.00%). The risk of default on these assets is
considered to be small.
The expected rate of return on cash was determined by the Bank
of England base rate resulting in a return rate on cash of 0.50%
(2012: 0.50%).
The overall expected rate of return is calculated by weighting
the individual rates in accordance with how the plan assets are
invested.
The actual return on scheme assets was a gain of GBP3.0m (2012:
GBP1.3m).
The history of the Group's defined benefit arrangement is as
follows:
2013 2012 2011 2010 2009
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------- ------- ------- -------
Present value of defined benefit
obligation (25.0) (23.4) (20.7) (22.0) (12.6)
Fair value of scheme assets 26.8 22.6 20.0 16.9 11.5
---------------------------------- ------- ------- ------- ------- -------
Surplus/(deficit) in plan 1.8 (0.8) (0.7) (5.1) (1.1)
---------------------------------- ------- ------- ------- ------- -------
Experience adjustments on
scheme liabilities (0.1) - - (0.1) -
Percentage of scheme liabilities 0.5% 0.0% 0.0% 0.6% 0.0%
---------------------------------- ------- ------- ------- ------- -------
Experience adjustments on
scheme assets 1.7 (0.4) - 3.2 (3.0)
Percentage of scheme assets 6.5% 1.5% 0.0% 19.2% 25.9%
---------------------------------- ------- ------- ------- ------- -------
The sensitivities regarding the principal assumptions used to
measure the scheme liabilities are set out below:
Impact on
scheme liabilities
Assumption Change in assumption GBPm
-------------- --------------------------------------- --------------------
Discount rate Decrease by 0.5ppts Increase by 3.0
Inflation Increase by 0.25ppts Increase by 0.9
Mortality Improved life expectancy by using 100% Increase by 0.4
of long cohort
-------------- --------------------------------------- --------------------
The sensitivity to the mortality assumptions represents the
following life expectancies post retirement (in years):
2013
Male Female
------------------------- ---------- ------------
Member currently age 65 22.9 25.1
Member currently age 40 25.7 28.0
------------------------- ---------- ------------
During the year, the Group entered into a further Defined
Benefit scheme ("Other Scheme") resulting from the transfer of
employees under TUPE (Transfer of Undertakings (Protection of
Employment)) Regulations. Since the transfer the employees have
been accruing pension benefits and the Group has been paying
regular contributions into the scheme. However, the assets and
liabilities both individually and in aggregate are not deemed
material and as such no disclosure has been made.
In addition, the employees have the option to transfer past
service benefits which would result in a bulk transfer of assets
and liabilities into this Other Scheme. In view of the inherent
difficulty of predicting the number of employees that are likely to
transfer and the related IAS 19 actuarial assets and liabilities,
the Group cannot determine the likely financial effect. However,
the amount of any incremental liability arising from this matter is
not expected to have a material adverse effect on the Group's
consolidated financial position.
11. Finance costs and investment income
2013 2012
GBPm GBPm
--------------------------------------------------- ------ ------
Finance costs:
Interest on bank overdrafts and loans (3.4) (3.0)
Interest on obligations under finance leases and
hire purchase contracts (0.2) (0.3)
Amortisation of loan issue costs (0.5) (0.5)
Other interest (0.1) (0.5)
Interest cost on defined benefit scheme (1.1) (1.1)
Non-recurring finance costs (0.3) -
--------------------------------------------------- ------ ------
Total interest expense (5.6) (5.4)
Investment income:
Expected return on defined benefit pension scheme
assets 1.2 1.3
Net finance costs (4.4) (4.1)
--------------------------------------------------- ------ ------
Borrowing costs included in the cost of qualifying assets during
the year arose on the general borrowing pool and are calculated by
applying a capitalisation rate of 5.060% (2012: 4.656%) to
expenditure on such assets.
12. Taxation
The tax charge on profit from operations for the year was as
follows:
2013 2012
(restated,
note 40)
GBPm GBPm
--------------------------------------- ------ -----------
Current tax:
UK corporation tax 1.5 1.5
Adjustment in respect of prior years 0.7 0.3
Total current tax 2.2 1.8
--------------------------------------- ------ -----------
Deferred tax (note 29):
Origination and reversal of temporary
differences (0.5) (2.6)
Adjustment in respect of prior years (0.8) (0.1)
Change of rate (0.1) (0.4)
Total deferred tax (1.4) (3.1)
--------------------------------------- ------ -----------
Tax expense/(credit) for the year 0.8 (1.3)
--------------------------------------- ------ -----------
Corporation tax is calculated at 24% (2012: 26%) of the
estimated assessable profit for the year.
The charge/(credit) for the year can be reconciled to the loss
per the income statement as follows:
2013 2012
(restated,
note 40)
GBPm % GBPm %
------------------------------------------------- ------- ------- ------ ------
Loss before tax (58.8) (4.9)
------------------------------------------------- ------- ------- ------ ------
Tax at the UK corporation tax rate of 24%
(2012: 26%) (14.1) 24.0 (1.3) 26.0
Effects of:
Expenses that are not deductible in determining
taxable profit 15.0 (25.6) 0.4 (9.2)
Income not taxable in determining taxable
profit (0.2) 0.3 (0.2) 4.6
Tax adjustments relating to share options 0.3 (0.6) - (0.6)
Adjustments in respect of prior periods (0.1) 0.3 0.2 (2.8)
Change in tax rate (0.1) 0.2 (0.4) 8.3
Tax expense/(credit) and effective tax rate
for the year 0.8 (1.4) (1.3) 26.3
------------------------------------------------- ------- ------- ------ ------
The underlying(1) tax rate of 26.3% (March 2012 restated: 23.8%)
is based on the forecast annual effective rate applied to
underlying(1) profit before tax for the year and takes into account
the impact of the enactment of the Finance Act 2012 which includes
a reduction in the rate of Corporation Tax from 24% to 23% from 1
April 2013. This has had no impact on the deferred tax liability
and only reduces the effective tax rate by 0.2%.
The Group's total tax charge of GBP0.8m represents an effective
rate of (1.4%) (March 2012 restated: 26.3%). The reduction from the
underlying(1) tax rate of 26.3% to (1.4%) reflects the tax impact
of some of the non-recurring items, being the impairment of
goodwill and other intangible assets, which are largely not
deductible for taxation purposes. The available taxation deduction
for these items amounts to GBP1.8m, which represents an effective
tax rate of 2.6%.
The Government has also indicated that it intends to enact
further reductions in the corporation tax rate, reducing the rate
to 21% by 1 April 2014 (from the previously announced 22%) and 20%
by 1 April 2015. These decreases had not been substantively enacted
at the balance sheet date and therefore have not been reflected in
the financial statements.
In addition to the amount charged to the income statement, the
following amounts have been (credited)/charged directly to
equity:
2013 2012
GBPm GBPm
------------------------- ------ ------
Deferred tax (note 29):
Tax on share options 0.1 (0.1)
Tax on actuarial losses (0.1) (0.4)
Tax on cash flow hedge - (0.3)
- (0.8)
------------------------- ------ ------
(1) Underlying - adjusted for non-recurring items GBP72.1m
(2012: GBP22.0m) and amortisation of acquired intangibles GBP1.6m
(2012: GBP2.9m).
13. Earnings per share
2013 2012
(restated)
------------------------------------------------------- ------ -----------
Underlying earnings per share excluding amortisation
of intangibles and non-recurring items
Basic 14.5p 20.1p
------------------------------------------------------ ------ -----------
Diluted 13.9p 19.4p
------------------------------------------------------ ------ -----------
The calculation of the basic and diluted earnings per share is
based on the following data:
Earnings
2013 2012
(restated)
GBPm GBPm
------------------------------------------------------ --------- -----------
Earnings for the purposes of basic earnings per
share and diluted earnings per share being net
profit attributable to equity holders of the parent (59.6) (3.6)
Amortisation of intangibles 1.6 2.9
Non-recurring items 72.1 22.0
Tax on amortisation of intangibles and non-recurring
items (3.1) (6.0)
------------------------------------------------------ --------- -----------
Earnings for the purposes of underlying earnings
per share being net profit attributable to equity
holders of the parent excluding amortisation of
intangibles and non-recurring items 11.0 15.3
------------------------------------------------------ --------- -----------
Number of shares
2013 2012
m m
------------------------------------------------ ----- -----
Weighted average number of Ordinary Shares for
the purposes of basic earnings per share 75.4 75.4
Effect of dilutive potential Ordinary Shares:
Share options 3.0 2.8
------------------------------------------------ ----- -----
Weighted average number of Ordinary Shares for
the purposes of diluted earnings per share 78.4 78.2
------------------------------------------------ ----- -----
14. Dividends
2013 2012
GBPm GBPm
----------------------------------------------------- ----- -----
Amounts recognised as distributions to Shareholders
in the year:
Final dividend for the year ended 31 March 2012
of 7.20p (2011: 7.00p) per share 5.4 5.3
Interim dividend for the year ended 31 March 2013
of 3.70p (2012: 3.70p) per share 2.8 2.7
----------------------------------------------------- ----- -----
8.2 8.0
----------------------------------------------------- ----- -----
Proposed final dividend for the year ended 31
March 2013 of 4.00p (2012: 7.20p) per share 3.0 5.4
----------------------------------------------------- ----- -----
The interim dividend was recommended by the Board on 27 November
2012 and was paid on 9 January 2013.
The proposed final dividend was recommended by the Board on 30
May 2013 and if approved will be paid on 9 August 2013.
The proposed final dividend is subject to approval by
Shareholders at the Annual General Meeting and accordingly has not
been included as a liability in these financial statements.
15. Goodwill
GBPm
---------------------------------- -------
Cost and carrying amount
At 1 April 2011 and 1 April 2012 181.4
Impairment of goodwill (67.2)
---------------------------------- -------
At 31 March 2013 114.2
---------------------------------- -------
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination. CGUs represent the
Group's operating segments by business line, based on the Group's
management and internal reporting structure. Before recognition of
impairment losses, the carrying amount of goodwill has been
allocated as follows:
31 March 2013 31 March 2012
Business Partner Business Partner
Continuity Mid-market Services Total Continuity Mid-market Services Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Goodwill 81.2 - 33.0 114.2 81.2 67.2 33.0 181.4
---------- ------------ ----------- ---------- ------ -------------- ----------- ---------- --------------
The Group tests goodwill annually for impairment at 31 March or
more frequently if there are indications that goodwill might be
impaired.
Impairment loss
At 30 September 2012 there was an indication of impairment due
to the accounting irregularities uncovered within the Mid-market
business. This reduced the estimated future cash flows for this CGU
to such an extent that the carrying value of its assets were
greater than the recoverable amount. Consequently, a non-cash
impairment charge of GBP68.1m was recognised at 30 September 2012
as a non-recurring expense; GBP67.2m related to goodwill and
GBP0.9m related to other intangible assets. This goodwill arose on
the acquisition of Servo Computer Services Limited on 3 November
2006 and ICM Group Plc on 29 May 2007.
The discount rate used to determine the value in use calculation
at 30 September 2012 was 12%, which increased from the previous
discount rate of 10% to reflect the change in risk profile as a
result of the accounting irregularities uncovered.
The carrying amount of the Mid-market CGU at 31 March 2013 is
GBP22.5m.
Impairment review
An impairment review has been performed at 31 March 2013. The
recoverable amount of a CGU is determined on value-in-use
calculations, the key assumptions used in determining the value in
use calculations are set out below.
Cash flow projections
The Group prepares risk-adjusted cash flow forecasts derived
from the most recent detailed financial budget approved by the
Directors. The three year cash flow projections reflect the
Directors' expectations of revenue, EBITDA growth and capital
expenditure, based on past experience and future expectations of
business performance. Cash flows beyond the three year period have
been extrapolated using perpetuity growth rates.
Discount rate
The discount rate applied to a CGU represents the Group pre-tax
weighted average cost of capital adjusted for the risk profile of
the individual CGU.
Long-term growth rate
The long-term growth rates are determined with reference to
current market conditions, external forecasts and historical trends
for the Group's key end markets. The Directors have made the
judgement that this long-term growth rate does not exceed the
long-term average growth rate for the industry.
The assumptions used for each CGU are set out below:
At 31 March 2013 At 31 March 2012
Business Partner Business Partner
Continuity Mid-market services Continuity Mid-market services
% % % % % %
Growth rate 2.25 2.25 2.25 2.25 2.25 2.25
Pre-tax discount rate 11.0 12.0 12.0 11.0 10.0 12.0
----------------------- ------------ ----------- ---------- ------------ ----------- ----------
In assessing goodwill for impairment as at 31 March 2013, the
Directors made use of the most recent detailed calculations of the
recoverable amount of the Group's CGUs, prepared at 31 March 2013.
Those calculations resulted in recoverable amounts exceeding the
carrying values for each of the Group's CGUs.
Sensitivity to changes in assumptions
Whilst the Directors consider that their assumptions are
realistic, it is possible that an impairment would be identified if
any of the above key assumptions were changed significantly. The
Group's impairment review is sensitive to a change in the key
assumptions used. Based on the Group's sensitivity analysis, an
increase in the discount rate in any of the CGUs of 5.2% or a
decrease in the forecast EBITDA of 16.4% (in isolation) would lead
to the carrying amount of the CGU to equal its recoverable
amount.
Using a discounted cash flow methodology necessarily involves
making numerous estimates and assumptions regarding revenue growth,
operating margins, tax rates, appropriate discount rates, capital
expenditure levels and working capital requirements. These
estimates will likely differ from future actual results of
operations and cash flows, and it is possible that these
differences could be material. In addition, judgements are applied
by the Directors in determining the level of cash-generating unit
identified for impairment testing and the criteria used to
determine which assets should be aggregated. A difference in
assumptions could affect whether an impairment is recorded and the
extent of impairment loss.
Changes in business activities or structure may also result in
changes to the level of testing in future periods. Further, future
events could cause the Group to conclude that impairment indicators
exist and that the asset values associated with a given operation
have become impaired.
16. Other intangible assets
Customer Computer
Brand contracts software
name & relationships development Total
GBPm GBPm GBPm GBPm
----------------------------------- -------- ----------------- ------------- --------
Cost
At 1 April 2011 11.6 20.4 1.0 33.0
Derecognition (note 7) (11.6) - - (11.6)
----------------------------------- -------- ----------------- ------------- --------
At 1 April 2012 and 31 March 2013 - 20.4 1.0 21.4
----------------------------------- -------- ----------------- ------------- --------
Accumulated amortisation
At 1 April 2011 3.0 14.2 - 17.2
Charge for the year (restated) 0.5 2.2 0.2 2.9
Derecognition (note 7) (3.5) - - (3.5)
----------------------------------- -------- ----------------- ------------- --------
At 1 April 2012 (restated) - 16.4 0.2 16.6
Charge for the year - 1.4 0.2 1.6
Impairment (note 7) - 0.9 - 0.9
----------------------------------- -------- ----------------- ------------- --------
At 31 March 2013 - 18.7 0.4 19.1
----------------------------------- -------- ----------------- ------------- --------
Net book value
At 31 March 2013 - 1.7 0.6 2.3
----------------------------------- -------- ----------------- ------------- --------
At 31 March 2012 (restated) - 4.0 0.8 4.8
----------------------------------- -------- ----------------- ------------- --------
At 31 March 2011 8.6 6.2 1.0 15.8
----------------------------------- -------- ----------------- ------------- --------
The impact of the accounting irregularities reduced the
estimated future cash flows in the Mid-market division resulting in
an impairment charge of GBP0.9m to fully write down its other
intangible assets.
17. Property, plant and equipment
Short Fixtures
Freehold leasehold and Motor
property properties equipment Vehicles Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- --------- ----------- ---------- --------- ------
Cost
At 1 April 2011 (restated) 20.8 7.5 82.2 0.6 111.1
Reclassifications (restated) - 0.2 (0.2) - -
Additions - 1.5 10.5 - 12.0
Disposals (restated) - (0.2) (4.9) - (5.1)
--------------------------------------- --------- ----------- ---------- --------- ------
At 1 April 2012 20.8 9.0 87.6 0.6 118.0
Reclassifications - (0.2) 0.2 - -
Reclassified from held for sale (note
20) 0.7 - - - 0.7
Additions - 2.0 8.1 0.1 10.2
Disposals - - (1.8) - (1.8)
At 31 March 2013 21.5 10.8 94.1 0.7 127.1
Accumulated depreciation
At 1 April 2011 1.8 3.9 39.4 0.4 45.5
Charge for the year 0.3 0.8 12.9 - 14.0
Disposals - (0.2) (4.0) - (4.2)
--------------------------------------- --------- ----------- ---------- --------- ------
At 1 April 2012 2.1 4.5 48.3 0.4 55.3
Reclassified from held for sale (note
20) 0.2 - - - 0.2
Charge for the year 0.3 0.9 12.5 0.1 13.8
Disposals - - (1.2) - (1.2)
--------------------------------------- --------- ----------- ---------- --------- ------
At 31 March 2013 2.6 5.4 59.6 0.5 68.1
--------------------------------------- --------- ----------- ---------- --------- ------
Net book value
At 31 March 2013 18.9 5.4 34.5 0.2 59.0
--------------------------------------- --------- ----------- ---------- --------- ------
At 31 March 2012 (restated, note 40) 18.7 4.5 39.3 0.2 62.7
--------------------------------------- --------- ----------- ---------- --------- ------
At 31 March 2011 (restated) 19.0 3.6 42.8 0.2 65.6
--------------------------------------- --------- ----------- ---------- --------- ------
The current year reclassifications to cost and depreciation are
to re-analyse construction in progress between asset classes when
they are brought into use.
Included in freehold property is land at cost of GBP4.3m (2012
restated: GBP4.0m) which is not depreciated.
The net book value of fixtures and equipment includes GBP5.0m
(2012: GBP7.5m) in respect of assets held under finance leases and
hire purchase contracts.
At 31 March 2013, the Group had entered into contractual capital
commitments amounting to GBP0.7m (2012: GBP0.8m).
18. Derivative financial instruments
2013 2012
Liability Liability
Fair value Notional Fair Notional
value
GBPm GBPm GBPm GBPm
--------------------- ----------- --------- ------- ---------
Cash flow hedges
Interest rate swaps 1.4 30.0 1.4 30.0
--------------------- ----------- --------- ------- ---------
On 28 April 2011 the Group entered into an interest rate swap to
hedge risks associated with interest rate fluctuations on variable
rates related to its revolving credit facility. The combined
interest rate swaps hedge GBP30.0m until 28 April 2014 and GBP15.0m
between 29 April 2014 and 28 April 2016. The interest rate swaps
settle on a quarterly basis and were fixed at 2.630% - 2.695% plus
applicable margins based on three months LIBOR.
Financial instruments that are measured at fair value subsequent
to their initial recognition are grouped into levels 1 to 3 based
on the degree to which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within level 1 that are
observable for the asset or liability, either directly or
indirectly; and
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data.
The interest rate swap is categorised as level 2 in the fair
value hierarchy. There were no financial instruments measured at
fair value included in level 1 or level 3 and there were no
transfers between categories during the year.
19. Financial risk management
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk and interest rate
risk), credit risk and liquidity risk.
Funding and treasury risk management is carried out under a
framework of policies and guidelines approved by the Board. The
Board is responsible for regular review and monitoring of treasury
activity and for approval of specific transactions, the authority
of which may be delegated. The Group accounting function provides
regular update reports of treasury activity to the Board of
Directors.
The Group does not enter into or trade financial instruments,
including derivative financial instruments, for speculative
purposes.
Capital risk management
The Group seeks to match long term assets with long term funding
and short term assets with short term funding.
Equity, retained profits and long term fixed interest debt are
used primarily to finance intangible assets and property, plant and
equipment. Short term borrowings are required primarily to finance
current assets.
The Group capitalisation policy seeks to maintain a strong
credit rating and an appropriate funding structure whilst
safeguarding the Group's ability to continue as a going
concern.
The Group's capital structure consists of net debt and total
equity. The following analysis summarises the components which the
Group manages as capital:
2013 2012
GBPm GBPm
-------------- ----- ------
Net debt 71.3 68.8
Total equity 62.6 131.0
-------------- ----- ------
Market risk
(a) Foreign exchange risk
The Group publishes its consolidated financial statements in
sterling but also conducts some business in foreign currencies,
mainly the US Dollar. As a result it is subject to foreign exchange
currency risk due to exchange rate movements, which will affect the
Group's transaction costs.
The Board periodically reviews the net exchange risk and
implements strategies as appropriate. Due to the relative stability
of the foreign currencies in which the Group deal and size of the
foreign exchange transactions, the Group does not hedge the foreign
exchange risk as the potential exposure is considered not to be
material to the Group's results.
The carrying amounts of the Group's foreign currency denominated
monetary assets and liabilities at the reporting date are as
follows:
Assets Liabilities
2013 2012 2013 2012
GBPm GBPm GBPm GBPm
------------------------------------------- ----- ----- ------ ------
US Dollar 0.2 0.8 1.4 1.2
Euro - - - 0.1
Norwegian Kroner 0.2 0.1 - -
----------------------------------------------- ----- ----- ------ ------
0.4 0.9 1.4 1.3
---------------------------------------------- ----- ----- ------ ------
(b) Interest rate risk
The Group's policy aims to manage the interest cost of the Group
within the constraints of its budget and its financial covenants.
At the year end GBP55.0m of the Group's borrowings were subject to
a floating rate. The Group monitor movements in the swap market and
so took out an interest rate swap to hedge risks associated with
interest rate fluctuations on GBP30.0m of the rolling credit
facility.
The table below sets out the carrying amount of borrowings that
are exposed to interest rate risk:
2013 2012
GBPm GBPm
----------------------------------- ----- -----
Fixed interest rate borrowings 30.0 30.0
Floating interest rate borrowings 55.0 50.0
Total borrowings 85.0 80.0
----------------------------------- ----- -----
The contractual maturity of these borrowings can be found in
note 25.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group monitors its credit exposures to its
counterparties via their credit rating, where applicable, or
through other publicly available financial information and its own
trading records.
The Group does not have any significant credit risk exposure to
any single counterparty or group of counterparties having similar
characteristics. The Group defines counterparties as having similar
characteristics if they are connected entities. Concentration of
credit risk with respect to trade receivables is limited due to the
Group's customer base being large and unrelated. The credit risk on
liquid funds and derivative financial instruments is limited
because the counterparties are banks with high credit-ratings
assigned by international credit rating agencies.
The carrying amounts of financial assets recorded in the
financial statements, which is net of impairment losses, represents
the Group's maximum exposure to credit risk.
Liquidity risk
The Group manages its liquidity requirements by maintaining
adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash
flows. All borrowing is agreed and monitored by the Board of
Directors. The Group's undrawn committed borrowing facilities are
shown in note 25. The Group has a policy of pooling Group cash
flows in order to maximise the return on surplus cash and also
utilise cash within the Group. Surplus cash is placed on short-term
deposits.
The following is an analysis of the contractual undiscounted
cash flows payable under financial liabilities and derivative
financial instruments as at the balance sheet date. The table
includes both interest and principal cash flows:
Due between Due between Due in
Due within one and two and over three
one year two years three years years Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ------------ ------------- ------------ ------
Non derivative financial
liabilities
Bank loans 2.9 86.2 - - 89.1
Finance lease liabilities 1.5 0.6 0.1 - 2.2
Other loan 0.4 - - - 0.4
Other non interest-bearing
liabilities 37.2 0.7 - - 37.9
---------------------------------- ----------- ------------ ------------- ------------ ------
42.0 87.5 0.1 - 129.6
Derivative financial instruments
Net settled interest rate
swaps 0.7 0.4 0.3 - 1.4
Total as at 31 March 2013 42.7 87.9 0.4 - 131.0
---------------------------------- ----------- ------------ ------------- ------------ ------
Non derivative financial
liabilities
Bank loans 2.9 2.9 81.2 - 87.0
Finance lease liabilities 3.1 1.4 0.5 - 5.0
Other non interest-bearing
liabilities (restated) 40.5 1.1 - - 41.6
---------------------------------- ----------- ------------ ------------- ------------ ------
46.5 5.4 81.7 - 133.6
Derivative financial instruments
Net settled interest rate
swaps 0.5 0.5 0.3 0.1 1.4
Total as at 31 March 2012 47.0 5.9 82.0 0.1 135.0
---------------------------------- ----------- ------------ ------------- ------------ ------
Notional interest is included for the period from the year end
up to the contractual maturity date of the debt, calculated on the
amount of debt drawn down at the year end.
Floating rate interest has been estimated using a future
interest rate curve as at 31 March. The cash flow movements in the
interest rate swap are expected to affect the statement of income
in the same period in which they occur.
Sensitivity analysis
Financial instruments affected by market risk include
borrowings, deposits and derivative financial instruments. The
following analysis, required by IFRS 7, is intended to illustrate
the sensitivity to changes in market variables, being UK interest
rates and the US dollar, Euro and Norwegian Kroner to sterling
exchange rates on the Group's financial instruments.
The analysis excludes the impact of movements in market
variables on the carrying value of pension and other
post-retirement benefits obligations and provisions.
The sensitivity analysis has been prepared on the basis that the
amount of net debt, the ratio of fixed to floating interest rates
of the debt and the derivative portfolio and the proportion of
financial instruments in foreign currencies are all constant on the
basis of the hedge designations in place at 31 March 2013 and 31
March 2012 respectively.
The following table shows the illustrative effect on the income
statement and items that are recognised directly in equity that
would result from reasonably possible movements in changes in UK
interest rates, before the effects of tax.
2013 2012
Income Income
statement Equity statement Equity
-/+ -/+ -/+ -/+
GBPm GBPm GBPm GBPm
------------------------------------------- ----------- --------- ----------- ---------
UK interest rates +/- 0.50ppts 0.3 - 0.4 -
----------------------------------------------- ----------- --------- ----------- ---------
A 10% change in the US dollar, Euro and Norwegian Kroner to
sterling exchange rates has a minimal impact on the income
statement and equity.
Fair value of financial instruments
The fair values of financial assets and liabilities have been
calculated by discounting expected cash flows at prevailing rates
at 31 March. There were no significant differences between book and
fair values on this basis and therefore no further information is
disclosed. Details of the fair values of derivatives are given in
note 18.
20. Assets held for sale
Assets held for sale of GBP1.0m (2012: GBP2.3m) consist of
properties held in the Mid-market Services Division.
During the year one of the properties classed as held for sale
at 31 March 12 was sold for GBP0.7m. Another property was brought
back into use and was reclassified to property, plant and equipment
at its carrying amount of GBP0.5m (see note 17).
The remainder of the assets were classed as held for sale at 31
March 2008. Due to market conditions outside of the Group's control
they remained unsold at 31 March 2013. Management are still
committed to selling the remaining assets, are actively marketing
them at a price reasonable given the change in market conditions
and anticipate the sale will occur in the next financial year.
An impairment loss of GBP0.1m (2012: GBP0.4m) has been
recognised in the year on properties held for sale and reflects the
difference between their carrying value and their estimated fair
value in the market less costs of sale.
21. Subsidiaries
The significant subsidiaries included within the Group accounts
at 31 March 2013 are as follows:
Name of subsidiary Country of registration Class of share Nature of business
capital held
-------------------------- ------------------------ --------------- -------------------------
Phoenix IT Services England and Wales Ordinary Provision of information
Limited technology services
Trend Network Services England and Wales Ordinary Provision of information
technology, networking
support
and infrastructure
services
ICM Business Continuity England and Wales Ordinary Provision of business
Services Limited continuity and IT
disaster recovery
services
ICM Continuity Consulting England and Wales Ordinary Software development
Limited and support
Servo Limited England and Wales Ordinary Provision of information
technology services
and systems
ICM Computer Group Scotland Ordinary Provision of information
(Scotland) Limited technology services
and systems
Aghoco 1000 Limited England and Wales Ordinary Provision of information
technology services
-------------------------- ------------------------ --------------- -------------------------
22. Inventories
2013 2012
(restated,
note 40)
GBPm GBPm
---------------- ----- -----------
Service stocks 10.6 13.1
---------------- ----- -----------
During the year GBP5.8m (2012: GBP6.3m) was recognised as an
expense to the Consolidated Income Statement in relation to the
systematic write down of service stock over the period of its
consumption within the business.
23. Trade and other receivables
Trade and other receivables at the balance sheet date
comprise:
2013 2012
(restated)
GBPm GBPm
--------------------------------- ----- -----------
Included within current assets:
Trade receivables 41.7 36.7
Other receivables 4.2 4.8
Prepayments and accrued income 16.9 16.0
--------------------------------- ----- -----------
62.8 57.5
--------------------------------- ----- -----------
The Group's trade receivables are stated after allowances for
bad and doubtful debts based on management's assessment of
creditworthiness, an analysis of which is as follows:
2013 2012
GBPm GBPm
-------------------------------------- ------ -----
Balance at the beginning of the year 2.2 0.5
Increase in provision 1.2 1.7
Amounts utilised (2.5) -
Balance at the end of the year 0.9 2.2
-------------------------------------- ------ -----
As at 31 March 2013, trade receivables of GBP5.8m (2012
restated: GBP6.5m) were past due but not impaired. The ageing of
these trade receivables from due date is as follows:
2013 2012
(restated,
note 40)
GBPm GBPm
--------------- ----- -----------
Under 30 days 3.6 4.2
30 - 60 days 1.0 0.9
60 - 90 days 0.4 0.8
90 - 120 days 0.2 0.5
Over 120 days 0.6 0.1
--------------- ----- -----------
Total 5.8 6.5
--------------- ----- -----------
Concentration of credit risk with respect to trade receivables
is limited due to the Group's customer base being large and
unrelated. Therefore, the Directors believe the credit quality of
the assets that are neither past due nor impaired are good and no
further provision is required.
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value due to their short
maturities.
24. Cash and cash equivalents
2013 2012
(restated,
note 40)
GBPm GBPm
--------------------------- ----- -----------
Cash and cash equivalents 16.0 15.2
--------------------------- ----- -----------
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates their
fair value.
Net cash and cash equivalents are held in the following
currencies; those held in currencies other than sterling have been
converted into sterling at year-end exchange rates.
2013 2012
(restated,
note 40)
GBPm GBPm
------------------ ----- -----------
Sterling 15.7 15.0
US Dollar 0.1 0.1
Norwegian Kroner 0.2 0.1
------------------ ----- -----------
16.0 15.2
------------------ ----- -----------
25. Bank loans
The following table analyses bank borrowings, excluding bank
overdrafts:
2013 2012
GBPm GBPm
------------------ ----- -----
Non-current:
Bank loans 84.8 79.3
Total borrowings 84.8 79.3
------------------ ----- -----
Total borrowings are repayable as follows:
2013 2012
GBPm GBPm
----------------------------------------------------- ----- -----
In more than one year but not more than two years 84.8 -
In more than two years but not more than five years - 79.3
84.8 79.3
----------------------------------------------------- ----- -----
All bank borrowings are denominated in sterling and are stated
net of unamortised issue costs.
The Group debt facilities represent a GBP90.0m syndicated
rolling credit facility due for repayment in full in August 2014.
Interest is charged at LIBOR plus margin, where the margin is
dependent upon the Group's net debt: EBITDA ratio ranging from 2.00
to 3.00%. The Company and certain subsidiaries (as guarantor) have
entered into a composite guarantee in favour of the syndicated
lenders on account of the Company and certain subsidiaries (as
principal).
The Directors estimate the fair value of the Group's bank
borrowings to be equivalent to its book value. At 31 March 2013, of
the total committed borrowing facilities of GBP90.0m (2012:
GBP90.0m), the Group had available GBP5.0m (2012: GBP10.0m) of
undrawn facilities.
In addition the Group has an uncommitted overdraft facility of
GBP10.0m which is renewable annually in August and was undrawn at
31 March 2013.
The Group refinanced its facilities on 31 May 2013 and entered
into a GBP40.0m term loan and a GBP50.0m revolving credit facility
with its existing lenders; Barclays Bank plc, HSBC Bank plc, The
Royal Bank of Scotland plc and Clydesdale Bank plc. Further
information can be found in note 42.
26. Trade and other payables
Trade and other payables principally comprise the following
amounts:
2013 2012
(restated,
note 40)
GBPm GBPm
------------------------------------------ ----- -----------
Included within non-current liabilities:
Other payables 5.1 4.5
------------------------------------------ ----- -----------
Included within current liabilities:
Trade payables 22.3 25.8
Other payables 4.8 2.8
Social security and other taxes 9.0 7.9
Accruals 11.3 13.1
------------------------------------------ ----- -----------
47.4 49.6
------------------------------------------ ----- -----------
As at 31 March 2013, trade payables of the Group were equivalent
to 53 days (2012 restated: 56 days).
The Directors consider that the carrying amount of trade
payables approximates their fair value.
27. Obligations under finance leases and hire purchase
contracts
Present
Minimum value of
lease payments minimum
lease payments
------------------- ------------------
2013 2012 2013 2012
GBPm GBPm GBPm GBPm
-------------------------------------------------------- --------- -------- -------- --------
Amounts payable under finance leases and hire purchase
contracts:
Within one year 1.5 3.1 1.4 3.0
In the second to fifth years inclusive 0.7 1.9 0.7 1.7
2.2 5.0 2.1 4.7
Less: future finance charges (0.1) (0.3)
-------------------------------------------------------- --------- --------
Present value of lease obligations 2.1 4.7
Less: amounts due for settlement within 12 months (1.4) (3.0)
-------------------------------------------------------- --------- --------
Amounts due for settlement after 12 months 0.7 1.7
-------------------------------------------------------- --------- --------
It is the Group's policy to lease certain of its fixtures and
equipment under finance leases and hire purchase contracts. The
average term is 5 years. Interest rates are fixed at the contract
date. All leases are on a fixed repayment basis and no arrangements
have been entered into for contingent rental payments.
All lease and hire purchase obligations are denominated in
sterling.
There is no material difference between the minimum lease
payments and the present value of the minimum lease payments.
The fair value of the Group's lease and hire purchase
obligations approximates their carrying amount.
The Group's obligations under finance leases and hire purchase
contracts are secured by the lessors' charges over the leased
assets.
28. Provisions
2013 2012
GBPm GBPm
---------------------------- ----- -----
Onerous contract provision 5.2 6.2
Restructuring provision 1.6 4.1
Dilapidation provision 5.3 5.1
12.1 15.4
Current 4.0 5.9
Non-current 8.1 9.5
---------------------------- ----- -----
12.1 15.4
---------------------------- ----- -----
Onerous
contract Restructuring Dilapidation
provision provision provision Total
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ---------------- --------------- --------
Balance at the start of the
year 6.2 4.1 5.1 15.4
Additional provision in the
year 1.4 1.5 0.2 3.1
Utilisation of provision (1.6) (1.6) - (3.2)
Reversal of provision (0.8) (2.4) - (3.2)
Balance at the end of the year 5.2 1.6 5.3 12.1
-------------------------------- ----------- ---------------- --------------- --------
Included in the onerous contract provision is GBP4.2m (2012:
GBP5.0m) relating to a single loss making contract for a licensed
co-location facility. The contract has 3 years left until expiry
and the provision represents management's best estimate of the
Group's liability. The onerous contract provision also includes an
onerous lease provision relating to leasehold properties which end
between April 2013 and February 2016.
The restructuring provision is management's best estimate in
relation to redundancy costs which have incurred as a result of the
reorganisation. It is expected to be used within the next 12
months.
The dilapidations provision relates to the obligation to
reinstate certain properties to their former condition at the end
of their leases which end between July 2013 and September 2022.
29. Deferred tax
The following are the major deferred tax assets and liabilities
recognised by the Group and movements thereon during the current
and prior year.
Accelerated Share Retirement
Intangible tax option benefit
Hedging assets depreciation costs Provisions obligations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- ----------- ------------- ------- ----------- ------------ ------
At 1 April 2011 - (3.0) (2.7) 0.4 0.7 0.2 (4.4)
Credit/(charge) to income
(restated, note 40) - 2.4 0.6 0.3 (0.2) (0.4) 2.7
Credit to equity 0.3 - - 0.1 - 0.5 0.9
Effect of change in tax
rate
- income statement - 0.3 0.2 (0.1) (0.1) 0.1 0.4
- equity - - - - - (0.1) (0.1)
At 1 April 2012 (restated,
note 40) 0.3 (0.3) (1.9) 0.7 0.4 0.3 (0.5)
Credit/(charge) to income - - 1.1 (0.2) 0.9 (0.4) 1.4
(Charge)/credit to equity - - - (0.1) - 0.1 -
At 31 March 2013 0.3 (0.3) (0.8) 0.4 1.3 - 0.9
----------------------------- -------- ----------- ------------- ------- ----------- ------------ ------
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial
reporting purposes:
2013 2012
(restated,
note 40)
GBPm GBPm
-------------------------- ------ -----------
Deferred tax assets 2.0 1.7
Deferred tax liabilities (1.1) (2.2)
0.9 (0.5)
-------------------------- ------ -----------
A net deferred tax asset of GBP0.9m has been recognised as the
Group considers it is probable that there will be sufficient
taxable profits for the future deductions to be utilised.
At 31 March 2013 GBP1.5m (2012 restated: GBP1.1m) of the
deferred tax asset and GBP0.9m (2012 restated: GBP1.1m) of the
deferred tax liability is expected to be settled after more than
one year.
At 31 March 2013 the Group had capital losses carried forward in
respect of which no deferred tax assets were recognised amounting
to GBP3.6m (2012: GBP1.7m). The Group's capital losses have no
expiry date restrictions.
30. Share capital
Authorised Allotted and fully
paid
Number GBPm Number GBPm
--------------------------------------- ------------ ------ ------------- ------
Ordinary shares of 1p each
At 1 April 2011 100,000,000 1.0 75,221,874 0.8
Exercise of share options - - 26,500 -
Shares transferred to the employee - - 131,976 -
benefit trust
--------------------------------------- ------------ ------ ------------- ------
At 1 April 2012 and 31 March
2013 100,000,000 1.0 75,380,350 0.8
--------------------------------------- ------------ ------ ------------- ------
A total of 61,468 Ordinary Shares are held by the employee
benefit trust (2012: 105,015), for which the right to receive
dividends has been waived.
The Company has one class of ordinary share capital which
carries no right to fixed income.
31. Share premium account
GBPm
----------------------------------- -----
At 1 April 2011 37.5
Premium on issue of shares 0.1
----------------------------------- -----
At 1 April 2012 and 31 March 2013 37.6
----------------------------------- -----
32. Merger reserve
GBPm
------------------------------------------------- -----
At 1 April 2011, 1 April 2012 and 31 March 2013 57.5
------------------------------------------------- -----
In accordance with section 612 of the Companies Act 2006, the
premium on ordinary shares issued in relation to acquisitions is
recorded as a merger reserve. The reserve is not distributable but
can be used to make a bonus issue on fully paid shares or to make a
transfer to the profit and loss reserve, an amount equal to the
amount that has become realised, on either the disposal or write
down of the related investment.
33. Other reserves
Hedging Shares
to
Reserve be Issued Total
GBPm GBPm GBPm
---------------------------------------------- -------- ---------- ------
At 1 April 2011 - 1.4 1.4
Share option expense - 1.2 1.2
Transfer to retained earnings on exercise of
share options - (0.1) (0.1)
Deferred tax on shares to be issued reserve - 0.1 0.1
Loss recognised on cash flow hedge (1.4) - (1.4)
Deferred tax on cash flow hedge 0.3 - 0.3
At 1 April 2012 (1.1) 2.6 1.5
Share option expense - 0.2 0.2
Transfer to retained earnings on exercise of
share options - (0.1) (0.1)
Deferred tax on shares to be issued reserve - (0.1) (0.1)
At 31 March 2013 (1.1) 2.6 1.5
---------------------------------------------- -------- ---------- ------
Other reserves are shown net of taxation, as appropriate.
Hedging reserve
The hedging reserve represents hedging gains and losses
recognised on the effective portion of cash flow hedges. The
cumulative deferred gain or loss on the hedge is recognised in
profit or loss when the hedged transaction impacts the profit or
loss, or is included as a basis adjustment to the non-financial
hedged item, consistent with the applicable accounting policy.
Shares to be issued
Shares to be issued represents amounts expensed in the income
statement in connection with awards made under the Group's share
option scheme less any exercises or lapses of such awards.
34. Retained earnings/(losses)
GBPm
--------------------------------------- -------
At 1 April 2011 (restated) 46.7
Movement on pension deficit (2.0)
Deferred tax on pension reserve 0.4
Exercise of share options 0.1
Loss for the year (restated, note 40) (3.6)
Dividends (8.0)
At 1 April 2012 (restated, note 40) 33.6
Movement on pension deficit (0.8)
Deferred tax on pension reserve 0.1
Exercise of share options 0.1
Loss for the year (59.6)
Dividends (8.2)
--------------------------------------- -------
At 31 March 2013 (34.8)
--------------------------------------- -------
35. Notes to the cash flow statement
2013 2012
(restated,
note 40)
GBPm GBPm
----------------------------------------------- ------- -----------
Loss from operations (54.4) (0.8)
Adjustments for:
Depreciation of property, plant and equipment 13.8 14.0
Loss on disposal of property, plant and
equipment 0.3 0.8
Impairment of property held for sale 0.1 0.4
Impairment of goodwill 67.2 -
Impairment of other intangible assets 0.9 -
Intangible asset derecognition - 8.1
Amortisation of intangibles 1.6 2.9
Share option costs 0.2 1.2
Retirement benefit - difference between
contribution and amounts charged (1.5) (1.7)
Operating cash flows before movements
in working capital 28.2 24.9
Decrease in inventories 2.5 0.2
Increase in receivables (5.3) (6.0)
(Decrease)/increase in payables (4.9) 8.3
(Decrease)/increase in deferred income (2.7) 1.5
----------------------------------------------- ------- -----------
Cash generated by operations 17.8 28.9
Income taxes refund/(paid) 1.6 (8.4)
Interest paid (3.6) (3.4)
----------------------------------------------- ------- -----------
Net cash from operating activities 15.8 17.1
----------------------------------------------- ------- -----------
Additions to fixtures and equipment during the year amounting to
GBP0.8m (2012: GBPnil) were financed by new finance leases.
36. Reconciliation of net borrowings
2013 2012
(restated,
note 40)
GBPm GBPm
-------------------------------------------------- ------- -----------
Increase in cash and cash equivalents during the
year 0.8 0.5
Movement in borrowings (3.3) (5.8)
Movement in net borrowings during the year (2.5) (5.3)
Net borrowings brought forward (68.8) (63.5)
-------------------------------------------------- ------- -----------
Net borrowings carried forward (71.3) (68.8)
-------------------------------------------------- ------- -----------
Cash and cash equivalents 16.0 15.2
Other current borrowings (1.8) (3.0)
Non-current borrowings (85.5) (81.0)
-------------------------------------------------- ------- -----------
Net borrowings carried forward (71.3) (68.8)
-------------------------------------------------- ------- -----------
37. Operating lease arrangements
The Group as lessee
2013 2012
GBPm GBPm
---------------------------------------------------------- ----- -----
Minimum lease payments under operating leases recognised
in income for the year 8.7 9.2
---------------------------------------------------------- ----- -----
At the balance sheet date, the Group had outstanding commitments
for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
2013 2012
GBPm GBPm
---------------------------------------- ----- -----
Within one year 11.7 13.9
In the second to fifth years inclusive 31.6 35.5
After five years 18.2 11.5
---------------------------------------- ----- -----
61.5 60.9
---------------------------------------- ----- -----
Operating lease payments represent rentals payable by the Group
for land and buildings, fixtures and fittings, equipment and motor
vehicles.
38. Contingent Liabilities
Provision is made for the Directors' best estimate of all known
legal claims and all legal actions in progress. The Group takes
legal advice as to the likelihood of success of claims and actions
and no provision is made where the Directors consider, based on
advice, that the action is unlikely to succeed or a sufficiently
reliable estimate of the potential obligation cannot be made. The
Group has no material claims or actions as at 31 March 2013 (31
March 2012: GBPnil), other than an outstanding potential claim
relating to this year which the Board believe is fully covered by
insurance and the pension equalisation dispute. The Group has not
yet been able to agree a definitive position with the trustees of
the scheme and it has been necessary for the Group to seek
direction from the courts to resolve this issue. Taking into
account the legal advice received by the Group, this possible
change has not been reflected in the IAS 19 assumptions used at 31
March 2013. If such a change in assumption were to be made the
effect would be an increase in the present value of the defined
benefit obligation as at 31 March 2013 of approximately GBP2.5m -
GBP3.0m (31 March 2012: GBP2.0m - GBP2.5m).
During the year, the Group entered into a further Defined
Benefit scheme ("Other Scheme") resulting from the transfer of
employees under TUPE (Transfer of Undertakings (Protection of
Employment)) Regulations. The employees have the option to transfer
past service benefits which would result in a bulk transfer of
assets and liabilities into this Other Scheme. In view of the
inherent difficulty of predicting the number of employees that are
likely to transfer and the related IAS 19 actuarial assets and
liabilities, the Group cannot determine the likely financial
effect. However, the amount of any incremental liability arising
from this matter is not expected to have a material adverse effect
on the Group's consolidated financial position.
39. Share-based payments
Equity-settled share option plans
The Company has operated the following equity-settled share
option plans during the year:
Employee Share Plan (ESP)
Enterprise Management Incentive Plan (EMI)
Performance Share Plan (PSP)
Post flotation, no further awards will be made under the ESP or
the EMI plan.
The general terms and conditions of each plan are as
follows:
ESP EMI PSP
------------------------ ------------------------ ----------------------------- -----------------------------
Exercise price: Agreed market price All grants under All awards made under
of the Company's the EMI plan were the PSP have a nil
shares at date of made at prices higher exercise price. The
grant than the agreed number of options
market price of granted to eligible
the Company's shares Group employees is
at the date of grant. determined as a proportion
The grant prices of base salary using
reflected the grant the average of the
prices of option middle market quotes
rights under the for the Company's
ESP waived by option shares for the three
holders prior to days immediately
the adoption of prior to grant.
the EMI plan.
Vesting period: Generally three Vesting of all EMI Three years from
years from the date plan options was the date of grant.
of grant conditional upon
the flotation of
the Company. Consequently,
all the EMI plan
options vested in
November 2004.
Lapse date: Generally options All EMI plan options PSP options lapse
granted under the automatically lapse if they remain unexercised
ESP automatically if they remain unexercised after a period of
lapse if they remain after a period of ten years from the
unexercised after ten years from the date of grant. Furthermore,
a period of seven date of grant. Furthermore, options are forfeited
years from the date options are forfeited if the option holder
of grant. Furthermore, if the option holder ceases to be a Group
generally options ceases to be a Group employee before exercising
granted under the employee before the option.
ESP are forfeited exercising the option.
if the option holder
ceases to be a Group
employee before
exercising the option.
Performance conditions: None None. i) Scheme 1: EPS
The PSP awards are
subject to achieving
a performance condition
related to average
annual growth in
either EPS or profit
growth over a three-year
period of between
5% and 20% per annum.
This results in between
20% and 100% of the
options granted vesting.
Performance between
these points is on
a progressive scale.
ii) Scheme 2: TSR
The extent to which
options vest depend
on the Group's performance
over the three-year
period following
the award date. The
PSP awards are subject
to the Group's total
shareholder return
(TSR) performance
which will be measured
against the companies
comprising the FTSE
All Share Index (excluding
FTSE 100 Index and
investment trust
companies).
ESP
2013 2012
Weighted Weighted
average average
exercise exercise
Options price Options price
------------------------------------ --------- ---------- --------- ---------
Balance at the start of the year - - 62,500 194p
Exercised during the year - - (25,000) 186p
Expired during the year - - (37,500) 200p
Outstanding at the end of the year - - - -
Exercisable at the end of the year - - - -
------------------------------------ --------- ---------- --------- ---------
EMI
2013 2012
Weighted Weighted
average average
exercise exercise
Options price Options price
------------------------------------ -------- --------- -------- ---------
Balance at the start of the year 108,500 79p 110,000 80p
Exercised during the year - - (1,500) 96p
Forfeited during the year (9,000) 51p
Outstanding at the end of the year 99,500 82p 108,500 79p
Exercisable at the end of the year 99,500 82p 108,500 79p
------------------------------------ -------- --------- -------- ---------
PSP
2013 2012
Weighted Weighted
average average
exercise exercise
Options Price Options price
------------------------------------ ------------ --------- ---------- ---------
Balance at the start of the year 3,204,876 - 2,237,646 -
Granted during the year 1,805,000 - 1,383,071 -
Exercised during the year (39,327) - (42,284) -
Forfeited during the year (1,497,097) - (46,022) -
Expired during the year (764,000) - (327,535) -
------------------------------------ ------------ --------- ---------- ---------
Outstanding at the end of the year 2,709,452 - 3,204,876 -
Exercisable at the end of the year 61,453 - 105,000 -
------------------------------------ ------------ --------- ---------- ---------
The weighted average share price at the date of exercise for
share options exercised during the year was 175p for PSP.
The options outstanding at 31 March 2013 had a weighted average
exercise price of 3p, and a weighted average remaining contractual
life of 8 years. In 2012 options were granted on 8 June 2011, 5
August 2011, 29 November 2011 and 8 February 2012. The aggregate of
the estimated fair values of the options granted on those dates was
GBP2.2m.
In 2013 options were granted on 14 August 2012 and 7 December
2012. On 25 October 2012 the options granted on 14 August 2012 were
modified to reflect an averaging period of 1 month beginning 3
September 2012 rather than the 3 months prior to the grant date.
The aggregate of the estimated fair values of the options granted
on 14 August 2012 and 7 December 2012 was GBP1.7m. Including the
incremental fair value as a result of the modification, the
aggregate of the estimated fair values of the options granted
during the year was GBP1.9m.
The weighted average fair value of the share options granted
(excluding the modification) during the year was calculated using a
stochastic model, with the following assumptions and inputs:
2013 2012
--------------------------------- -------- ---------
Weighted average share price GBP1.95 GBP2.36
Weighted average exercise price Nil Nil
Expected volatility 39% 44%
Expected life 3 years 3 years
Weighted average risk-free rate n/a n/a
Weighted average dividend yield 5.62% 4.52%
--------------------------------- -------- ---------
The fair value of the share options modified during the year was
calculated using a stochastic model, with the following assumptions
and inputs:
2013
--------------------------------- --------
Weighted average share price GBP1.74
Weighted average exercise price Nil
Expected volatility 44%
Expected life 3 years
Weighted average risk-free rate n/a
Weighted average dividend yield 6.31%
--------------------------------- --------
Expected volatility was determined by calculating the historical
volatility of the Group's share price over the previous three years
and by comparison with comparable companies.
Other share-based plans
The Company introduced a Share Incentive Plan on flotation. All
employees were entitled to apply for free shares up to a value of
GBP1,250 depending on their period of service. The Company issued
259,558 shares in connection with this award.
In addition, employees are able to buy shares by deduction from
their pre-tax salary. Under the current SIP legislation this is
restricted to
a maximum of GBP1,500 in each tax year or, if less, 10% of
salary.
The Group recognised total expense of GBP0.2m relating to
equity-settled share-based payment transactions in 2013 (2012:
GBP1.2m).
40. Error restatement
The accounting irregularities are discussed in the Business
Review. The impact of the prior year adjustments on the Group's
income, equity and cash flows arising from the restatement exercise
are summarised below.
Reconciliation of consolidated income statement
Year to 31 March 2012
As previously
reported Error restatement Restated
GBPm GBPm GBPm
------------------------------- -------------- ------------------ ---------
Continuing operations
Revenue 264.6 (3.8) 260.8
Profit from operations before
amortisation of intangibles 10.8 (8.7) 2.1
Amortisation of intangibles (2.9) - (2.9)
------------------------------- -------------- ------------------ ---------
Profit/(loss) from operations 7.9 (8.7) (0.8)
Investment income 1.3 - 1.3
Finance costs (5.4) - (5.4)
Profit/(loss) before tax 3.8 (8.7) (4.9)
Taxation (1.0) 2.3 1.3
------------------------------- -------------- ------------------ ---------
Profit/(loss) for the year 2.8 (6.4) (3.6)
------------------------------- -------------- ------------------ ---------
Reconciliation of consolidated balance sheet
As at 31 March 2011
As previously
reported Error restatement Restated
GBPm GBPm GBPm
---------------------------------- -------------- ------------------ ---------
Non-current assets
Goodwill 181.4 - 181.4
Other intangible assets 15.8 - 15.8
Property, plant and equipment 65.9 (0.3) 65.6
263.1 (0.3) 262.8
---------------------------------- -------------- ------------------ ---------
Current assets
Inventories 13.4 (0.1) 13.3
Trade and other receivables 56.5 (5.0) 51.5
Cash and cash equivalents 15.8 (1.1) 14.7
---------------------------------- -------------- ------------------ ---------
85.7 (6.2) 79.5
Assets held for sale 2.7 - 2.7
---------------------------------- -------------- ------------------ ---------
88.4 (6.2) 82.2
---------------------------------- -------------- ------------------ ---------
Total assets 351.5 (6.5) 345.0
---------------------------------- -------------- ------------------ ---------
Current liabilities
Trade and other payables (47.3) (3.3) (50.6)
Current tax liabilities (4.0) 3.4 (0.6)
Obligations under finance leases
and hire purchase contracts (4.9) - (4.9)
Provisions (1.3) - (1.3)
Deferred revenue (50.5) (3.0) (53.5)
---------------------------------- -------------- ------------------ ---------
(108.0) (2.9) (110.9)
---------------------------------- -------------- ------------------ ---------
Net current liabilities (19.6) (9.1) (28.7)
---------------------------------- -------------- ------------------ ---------
Non-current liabilities
Obligations under finance leases
and hire purchase contracts (4.5) - (4.5)
Bank loans (68.8) - (68.8)
Provisions (5.2) - (5.2)
Deferred tax liabilities (4.4) - (4.4)
Deferred revenue (0.8) - (0.8)
Other non-current liabilities (5.8) - (5.8)
Retirement benefit obligations (0.7) - (0.7)
---------------------------------- -------------- ------------------ ---------
(90.2) - (90.2)
---------------------------------- -------------- ------------------ ---------
Total liabilities (198.2) (2.9) (201.1)
---------------------------------- -------------- ------------------ ---------
Net assets 153.3 (9.4) 143.9
---------------------------------- -------------- ------------------ ---------
Equity
Share capital 0.8 - 0.8
Share premium account 37.5 - 37.5
Merger reserve 57.5 - 57.5
Other reserves 1.4 - 1.4
Retained earnings 56.1 (9.4) 46.7
---------------------------------- -------------- ------------------ ---------
Total equity 153.3 (9.4) 143.9
---------------------------------- -------------- ------------------ ---------
Reconciliation of consolidated balance sheet
As at 31 March 2012
As previously
reported Error restatement Restated
GBPm GBPm GBPm
---------------------------------- -------------- ------------------ ---------
Non-current assets
Goodwill 181.4 - 181.4
Other intangible assets 4.8 - 4.8
Property, plant and equipment 64.2 (1.5) 62.7
250.4 (1.5) 248.9
---------------------------------- -------------- ------------------ ---------
Current assets
Inventories 13.7 (0.6) 13.1
Trade and other receivables 69.9 (12.4) 57.5
Current tax asset 0.5 5.5 6.0
Cash and cash equivalents 16.2 (1.0) 15.2
---------------------------------- -------------- ------------------ ---------
100.3 (8.5) 91.8
Assets held for sale 2.3 - 2.3
---------------------------------- -------------- ------------------ ---------
102.6 (8.5) 94.1
---------------------------------- -------------- ------------------ ---------
Total assets 353.0 (10.0) 343.0
---------------------------------- -------------- ------------------ ---------
Current liabilities
Trade and other payables (47.8) (1.8) (49.6)
Obligations under finance leases
and hire purchase contracts (3.0) - (3.0)
Provisions (5.9) - (5.9)
Deferred revenue (48.8) (4.2) (53.0)
---------------------------------- -------------- ------------------ ---------
(105.5) (6.0) (111.5)
---------------------------------- -------------- ------------------ ---------
Net current liabilities (2.9) (14.5) (17.4)
---------------------------------- -------------- ------------------ ---------
Non-current liabilities
Obligations under finance leases
and hire purchase contracts (1.7) - (1.7)
Bank loans (79.3) - (79.3)
Provisions (9.5) - (9.5)
Deferred tax liabilities (0.7) 0.2 (0.5)
Derivative financial instruments (1.4) - (1.4)
Deferred revenue (2.8) - (2.8)
Other non-current liabilities (4.5) - (4.5)
Retirement benefit obligations (0.8) - (0.8)
---------------------------------- -------------- ------------------ ---------
(100.7) 0.2 (100.5)
---------------------------------- -------------- ------------------ ---------
Total liabilities (206.2) (5.8) (212.0)
---------------------------------- -------------- ------------------ ---------
Net assets 146.8 (15.8) 131.0
---------------------------------- -------------- ------------------ ---------
Equity
Share capital 0.8 - 0.8
Share premium account 37.6 - 37.6
Merger reserve 57.5 - 57.5
Other reserves 1.5 - 1.5
Retained earnings 49.4 (15.8) 33.6
---------------------------------- -------------- ------------------ ---------
Total equity 146.8 (15.8) 131.0
---------------------------------- -------------- ------------------ ---------
Reconciliation of consolidated cash flow statement
Year to 31 March 2012
As previously
reported Error restatement Restated
GBPm GBPm GBPm
---------------------------------------- -------------- ------------------ ---------
Net cash from operating activities 17.0 0.1 17.1
Investing activities
Purchases of property, plant and
equipment (14.0) - (14.0)
Proceeds on disposal of property,
plant and equipment 0.1 - 0.1
Net cash used in investing activities (13.9) - (13.9)
---------------------------------------- -------------- ------------------ ---------
Financing activities
Dividends paid (8.0) - (8.0)
Repayment of obligations under
finance leases and hire purchase
contracts (4.7) - (4.7)
Net drawdown on rolling credit
facilities 10.0 - 10.0
Net cash used in financing activities (2.7) - (2.7)
---------------------------------------- -------------- ------------------ ---------
Net increase in cash and cash
equivalents 0.4 0.1 0.5
Cash and cash equivalents at beginning
of year 15.8 (1.1) 14.7
---------------------------------------- -------------- ------------------ ---------
Cash and cash equivalents at end
of year 16.2 (1.0) 15.2
---------------------------------------- -------------- ------------------ ---------
41. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are
disclosed in note 16 to the individual Company financial
statements. Transactions with Directors who are the key management
personnel are disclosed in the remuneration report.
42. Post balance sheet events
On 31 May 2013, the Group successfully completed a refinancing
of its bank facilities and entered into a GBP40.0m term loan and a
GBP50.0m revolving credit facility which is provided by its
existing lenders: Barclays Bank plc, HSBC Bank plc, The Royal Bank
of Scotland plc and Clydesdale Bank plc. The limit on the revolving
credit facility will be reduced by GBP5.0m on 30 November 2014 to
GBP45.0m and a further GBP5.0m on 30 November 2015 taking the
facility to GBP40.0m. The term loan and remaining GBP40.0m on the
revolving credit facility is due for repayment in full in June
2016. Interest is charged at LIBOR plus margin, where the margin is
dependent upon the Group's net debt: EBITDA ratio ranging from 2.85
to 3.95%. The Company and certain subsidiaries (as guarantor) have
entered into a composite guarantee in favour of the lenders on
account of the Company and certain subsidiaries (as principal).
The Royal Bank of Scotland plc will continue to provide a
GBP10.0m overdraft facility. This will be reduced by GBP2.5m to
GBP7.5m from 1 April 2014 and by a further GBP2.5m to GBP5.0m from
1 August 2014.
The financial information set out above does not constitute the
Group's statutory accounts, within the meaning of section 435 of
the Companies Act 2006 but is derived from those accounts.
Statutory accounts for 2012 have been delivered to the Registrar of
Companies and those for 2013 will be delivered following the
Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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