TIDMDGB
RNS Number : 2040S
Digital Barriers plc
29 September 2017
29 September 2017
Digital Barriers plc
("Digital Barriers" or the "Group")
Audited Results for the year ended 31 March 2017
Digital Barriers (AIM: DGB) the specialist provider of visually
intelligent technologies to the global surveillance, security and
safety markets, announces its audited results for the year ended 31
March 2017.
Financial Highlights
-- Revenues from continuing operations grew 25% to GBP26.5 million (2016: GBP21.1 million)
o International revenues grew 34% to GBP24.1 million or 91% of
total revenues (2016: GBP18.0 million, 85%)
-- Adjusted loss before tax increased to GBP9.8 million (2016: GBP4.7 million)
o This follows several key sales failing to close in the final
quarter
-- Loss for the year GBP16.7 million (2016: GBP12.6 million)
-- Far-reaching internal review of the Group subsequently undertaken
Internal Review and Outcomes
-- The review concluded that the Group is in practice operating as two distinct businesses:
o A 'Video Business,' built around EdgeVis and SmartVis
technology and incorporating Brimtek in the US, and a 'Thruvision
Business', built around the Group's Thruvision people-screening
technology.
o The two businesses share very few end customers and have
different business and financial characteristics.
-- The review confirmed that the unpredictable nature of sales
cycles was unlikely to change in the near to medium term and, while
the Group has class-leading technologies, procurements are often
part of larger programmes with complex budgets and delivery
schedules.
-- The review further concluded that these challenges were
especially relevant to the Video Business and less relevant to the
Thruvision business. Thruvision, although still modest in revenue
terms, benefits from protected technology that is unique in its
field and an emerging customer base that includes the US
Transportation Security Administration ("TSA").
-- The Board concluded that to continue under the Group's
current structure would stretch the resources available to the
Group against a backdrop of forecast uncertainty. A sale process
for the Video Business was therefore undertaken.
-- The Board received a number of indicative offers from
interested parties and is currently in advanced discussions with
two parties to sell the Video Business (the " Potential
Transaction") which are expected to conclude in the near
future:
o The Potential Transaction remains subject to further due
diligence and the agreement of binding legal documentation. As
such, there can be no certainty that discussions will lead to a
transaction being completed.
o The cash consideration being offered under both proposals is
expected to be in excess of the current market capitalisation of
the entire Group at close of business on 28 September 2017.
o The Potential Transaction would be conditional upon the Group
obtaining approval from its Shareholders and the Board will provide
an update for Shareholders in due course.
-- Conditional on completion of the Potential Transaction, the
Group would be renamed "Thruvision Group PLC, " reflecting its sole
focus on the people-screening market. This would create a leaner,
focused business based upon patented and proven technology,
targeting a clear growth market.
o Tom Black would assume role of Executive Chairman, Colin Evans
Managing Director of the new Group.
Current Trading
Trading in the first half of the current financial year has been
good with unaudited revenues to the end of August 13% ahead of the
same period last year. Backlog has grown even more strongly with
Brimtek performing particularly well in the first half although the
lower margin nature of these sales will reduce the profit impact in
H2. Asia, with sales at 50% ahead of last year, has also recovered
well although EMEA is slightly behind its comparable sales on last
year. Despite this healthy momentum, sales cycles remain
unpredictable and some slippage of expected opportunities into H2
has occurred. The business has continued to incur losses albeit
these are reduced from last year.
Commenting on the results, Tom Black, Executive Chairman of
Digital Barriers, said:
"Following the disappointing FY17 performance, we have
undertaken a detailed review of our operations. This review has
confirmed to us the unmatched strength of the technologies under
our ownership, but also made clear the reality that their true
potential cannot be realised under one banner with the resources we
have available. Acting on these findings, we are well-advanced with
discussions to sell the Video Business and our energies are focused
on securing a successful outcome to this process. In due course we
will update Shareholders on our progress and seek their approval on
any transaction that we believe would maximise shareholder
value."
For further information please
contact:
+44 (0)20 3553
Digital Barriers plc 5888
Tom Black, Non-Executive Chairman
Colin Evans, Chief Operating Officer
Investec Bank plc (Financial Adviser, +44 (0)20 7597
NOMAD & Broker) 5970
Andrew Pinder / Sebastian Lawrence
/ Patrick Robb
+44 (0)20 3727
FTI Consulting LLP 1000
Edward Bridges / Matt Dixon / Harry
Staight
About Digital Barriers:
Digital Barriers provides visually intelligent solutions to the
global surveillance, security and safety markets. We deliver
zero-latency streaming and analysis of secure video and related
intelligence over wireless networks, including cellular, satellite,
IP mesh and cloud, utilising significantly less bandwidth than
standard technologies.
Our rapidly-installed fixed and mobile solutions for covert,
remote and wide-area deployments, as well as vehicle and body-worn
applications, have been sold into more than fifty countries, and
have been proven in some of the world's most demanding operational
environments. We also provide advanced video content analysis and
body scanning to identify safety concerns and threats in
real-time.
www.digitalbarriers.com
Chairman's Statement
In previous updates, we have highlighted the unpredictable and
extended sales cycles that we face as a business that sells
predominantly to government customers overseas. This leads to
challenges in accurately forecasting the timing of sales and
revenues, which in turn creates risk in meeting our annual
financial expectations for the business. This was the case during
the period, where, despite headline revenue growth of 25% to
GBP26.5 million (2016: GBP21.1 million) and a strong performance in
the US following the Brimtek acquisition, several expected key
sales failed to close in the final quarter of the year ended 31
March 2017. This contributed in an adjusted loss before tax of
GBP9.8 million (2016 loss: GBP4.7 million) which was clearly a
disappointing result for the Group
It has become clear that, despite the class-leading nature of
our technologies and the flagship nature of our customers, the
business is not well-suited to operating on the public markets with
these material challenges as outlined above. Therefore, we decided
to undertake a far-reaching internal review of the Group.
The review and our findings
The headline conclusion of the review was that the Group was in
practice operating as two distinct businesses: a Video Business and
the Thruvision people-screening business, details of which are set
out below. Whilst they shared some geographical overlaps it was
clear that, they shared very few end customers and have different
business and financial characteristics.
The review confirmed that the unpredictable nature of the sales
cycles we face was unlikely to change in the near to medium term,
and, just as importantly, that larger sales would likely exacerbate
the lumpy nature of our revenue streams. The Group has
class-leading technologies, which are now being acquired by
flagship customers around the world, but these procurements are
often part of larger programmes with complex budgets and delivery
schedules. Our conclusion was that to continue as we are would
stretch the financial resources available to the Group within its
current structure and that we would be doing so against this
backdrop of forecast uncertainty and its consequent risk to
period-end reporting.
The review further concluded that the above challenges were
especially relevant to the Video Business, and are less relevant to
our Thruvision business. Although Thruvision is still modest in
revenue terms, it benefits from protected technology that is unique
in its field, and an emerging customer base that includes the US
Transportation Security Administration. Since Thruvision and the
Video Business are different in nature, the Group naturally divides
into two business units with different operating models.
The Video Business, which is based around EdgeVis live video
streaming technology, SmartVis video analytics and incorporates
Brimtek in the US (the "Video Business"), has the following
characteristics:
-- Operationally proven technology: a proven set of product
offerings, strong penetration into a number of regional markets
(notably the US) and an exciting roadmap, including facial
recognition and body-worn video technology;
-- Complex solutions: our solutions generally form part of
broader, more complex systems which has adverse consequences for
the level of control the Group can exert over procurements and
sales cycle durations; and,
-- Two distinct markets: core revenues are generated from direct
sales into high barrier-to-entry government agencies, with
penetration into the more competitive network-video market through
global technology partners.
The Group's Thruvision people-screening business (the
"Thruvision Business") has the following characteristics:
-- Operationally proven technology: a solution to current
counter-terrorism challenges which has been successfully used
operationally by both the Transportation Security Administration
and G4S;
-- Limited competition and simplicity of deployment: although
there are many people-screening systems deployed globally,
Thruvision has the great advantage of reliable stand-off operation
(i.e. with a detection range over 5m) and simple, standalone
deployment, avoiding the need for any complex integration into
existing infrastructure; and
-- Multiple potential markets at an early stage of development:
Thruvision was originally developed for the counter-terrorism
market but has now also demonstrated applicability in other
markets, namely customs applications (to prevent cash and narcotics
smuggling) and loss-prevention (to prevent theft from warehouses).
The entire people security screening market has been estimated at
$34Bn over 2015 - 2020 by analysts. 1
1 "People Security Screening Market, Technology and Industry
2015 - 2020", Homeland Security Research
Given these findings, the Board concluded that alternative
corporate and funding structures would be in the best interests of
the Group, its shareholders and stakeholders.
Working with its advisers, the Board initially considered a sale
of the entire Group, but, following a discreet marketing exercise,
it found that given the fundamental differences between the two
businesses, particularly in their respective levels of maturity and
financial profiles, it would be highly unlikely that any single
buyer for the Group would be found.
This conclusion resulted in a Video Business sale process,
managed by Investec Bank plc, which involved approaching a full
range of potential trade and financial buyers. Following a
multi-staged and competitive process, the Board received a number
of indicative offers from interested parties and is currently in
advanced discussions with two parties to sell the Video Business
(the "Potential Transaction") which are expected to conclude in the
near future. However, the Potential Transaction remains subject to
further due diligence and the agreement of binding legal
documentation and, as such, there can be no certainty that the
discussions will lead to a transaction being completed. The cash
consideration being offered under both proposals is expected to be
in excess of the current market capitalisation of the entire Group.
Such proceeds, after repayment of existing indebtedness and
transaction costs, would provide a robust balance sheet for the
ongoing Thruvision business, with a likely return of excess funds
to shareholders in due course. The Potential Transaction would be
conditional upon the Group obtaining approval from its
Shareholders. The Board will provide an update for shareholders in
due course.
As a consequence of these ongoing discussions, the Board has
decided that, as Thruvision already has strong brand recognition in
its own right, the Video Business would take with it the Digital
Barriers name. Thus, it is the Board's intention that, conditional
on completion of the Potential Transaction, the remaining Group
would be renamed "Thruvision Group PLC", reflecting its sole focus
on the people-screening market.
Implementing and managing change
As we are now entering a period of significant change for the
business, the Board has decided that it is appropriate for me to
become more "hands-on" and it is intended that I will assume the
role of Executive Chairman effective on the completion of the
Potential Transaction. Colin Evans, as Managing Director, will run
the business day-to-day and we will continue to co-operate closely
as we have done in our previous roles at Digital Barriers and
previously at Detica Group plc. It is intended that Zak Doffman,
CEO, and the employees of the Video Business would leave the
Company on completion and work with its new owners to develop and
implement a new, standalone strategy.
Reflecting the smaller size of the Thruvision Business, it has
also been decided to reduce Colin Evans' and my annual
remuneration, by 25% conditional on the successful completion of
the Potential Transaction. Contingent on completion, many other
aspects of the business, such as our office space, would also be
greatly reduced. However, we do not envisage any material reduction
in headcount as the business seeks to capitalise on its exciting
growth potential for Thruvision.
Two other colleagues have taken this opportunity to make their
own changes. Bernie Waldron has decided to step down from the Board
at the AGM as he is increasingly focused on private company
directorships and Sharon Cooper has decided that she would also
step down after effecting a smooth transition following a
successful conclusion of the Potential Transaction and seek a new
role elsewhere. I am immensely grateful to them both for assisting
us through this recent period of intense activity and change and I
wish them both well for the future. We have recently appointed an
interim finance director, to report to the Board and a search for a
permanent replacement for Sharon is underway.
Looking to the future
The Group has not achieved the original goals set for it at the
time of its formation. The technology and intellectual property
that the Group acquired is undoubtedly proven, but the
competitiveness of the global video market, combined with the
complexity of often-protracted sales cycles, prevented us from
driving the revenue growth required to deliver against our plans.
That said, with a focus solely on the video market, and an
alternative corporate structure and funding provisions, I am
confident the Video Business will deliver a successful outcome
under appropriate new ownership.
Thruvision is undoubtedly a class-leading and innovative
technology, and one that has now been adopted by some of the most
aspirational customers for this type of capability anywhere in the
world. The solution is straightforward to operate and is usually
purchased as a standalone solution. As such it is not dependent on
integration into larger programmes with inherently uncertain
deployment schedules. With our entire focus now on building and
converting the robust sales pipeline for Thruvision already in
place, I have real confidence in what can be achieved. The Board
believes that the resulting Thruvision Business is in a strong
position to capitalise on these future opportunities.
The successful completion of the Potential Transaction would
leave a leaner, focused business, based upon patented and
operationally proven technology, and we are targeting a clear
growth market. In the following sections we lay out our strategy
and the market opportunity which, in combination, make me very
optimistic about Thruvision's future.
Business Review
Overview
Through the course of the year, the Group was run as a single,
integrated business across our three regions: EMEA, from regional
offices in London, Nice and Dubai; Asia-Pacific, from regional
offices in Kuala Lumpur and Singapore; and the Americas from an
office in the Washington DC Metropolitan area. Our regional teams
sold and supported both the full range of Video Business solutions
and Thruvision.
The Group reported headline revenue growth of 26% to GBP26.5
million (2016: GBP21.1 million), which included GBP24.5 million
(2016: GBP18.5 million) contributed by the Video Business, and
GBP2.0 million (2016: GBP2.6 million) contributed by Thruvision.
Despite this headline revenue growth and a strong performance from
the US, several expected key sales failed to close in the final
quarter of the year ended 31 March 2017.
In the light of decisions taken by the Board since the end of
the reporting period, this section separately reviews performance
of the Video and Thruvision businesses in turn.
Video Business
Business Performance
The Video Business reported revenues of GBP24.5m (FY16,
GBP18.5m), with gross margin decreasing to 53% (FY16, 58%), due to
the incorporation of Brimtek, which is naturally a lower margin
business. Despite this growth, the unpredictable nature of the
sales cycles and the fact that procurements are often part of
larger programmes with complex budgets and delivery schedules, a
number of contracts expected to be awarded during the period
slipped past the financial year end and into the current financial
year, negatively impacting performance relative to both our and the
market's expectations.
Americas
Our strategic objective of becoming a key technology partner for
a range of US Government agencies with critical surveillance
requirements continued in the period and we succeeded in
establishing EdgeVis Live as a leading video surveillance platform
for cellular telecommunications-based operations. This generated
several high-profile sales in the region with Government customers.
We also continued to make good progress with commercial customers
for EdgeVis with a series of smaller orders in the period from a
leading US-based provider of managed communications services into
the energy and maritime sectors.
We continued our Brimtek strategy of working with only a handful
of technology partners whose products provide synergy with our
EdgeVis platform. This yielded a number of orders from the
Department of Justice (totalling GBP8.1m), the Department of
Homeland Security (GBP1.5m) and the Department of Defense
(GBP0.8m).
Asia Pacific
Performance in Asia Pacific was disappointing in the period and
whilst the Video Business remains well positioned on a number of
significant government defence and border control programmes,
delays in the timing of their award saw weak performance from this
region. We continued to benefit from repeat purchases of
EdgeVis-based solutions by a national police force (GBP0.7m
follow-on), continued transport infrastructure CCTV spend (GBP1.0m
follow-on) and a new body-worn video solution win with a major
regional police force (GBP1.0m).
EMEA
As reported at the interim results, the extra management focus
on EMEA had a positive impact on FY16's poor performance. We saw
the extension of BT Redcare's multi-year EdgeVis Live contract
(worth GBP1.9m), two separate sales into a major European Ministry
of Defence for our new SmartVis Face software and for EdgeVis
(totalling GBP0.9m), repeat orders from a major European railway
operator for EdgeVis (GBP0.4m) and an order from a North African
national police force for EdgeVis (GBP0.4m). Towards the end of the
period we also signed our first SmartVis Face software licencing
deal with Careem, a ride-hailing app firm based out of Dubai.
Solutions and products update
Our video-based solutions and products are built around proven
proprietary intellectual property that fall into two categories:
EdgeVis, our platform for very efficiently streaming live video
over wireless networks; and SmartVis, our suite of video analytics
applications including face recognition.
In the reporting period, several new EdgeVis capabilities were
introduced:
-- Streaming from body-worn devices based on new platforms from Far East OEM manufacturers;
-- A next generation hardware platform to form the basis of future EdgeVis hardware products;
-- A new EdgeVis encoder incorporating a strategic partner's IP Mesh Radio technology; and,
-- Deep integration with market-leading Video Management Software product, Milestone.
In the reporting period, our SmartVis platform was expanded as
follows:
-- Face recognition specialising in non-consensual, real-time performance;
-- Embedding our SafeZone software on our EdgeVis encoders; and,
-- Embedding SafeZone into several more commercial video alarm management platforms.
Operations and people
We continued to refine our operations to provide timely and
cost-effective support to sales. In particular, we invested in our
US operation and Kuala Lumpur office to support their growth. We
also took the opportunity to reduce costs in areas performing less
well and as a result closed our office in Seoul, South Korea and
significantly downsized our Singapore operation.
Thruvision business
Business performance
Thruvision reported revenues of GBP2.0m (FY16, GBP2.6m), with
gross margin increased to 43% (FY16, 37%). Unit sales during the
period were inhibited by the fact that our main Asian customer took
longer than expected to deploy the units they acquired at the end
of FY16 and by the TSA's decision to fund enhancements to the
product before operationally testing it for use in the US market.
Encouragingly, both of these have now been achieved, with our Asian
customer recently requesting quotations for new units and the TSA
accepting the new product which was launched in the US over Summer
2017. Outside of these main activities we saw repeat purchases by
customers in Asia and the UK, and new orders from customers in the
Middle East / North Africa and Central American regions.
As we have progressed from very early adopters of Thruvision to
the more mainstream customer base today, we have found that the
sales cycle for new customers is between 12 and 18 months, while
repeat customers tend to order more units on an annual budget cycle
basis. As such, we started a number of important strategic business
development initiatives in the second half of the period which we
expect to see yielding order flow from autumn 2017 onwards. These
initiatives include:
-- US government - in addition to TSA support we have been
actively demonstrating Thruvision to a number of federal government
agencies in the areas of border control mass-transit and public
area security and defence;
-- Asia customs - capitalising on the traction we have already
achieved with customs agencies in region, we have been targeting
other national customs organisations given the clear operational
benefits provided by Thruvision;
-- Asia mass transit - based on pilots running as a result of
the large FY16 order, we have been targeting the significant mass
transit sector in China and expect further progress resulting from
these pilot programmes given the success achieved to date; and,
-- UK high profile targets and events - given UK Government
concerns over further terrorist attacks, we have been actively
piloting Thruvision at high profile government and commercial
locations, and through G4S, at a series of high profile conferences
and public concerts / festivals.
We also expect existing customers to buy further tranches of
units as Thruvision continues to prove its worth operationally.
Technology update
Significant technological progress was made as a result of TSA
funding. This led to the delivery of initial prototype units at the
end of the reporting period and these have since successfully
passed further comprehensive field trials. The second phase of this
contract is planned for delivery later in this current financial
year and this will extend functionality to improve outdoor
performance and add initial functionality to help categorise what
concealed items are made from (e.g. metal versus organic matter).
Together with key suppliers, design improvements were made and
should enable further reductions in build cost and manufacturing
efficiency during FY18 and beyond as unit manufacturing throughput
increases. Finally, progress was made with foreign language
support, particularly Mandarin, which should support ongoing sales
efforts in Asia.
Operations and people
Given the TSA award, we decided to increase the amount of time
members of our US team spend on Thruvision through the final
quarter of the period and we expect this to continue throughout the
current financial year. We have also continued to review our
Thruvision team in the light of the opportunities available to us
and we will be strengthening the engineering team during the
current financial year to make the business more resilient in this
regard. Finally, the new production facility we completed in our
Didcot office came fully on stream during the period and this,
together with the work on supply chain, means we are confident that
we can manage rapid growth within our existing manufacturing
footprint.
Update on Strategy
As set out in the Chairman's Statement and given the proposed
divestment of the Video Business, the strategy section which
follows relates solely to the Thruvision Business.
Overview
Thruvision is a proven people-screening technology for
"stand-off" detection of weapons, explosives and contraband under
clothing. It is a specialist thermal camera, operating in the far
infrared range of the electromagnetic spectrum, which sees
concealed objects as relatively cold against warm bodies.
We acquired Thruvision in 2012, and since then, significant
effort has been invested in taking what was a very early stage,
pioneering technology to the point where it can be positioned as a
solution to two major global challenges, namely:
-- Counter-terrorism - the rapid increase in "marauding-type"
terrorist attacks requires new, safe and flexible people-screening
solutions to protect high profile buildings and events, transport
infrastructure, and public areas.
-- Contraband detection - the smuggling of contraband concealed
in clothing across national borders and in and out of high security
facilities remains a major problem, and security solutions that
provide a fast, safe and effective method of screening people are
needed.
Taken together, these form part of a global people security
screening market that is estimated to be worth $34Bn over 2015 -
2020(1) , and Thruvision is uniquely placed to meet these
challenges because of a number of key differentiators, as
follows:
1. Unique patented technology: Thruvision has secure, exclusive
rights to exploit patented TeraHertz imaging research work
completed by the Rutherford Appleton Laboratory and the European
Space Agency. Thruvision uniquely operates at a specific frequency
giving excellent screening characteristics and providing
manufacturing barriers to entry for competitors.
2. "Stand-off" capability: people-screening technology in
current service can only operate at very short-range (less than 1
metre) which greatly limits its usability. Thruvision uniquely sees
objects concealed on people at distances greater than 5 metres,
opening up a wide range of new operational uses.
3. Operationally proven: in the last two years Thruvision has
seen an accelerating rate of deployment and is now operational in
12 countries. The publicised adoption of the product by G4S in
spring 2017 has given the security technology market confidence
that Thruvision is now ready for widescale deployment.
4. New US product platform now available: a new generation of
the Thruvision product was launched for the US market, following
development funded by TSA. The new product meets TSA's exacting
counter-terrorism requirements for mass transit and public area
people-screening.
1 . People Security Screening Market Technology & Industry
2015-2020, Homeland Security Research
People-screening Market and Competition
The threat posed by marauding terrorist attacks in particular
has led to a fundamental re-evaluation of the type of technology
needed to screen people effectively today. Unlike existing airport
scanners, new people screening technology must offer a number of
key capabilities to be useful for the broader range of applications
that the market now needs.
-- "Stand-off" - defined by TSA as at least 5 metres for
explosives and guns, stand-off detection is vital as it gives
security staff time to take pre-emptive action in the event that
explosives or a weapon are seen. It also allows covert screening if
required.
-- Safe and respectful of personal privacy - the rollout of
existing airport scanners encountered public resistance given they
actively irradiate the body and reveal high levels of anatomical
detail. Any new people-screening technology must be "passive" (i.e.
require no active irradiating of the body to work) and ensure no
anatomical detail is shown.
-- Intuitively simple to operate - any new people-screening
technology should provide the operator with a real-time video view
of the person being screened so that the operator can quickly
interpret the size, shape and likely threat posed by concealed
items. Most competing products simply provide alarms to the
presence of objects but do not allow the operator to see what they
are.
-- No operational disruption - in many applications (e.g. metro
stations), airport-style security checkpoints are infeasible as the
environment is uncontrolled and the volume of people is too great,
so any new people-screening technology must be able to screen
people without the need for removing clothing or personal effects,
and preferably while they are moving.
In 2015, ongoing market evaluation work by the British and US
governments recognised that Thruvision was one of a handful of
candidate technologies that fully filled this capability gap. This
led to the award of the TSA contract in September 2016 to
accelerate product development to fully meet its exacting
counter-terrorism requirements for mass transit and public area
people-screening
Other competitors have also attempted to meet this need. A
similar type of sensor operated at a lower frequency than
Thruvision but its inferior performance led to it failing to reach
critical mass in the market and this company ceased manufacturing
in 2014.
A British-based passive stand-off sensor exists and it too has
received TSA funding. Unlike Thruvision, it does not produce
real-time video for operators and, while technically with merit,
market feedback on price and usability is not favourable. Given the
technology remains at the prototype stage, it is not clear that
this competitor product will ever move into volume production.
Finally, newer types of higher-throughput active scanners are
emerging, and are seeking to address the size and disruption
shortcomings of existing airport scanners. However, they do not
adequately close the gap in capability that the market is looking
for as they lack stand-off capability and a real-time video display
for operators. Most importantly, they still use active irradiation
as their detection methodology.
Growth opportunity for Thruvision
In the last 18 months, Thruvision's technology advantages have
been increasingly clear to our market, particularly in key
geographies. Release of the new product in the US and the very
public adoption of Thruvision at major UK events by G4S in spring
2017 has led to significant levels of sales interest. We are
confident that Thruvision now has the potential for mass market
adoption in counter-terrorism and contraband detection.
In counter-terrorism, TSA and G4S support has conclusively shown
that it is ready for operational use. Our opportunity is for
Thruvision to provide additional security assurance at major
international conferences, exhibitions and entertainment events,
rail and subway transport hubs, airport entrances, and entrances to
public and government buildings. Sadly, recent terrorist attacks
have forced wide-ranging reviews of security and this has driven a
significant uplift in new inbound sales enquiries for
Thruvision.
Contraband detection is more amenable to direct measurement of
return on investment. Thruvision customs agency users in Asia are
routinely detecting and confiscating drugs, cash or other
controlled items at airports, seaports and at land border
crossings. We see this as a highly attractive sector due to strong
international collaboration and clear return on investment.
Thruvision is also being used by commercial organisations to screen
staff leaving high value goods warehouses for stolen items. Given
the huge growth in home delivery, we see this as another potential
high growth area. Finally, high-security government facilities like
prisons have a requirement to control the inflow of illicit items
and we are currently in discussions with and tendering to several
such agencies.
In summary, we believe a substantial new international market,
measured in tens of thousands of units over the next five years, is
becoming available and that, with our key differentiators now in
place, we have the opportunity and focus to drive rapid, organic
and profitable growth of Thruvision.
Routes to market
Our primary route to market for Thruvision is through local
partners, supplemented by the involvement of our own sales force
where appropriate. Partners create sales opportunities and take the
lead in their pursuit and also provide ongoing support and
maintenance.
Increased international market awareness of Thruvision,
supported by G4S adoption, has allowed us to migrate from
smaller-scale sales agents, to larger country- or region-wide
security system integrators as our primary route to market. We
select partners on a non-exclusive basis, and on the strength of
their regional presence. We also select on their technical pre- and
post-sales support capabilities.
We are seeing growing interest from other global security and
system integration prime contractors. These companies are seeking
competitive differentiation by being the first to adopt new
capabilities as part of their managed service offerings. One
consequence of adoption by this type of partner is a potential move
towards operational budgets rather than capex budgets as this is
how such contracts tend to operate. We are actively exploring how
this can be exploited to further speed adoption.
We continue to work directly with TSA and other agencies in the
US Government. Our established US business and permanent sales
presence in Washington, DC, is essential and ensures Thruvision's
US credentials. Once we have achieved critical mass of sales to US
government we intend opening up further integration partner
relationships.
Product strategy
Thruvision's superior sensing performance is achievable because
it uniquely operates at the 250GHz, far infrared frequency, whereas
most competitors operate at lower frequencies (effectively in the
microwave band) which are less effective but technically easier to
manufacture. Thruvision's high frequency requires very specialist
components and high-precision manufacturing techniques which we
have mastered with our trusted supply-chain partners drawn from the
aerospace sector in the UK and US. Today we have a proven
manufacturing capability that is able to meet forecast demand for
the next 12 months, and we are well advanced in our plans to add
further US-based production capacity within this timescale.
Development funding from TSA over the last 18 months has
resulted in several further key product innovations being
incorporated into a new and more capable product that meets TSA's
exacting requirements for the US transportation market. These
include improved sensor sensitivity, more adaptable sensor field of
view and greater ease of use for security staff. Looking forward,
we expect to maintain close working relationships with key
government technologists in this field in both the UK and US and
expect further customer-funded developments based on this new
platform.
Overall, given the progress made in the last 18 months and the
strength of customer input to our roadmap, we are very confident
that we can maintain our technical market leadership for the
foreseeable future.
Business scalability
Awareness of Thruvision, and the fact that it is now
operationally proven gives us the opportunity for greater sales
force leverage. This means that our sales focus will gradually
shift from today's relatively direct end-customer engagement to a
greater focus on finding and training increasingly capable
integration partners to give us access to the broader international
market that we believe exists for Thruvision.
We will continue to invest in our R&D programme, with the
intention of securing further funding from our primary government
customers wherever possible. Our efforts to outsource significant
elements of manufacturing are well advanced and we expect to see
continued product design effort with economies of scale allowing us
to steadily reduce unit production costs. A major investment in our
principal facility in Didcot was completed in early-2016 giving us
significant headroom for further growth.
Overall, we do not believe further major cost base investment is
needed to drive the anticipated revenue growth. This, combined with
the opportunity to either widen product gross margin through more
efficient sourcing and manufacture or reduce product pricing to
expand demand, should ensure Thruvision can be healthily and
sustainably profitable.
Financial review
For the year ended 31 March 2017, Digital Barriers delivered
revenues from continuing operations of GBP26.5 million (2016:
GBP21.1 million) generating an adjusted loss before tax of GBP9.8
million (2016 loss: GBP4.7 million) and an adjusted loss per share
of 6.04 pence (2016 loss: 3.82 pence). On an unadjusted basis, the
loss for the year was GBP16.7 million (2016 loss: GBP12.6 million)
and loss per share was 9.98 pence (2016 loss: 7.42 pence).
Revenue
GBP26.5 million of continuing revenue in the year, includes
GBP24.5 million (2016: GBP18.5 million) in relation to the Video
business, and GBP2.0 million (2016: GBP2.6 million) contributed by
the Thruvision segment. The 32% increase in Video business revenues
over the prior year reflects the continued expansion of our US
business following the acquisition of Brimtek in March 2016. In
total US revenues for the Group increased to GBP18.2 million (2016:
GBP5.3 million) with organic revenues up 227%. International
revenues for the year totalled GBP24.1 million, compared to GBP18.0
million in the prior year. This equates to growth of 34%, with
international revenues now accounting for 91% (2016: 85%) of total
revenues.
Results by region of continuing operations are detailed
below:
2017 2016
Revenue GBP'000 GBP'000
---------------------- --------- ---------
Solutions:
---------------------- --------- ---------
Video business 24,480 18,487
---------------------- --------- ---------
Thruvision 2,024 2,649
---------------------- --------- ---------
Solutions total 26,504 21,136
---------------------- --------- ---------
Of which:
---------------------- --------- ---------
International 24,126 18,028
---------------------- --------- ---------
UK 2,378 3,108
---------------------- --------- ---------
Video business
---------------------- --------- ---------
Organic 14,143 15,563
---------------------- --------- ---------
Acquisition 10,337 2,924
---------------------- --------- ---------
Video business total 24,480 18,487
---------------------- --------- ---------
Gross margin
Gross margin for continuing operations reduced to 37% in the
year (2016: 50%). This reduction reflects a full year of
contribution from the Brimtek business acquired in March 2016.
Revenues generated by the legacy Brimtek business attract a lower
gross margin than for wider Solution sales predicated on Digital
Barriers intellectual property. The gross margin attributable to
organic revenues reduced to 51% (2016: 55%), compared to 15% (2016:
20%) for legacy Brimtek sales.
Within Solutions organic gross margin of 51% (2016: 55%) the
Video business earned gross margins of 53% (2016: 58%) with
Thruvision contributing 43% (2016: 37%).
2017 2016
GBP'000 GBP'000
-------------------------------- --------- ---------
Continuing operations: Revenue 26,504 21,136
-------------------------------- --------- ---------
Gross margin 9,855 10,517
-------------------------------- --------- ---------
Gross margin % 37% 50%
-------------------------------- --------- ---------
Overheads
Administration costs are broken down as follows:
2017 2016
Overheads GBP'000 GBP'000
----------------------------------------------------------------- --------- ----------
Video business administration costs 16,313 10,713
----------------------------------------------------------------- --------- ----------
Thruvision administration costs 984 1,081
----------------------------------------------------------------- --------- ----------
Solutions administration costs 17,297 11,794
----------------------------------------------------------------- --------- ----------
Amortisation of intangibles initially recognised on acquisition 1,509 1,320
----------------------------------------------------------------- --------- ----------
Central costs
----------------------------------------------------------------- --------- ----------
Board, operations, finance and facilities 3,587 3,594
----------------------------------------------------------------- --------- ----------
Share based payment charge 424 792
----------------------------------------------------------------- --------- ----------
4,012 4,386
----------------------------------------------------------------- --------- ----------
Total administration costs 22,817 17,500
----------------------------------------------------------------- --------- ----------
Administration costs within the Solutions division largely
consist of sales & marketing costs, together with research
& development spend.
In total Solutions administration costs in the year have
increased 47% to GBP17.3 million (2016: GBP11.8 million). This
increase is driven by the Video business where administration costs
increased 52% to GBP16.3 million (2016: GBP10.7 million). This
increase reflects the cost base acquired with the acquisition of
Brimtek in March 2016, with a full year of cost base included in
FY17 compared to 1 month in the prior year. In addition, the Group
has an extended debtor in Asia Pacific, where a delayed project
implementation has resulted in the likely replacement of the local
partner by the contracting government agency, albeit the government
agency has also confirmed their intent to continue the project and
implement the Group's technology. Notwithstanding this, given the
timing for the project remains uncertain, the Group has elected to
write down the overdue debtor, with the net GBP1.9 million expense
recorded within administration costs in the year. Thruvision
administration costs have decreased in the period from GBP1.1
million to GBP1.0 million as a result of a small reduction in
headcount.
Central costs, excluding share based payment charges, have
remained flat on the prior year.
Overall administration costs have grown year on year at GBP22.8
million (2016: GBP17.5 million).
Loss for the year
Overall the loss for the year was GBP16.7 million compared to
GBP12.6 million in the prior year. The prior year result includes a
GBP4.8 million loss in relation to discontinued operations, which
has reduced to GBP0.2 million in FY17.
An adjusted loss before tax figure is presented as the Directors
believe that this is a more relevant measure of the Group's
underlying performance. For the year ended 31 March 2017 the
adjusted loss from continuing operations was GBP9.8 million
compared to a prior year loss of GBP4.7 million. The increase in
the adjusted loss year on year has been primarily driven by two key
factors:
-- reduction in gross margin across the Group with gross margin
percentage reduced to 37% (2016: 50%), and organic gross margin at
51% (2016: 55%) and;
-- increase in administration costs following the acquisition of
Brimtek and bad debt expense incurred in the period
The unadjusted loss before tax from continuing operations for
the year amounts to GBP16.7 million (2016 loss: GBP8.5 million). In
addition to the two key factors detailed above, the increase in the
unadjusted loss is also attributable to an impairment charge of
GBP7.5 million (2016: GBPnil) in relation to the carrying value of
the goodwill attributable to the Video business, offset by a
release of deferred consideration of GBP2.3 million (2016: GBPnil)
recorded in the year, and GBP1.9 million (2016: GBP0.2 million) of
finance income, attributable largely to foreign currency gains on
intercompany balances.
Loss details are provided in the table below for continuing
operations:
2017 2016
GBP'000 GBP'000
-------------------------------------------------------------------------------- --------- ---------
Loss before tax (16,715) (8,506)
-------------------------------------------------------------------------------- --------- ---------
Add back:
-------------------------------------------------------------------------------- --------- ---------
Amortisation of intangibles initially recognised on acquisition 1,509 1,320
-------------------------------------------------------------------------------- --------- ---------
Share based payment (i) 424 792
-------------------------------------------------------------------------------- --------- ---------
Financing set up costs (ii) 421 -
-------------------------------------------------------------------------------- --------- ---------
Acquisition related (income)/costs and exceptional write off of bad debt (iii) (627) 1,718
-------------------------------------------------------------------------------- --------- ---------
Release of deferred consideration (iv) (2,329) -
-------------------------------------------------------------------------------- --------- ---------
Impairment of goodwill 7,500 -
-------------------------------------------------------------------------------- --------- ---------
Adjusted loss before tax (9,817) (4,676)
-------------------------------------------------------------------------------- --------- ---------
(i) The performance condition associated with LTIP awards made
from July 2015 are subject to a non-market based performance
measure. Accordingly, should these LTIP awards fail to vest, the
share based payment charge will be added back to the income
statement. Historic LTIP awards have been made with a market based
performance measure which in the event that LTIPs fail to vest the
share based payment charge is not added back to the income
statement. To date the majority of historic LTIP awards have failed
to vest. The inclusion provides consistency over time allowing a
better understanding of the financial position of the Group.
(ii) During the year ended 31 March 2017 the Group obtained a
new facility, incurring legal and set up fees.
(iii) During the year ended 31 March 2016 the Group acquired
100% of the share capital of Brimtek Inc. Costs in relation to the
acquisition totalled GBP1.7 million. Included within these costs is
GBP0.5 million in relation to an amount due from Brimtek to Digital
Barriers which was fully provided for immediately prior to the
acquisition of Brimtek. Acquisition costs remained largely unpaid
as at 31 March 2016. During the year ended 31 March 2017
GBP0.6million of these acquisition costs were released to the
income statement as they were no longer due. This release was
recorded within other income.
(iv) During the year the deferred consideration held in relation
to the Brimtek Inc. acquisition was released. The release is
recorded within other income. The carrying value of the deferred
consideration is now GBPnil, and is disclosed in note 10.
(v) During the year ended 31 March 2017 a GBP7.5 million
non-cash impairment charge has been recorded against the carrying
value of goodwill within the Video Business segment and has been
separately disclosed within Other Costs in the Consolidated Income
Statement. This impairment reflects the reduction in the forecasted
recoverable amounts of the cash-generating units as a result of the
unpredictable and extended sales cycles. Further detail is given in
note 5.
Taxation
As a result of losses acquired through acquisitions and central
overheads we do not expect to pay the full rate of UK corporation
tax for a number of years. The Income Statement tax credit for the
year of GBP0.2 million (2016: GBP0.7 million) principally relates
to R&D tax credit, offset by a deferred tax liability arising
on the acquisition of Brimtek. At 31 March 2017, the Group had
unutilised tax losses carried forward of approximately GBP56.6
million (2016: GBP55.5 million). Given the varying degrees of
uncertainty as to the timescale of utilisation of these losses, the
Group has not recognised GBP9.3 million (2016: GBP11.0 million) of
potential deferred tax assets associated with GBP56.2 million
(2016: GBP55.3 million) of these losses.
At 31 March 2017, the Group's net deferred tax liability stood
at GBP0.6 million (2016: GBP0 million).
Loss per share
The reported loss per share on continuing operations is 9.98
pence (2016 loss: 7.42 pence). The adjusted loss per share on
continuing operations is 6.04 pence (2016 loss: 3.82 pence).
Post balance sheet events
On 28 September 2017, Digital Barriers PLC agreed a 15 month
GBP5.25 million loan facility with Herald Investment Trust
("Herald"). The funds available through the facility are in
addition to the Group's existing revolving credit facility and will
be used to meet the working capital requirements of the Group.
In June 2017, Digital Barriers reached early finalisation terms
with the vendors of Brimtek Inc. The terms of the finalisation
involved a release of $1.45 million from the escrow account back to
Digital Barriers and no deferred consideration to be paid. The
performance conditions for the deferred consideration were set at a
level significantly above forecast, and consequently deferred
consideration balance at 31 March 2017 had been reduced to GBPnil
against an expectation of a significant shortfall to the
performance conditions set. (2016: GBP2,018,000).
Cash and treasury
The Group ended the year with a net cash balance of GBP1.0
million (2016: GBP10.8 million).
The GBP9.8 million year on year decrease in net cash consists of
GBP8.4 million (2016: GBP7.1 million) outflow from operating
activities, GBP0.5 million (2016: GBP17.9 million) investing spend,
GBP0.5 million (2016: GBP27.1 million inflow) in spend on financing
activities and GBP0.4 million (GBP0.0 million) in currency
movements.
The GBP8.4 million (2016: GBP7.1 million) outflow from operating
activities included a GBP1.2 million net working capital outflow
(2016: GBP1.4 million outflow), largely the result of increased
inventory holding compared to the prior year, along with a GBP0.5
million (2016: GBP1.1 million) tax refund received. The balance of
the GBP8.4 million outflow from operating activities (2016: GBP7.1
million outflow) relates principally to the "cash" operating loss
(operating loss excluding non-cash items).
Investing spend included GBP0.8 million (2016: GBP0.4 million)
of capital expenditure, mainly related to demonstration stock to
support sales activities, and leasehold improvements. A further
GBP0.3 million was received in the period in connection with the
Brimtek acquisition (2016: GBP17.5 million outflow).
On 17th October 2016, the Group replaced an existing GBP5.0
million secured working capital facility for export activities with
a new two-year GBP10.0 million secured revolving credit facility
with Investec Bank plc. The funds available through this facility
will be used to meet the increasing working capital requirements of
the Group's organic growth. The facility is secured by a fixed and
floating charge over the Group's assets and includes covenants
which are tested quarterly. The facility was not being utilised at
31 March 2017, but at time of approval of the financial statements
is drawn to the extent of GBP6,094,000, with a net debt position of
GBP4,167,000. No banking covenants have been breached at the time
of approval of the Annual Report and waivers to covenants tests
have been agreed with Investec during the testing period to date.
In addition to this secured facility, on 28 September 2017 the
Group has arranged an unsecured GBP5.25 million loan facility with
Herald Investment Trust to supplement the above facility for a
period of 15 months, which has not been drawn on.
Dividends
The Board is not recommending the payment of a dividend (2016:
GBPnil).
Consolidated income statement
for the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
-------------------------------------------------------------------------------- ----- ----------- -----------
Continuing operations
-------------------------------------------------------------------------------- ----- ----------- -----------
Revenue 2 26,504 21,136
-------------------------------------------------------------------------------- ----- ----------- -----------
Cost of sales (16,649) (10,619)
-------------------------------------------------------------------------------- ----- ----------- -----------
Gross profit 9,855 10,517
-------------------------------------------------------------------------------- ----- ----------- -----------
Administration costs (22,817) (17,500)
-------------------------------------------------------------------------------- ----- ----------- -----------
Other income 2,956 -
-------------------------------------------------------------------------------- ----- ----------- -----------
Other costs (7,500) (1,718)
-------------------------------------------------------------------------------- ----- ----------- -----------
Operating loss (17,506) (8,701)
-------------------------------------------------------------------------------- ----- ----------- -----------
Finance income 1,872 227
-------------------------------------------------------------------------------- ----- ----------- -----------
Finance costs (1,081) (32)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss before tax from continuing operations (16,715) (8,506)
-------------------------------------------------------------------------------- ----- ----------- -----------
Income tax 242 716
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss after tax from continuing operations attributable to owners of the parent (16,473) (7,790)
-------------------------------------------------------------------------------- ----- ----------- -----------
Discontinued operations
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss from discontinued operation (net of tax) (207) (4,832)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss for the year (16,680) (12,622)
-------------------------------------------------------------------------------- ----- ----------- -----------
Adjusted loss: 3
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss before tax from continuing operations (16,715) (8,506)
-------------------------------------------------------------------------------- ----- ----------- -----------
Amortisation of intangibles initially recognised on acquisition 1,509 1,320
-------------------------------------------------------------------------------- ----- ----------- -----------
Share based payment charge 424 792
-------------------------------------------------------------------------------- ----- ----------- -----------
Financing set up fees 421 -
-------------------------------------------------------------------------------- ----- ----------- -----------
Release of deferred consideration (2,329) -
-------------------------------------------------------------------------------- ----- ----------- -----------
Acquisition related (income)/costs and exceptional write off of bad debt (627) 1,718
-------------------------------------------------------------------------------- ----- ----------- -----------
Impairment of goodwill 7,500 -
-------------------------------------------------------------------------------- ----- ----------- -----------
Adjusted loss before tax for the year from continuing operations (9,817) (4,676)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - continuing operations
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - basic 4 (9.98p) (7.42p)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - diluted 4 (9.98p) (7.42p)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - adjusted 4 (6.04p) (3.82p)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - adjusted diluted 4 (6.04p) (3.82p)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - continuing and discontinued operations
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - basic 4 (10.10p) (12.01p)
-------------------------------------------------------------------------------- ----- ----------- -----------
Loss per share - diluted 4 (10.10p) (12.01p)
-------------------------------------------------------------------------------- ----- ----------- -----------
Consolidated statement of comprehensive income
for the year ended 31 March 2017
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Loss for the year from continuing
operations (16,473) (7,790)
-------------------------------------------- ---------- ----------
Loss for the year from discontinued
operations (207) (4,832)
-------------------------------------------- ---------- ----------
Loss for the year attributable to
owners of the parent (16,680) (12,622)
-------------------------------------------- ---------- ----------
Other comprehensive income from continuing
operations
-------------------------------------------- ---------- ----------
Other comprehensive income that may
be subsequently reclassified to profit
and loss:
-------------------------------------------- ---------- ----------
Exchange differences on retranslation
of foreign operations 746 123
-------------------------------------------- ---------- ----------
Net other comprehensive income to
be reclassified to profit or loss
in subsequent years 746 123
-------------------------------------------- ---------- ----------
Total comprehensive loss attributable
to owners of the parent (15,934) (12,499)
-------------------------------------------- ---------- ----------
Consolidated statement of financial position
at 31 March 2017
31 March 31 March
2017 2016
Note GBP'000 GBP'000
------------------------------------- ----- --------- ---------
Assets
------------------------------------- ----- --------- ---------
Non-current assets
------------------------------------- ----- --------- ---------
Property, plant and equipment 1,132 828
------------------------------------- ----- --------- ---------
Goodwill 5 17,076 23,323
------------------------------------- ----- --------- ---------
Other intangible assets 11,380 11,397
------------------------------------- ----- --------- ---------
29,588 35,548
------------------------------------- ----- --------- ---------
Current assets
------------------------------------- ----- --------- ---------
Inventories 8,018 4,906
------------------------------------- ----- --------- ---------
Trade and other receivables 6 7,656 13,239
------------------------------------- ----- --------- ---------
Other financial asset - 193
------------------------------------- ----- --------- ---------
Current tax recoverable 1,304 1,022
------------------------------------- ----- --------- ---------
Cash and cash equivalents* 1,002 25,599
------------------------------------- ----- --------- ---------
17,980 44,959
------------------------------------- ----- --------- ---------
Non-current assets classified
as held for sale - 35
------------------------------------- ----- --------- ---------
Total assets 47,568 80,542
------------------------------------- ----- --------- ---------
Equity and liabilities
------------------------------------- ----- --------- ---------
Attributable to owners of the
parent
------------------------------------- ----- --------- ---------
Equity share capital 8 1,814 1,760
------------------------------------- ----- --------- ---------
Share premium 109,078 109,078
------------------------------------- ----- --------- ---------
Capital redemption reserve 4,786 4,786
------------------------------------- ----- --------- ---------
Merger reserve 454 454
------------------------------------- ----- --------- ---------
Translation reserve 1 (745)
------------------------------------- ----- --------- ---------
Other reserves (307) (307)
------------------------------------- ----- --------- ---------
Retained earnings (76,912) (60,656)
------------------------------------- ----- --------- ---------
Total equity 38,914 54,370
------------------------------------- ----- --------- ---------
Non-current liabilities
------------------------------------- ----- --------- ---------
Deferred tax liabilities 620 57
------------------------------------- ----- --------- ---------
Financial liabilities - 975
------------------------------------- ----- --------- ---------
Provisions 90 119
------------------------------------- ----- --------- ---------
710 1,151
------------------------------------- ----- --------- ---------
Current liabilities
------------------------------------- ----- --------- ---------
Trade and other payables 7 7,908 9,126
------------------------------------- ----- --------- ---------
Financial liabilities - 1,097
------------------------------------- ----- --------- ---------
Bank overdraft* - 14,763
------------------------------------- ----- --------- ---------
Provisions 36 35
------------------------------------- ----- --------- ---------
7,944 25,021
------------------------------------- ----- --------- ---------
Liabilities directly associated -
with non-current assets classified
as held for sale -
------------------------------------- ----- --------- ---------
Total liabilities 8,654 26,172
------------------------------------- ----- --------- ---------
Total equity and liabilities 47,568 80,542
------------------------------------- ----- --------- ---------
* - Net cash and cash equivalents
(grossed up above in accordance
with IAS 32) 1,002 10,836
------------------------------------- ----- --------- ---------
Consolidated statement of changes in equity
for the year ended 31 March 2017
Share Capital
Share premium redemption Merger Translation Other Retained Total
capital account reserve reserve reserve reserves Earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
At 31
March
2015 845 82,757 4,786 454 (868) (307) (48,826) 38,841
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Loss for
the year - - - - - - (12,622) (12,622)
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Other
comprehensive
income - - - - 123 - - 123
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Total
comprehensive
loss - - - - 123 - (12,622) (12,499)
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Share
placement 806 27,394 - - - - - 28,200
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Share
issue
costs - (1,073) - - - - - (1,073)
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Incentive
share
conversion 109 - - - - - - 109
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Share
based
payment
credit - - - - - - 792 792
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
At 31
March
2016 1,760 109,078 4,786 454 (745) (307) (60,656) 54,370
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Loss for
the year - - - - - - (16,680) (16,680)
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Other
comprehensive
income - - - - 746 - - 746
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Total
comprehensive
loss - - - - 746 - (16,680) (15,934)
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Incentive
share
conversion 54 - - - - - - 54
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Share
based
payment
credit - - - - - - 424 424
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
At 31
March
2017 1,814 109,078 4,786 454 1 (307) (76,912) 38,914
---------------- --------- --------- ------------ --------- ------------ ---------- ---------- ---------
Consolidated statement of cash flows
for the year ended 31 March 2017
Year Year
ended ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
------------------------------------------- ------ ---------- ----------
Operating activities
------------------------------------------- ------ ---------- ----------
Loss before tax from continuing
operations (16,715) (8,506)
--------------------------------------------------- ---------- ----------
Loss before tax from discontinued
operations (207) (4,832)
--------------------------------------------------- ---------- ----------
Loss before tax (16,922) (13,338)
--------------------------------------------------- ---------- ----------
Non-cash adjustment to reconcile
loss before tax to net cash flows
------------------------------------------- ------ ---------- ----------
Depreciation of property, plant
and equipment 481 415
--------------------------------------------------- ---------- ----------
Amortisation of intangible assets 1,588 1,530
--------------------------------------------------- ---------- ----------
Impairment of goodwill 7,500 3,582
--------------------------------------------------- ---------- ----------
Impairment of intangible assets - 37
--------------------------------------------------- ---------- ----------
Share-based payment transaction
expense 424 792
--------------------------------------------------- ---------- ----------
Unrealised (gains)/loss on foreign
exchange (119) 42
--------------------------------------------------- ---------- ----------
Release of deferred consideration (2,329) -
------------------------------------------- ------ ---------- ----------
Disposal of fixed assets 5 15
--------------------------------------------------- ---------- ----------
Finance income (1,872) (227)
--------------------------------------------------- ---------- ----------
Finance costs 1,081 32
--------------------------------------------------- ---------- ----------
Working capital adjustments:
------------------------------------------- ------ ---------- ----------
Decrease/(increase) in trade
and other receivables 5,582 (2,452)
--------------------------------------------------- ---------- ----------
(Increase)/decrease in inventories (3,077) 2,088
--------------------------------------------------- ---------- ----------
Decrease in trade and other payables (840) (1,047)
--------------------------------------------------- ---------- ----------
(Decrease)/increase in deferred
revenue (425) 300
--------------------------------------------------- ---------- ----------
Decrease in provisions (29) (8)
--------------------------------------------------- ---------- ----------
Cash utilised in operations (8,952) (8,239)
--------------------------------------------------- ---------- ----------
Interest paid (8) (32)
--------------------------------------------------- ---------- ----------
Tax received 523 1,146
--------------------------------------------------- ---------- ----------
Net cash flow from operating
activities (8,437) (7,125)
--------------------------------------------------- ---------- ----------
Investing activities
------------------------------------------- ------ ---------- ----------
Purchase of property, plant and
equipment (760) (375)
--------------------------------------------------- ---------- ----------
Expenditure on intangible assets (32) (12)
--------------------------------------------------- ---------- ----------
Interest received 19 27
--------------------------------------------------- ---------- ----------
Acquisition of subsidiary, net
of debt acquired 288 (17,511)
--------------------------------------------------- ---------- ----------
Net cash flow utilised in investing
activities (485) (17,871)
--------------------------------------------------- ---------- ----------
Financing activities
------------------------------------------- ------ ---------- ----------
Proceeds from issue of shares - 28,200
--------------------------------------------------- ---------- ----------
Share issue costs - (1,073)
--------------------------------------------------- ---------- ----------
Finance costs (549) -
------------------------------------------- ------ ---------- ----------
Net cash flow (utilised)/from
financing activities (549) 27,127
--------------------------------------------------- ---------- ----------
Net (decrease)/increase in cash
and cash equivalents (9,471) 2,131
--------------------------------------------------- ---------- ----------
Net cash and cash equivalents
at beginning of year 10,836 8,701
--------------------------------------------------- ---------- ----------
Effect of foreign exchange rate
changes on cash and cash equivalents (363) 4
--------------------------------------------------- ---------- ----------
Net cash and cash equivalents
at end of year 1,002 10,836
--------------------------------------------------- ---------- ----------
Reconciliation of net cash and
cash equivalents
------------------------------------------- ------ ---------- ----------
Cash and cash equivalents (disclosed
within current assets) 1,002 25,599
--------------------------------------------------- ---------- ----------
Bank overdraft (disclosed within
current liabilities) - (14,763)
--------------------------------------------------- ---------- ----------
Net cash and cash equivalents
at end of year 1,002 10,836
--------------------------------------------------- ---------- ----------
Notes to the financial information
1. Accounting policies
Basis of preparation
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards
('IFRSs') as adopted by the European Union as they apply to the
financial statements of the Group for the year ended 31 March 2017
and applied in accordance with the Companies Act 2006.
The Financial Statements were authorised for issue by the Board
of Directors on 29 September 2017 and the Statement of Financial
Position was signed on the Board's behalf by Tom Black and Sharon
Cooper.
All values are rounded to GBP'000 except where otherwise
stated.
The Company is a public limited company incorporated and
domiciled in England and Wales and whose shares are quoted on AIM,
a market operated by the London Stock Exchange.
The consolidated financial statements have been prepared on a
historical cost basis, except:
o Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates
as at the dates of the initial transactions.
o Derivative financial instruments which are classified as at
fair value through profit or loss.
Accounting policies
The accounting policies which apply in preparing the financial
statements for the period are set out below. These policies have
been consistently applied to all periods presented in these
consolidated financial statements. The comparative statement of
comprehensive income has been re-presented as if an operation
discontinued during the current year had been discontinued from the
start of the comparative year.
Basis of measurement
Going concern
As has been previously highlighted in market updates, the Group
faces unpredictable and extended sales cycles associated with a
business that sells predominantly to government customers overseas.
This was the case during the year ended 31 March 2017, where
despite headline revenue growth of 25% to GBP26.5 million (2016:
GBP21.1 million), several key sales failed to close in the final
quarter of the year and this, together with an impairment charge of
GBP7.5 million, resulted in an loss before tax for continuing
operations for the Group for the year of GBP16.7 million (2016:
GBP8.5 million). This was clearly a disappointing result for the
Group.
It has become clear that, despite the class-leading nature of
our technologies and the flagship nature of our customers, we
cannot successfully operate a business on the public markets with
these material challenges. Therefore, the Board decided to
undertake a far-reaching internal review of the Group was
undertaken.
Full details of this review can be found in the Chairman's
Statement. This review concluded that an alternative corporate and
funding structure would be in the best interests of the Group, its
shareholders and stakeholders. It further concluded, following a
discreet marketing exercise that it would be highly unlikely that a
single buyer for the whole Group would be found and therefore a
sales process for the Video Business is currently being undertaken,
managed by Investec Bank plc.
Following a multi-staged and competitive process, the Board
received a number of indicative offers from interested parties and
is currently in advanced discussions with two parties to sell the
Video Business (the "Potential Transaction") which is expected to
conclude with one of those parties in the near future. The quantum
of the consideration being proposed in cash under either proposal
is expected to be in excess of the equity market capitalisation of
the Group at the time of approval of the Annual Report. However,
the Potential Transaction remains subject to further due diligence,
the signing of binding legal documentation and shareholder
approval. As such, there can be no certainty that the discussions
will lead to a transaction being completed. As a result, to ensure
the Group has adequate funding, the directors put in place a
further GBP5.25 million unsecured facility with Herald Investment
Trust.
Should the divestment of the Video business proceed, the secured
revolving 2 year GBP10 million credit facility provided to the
Group by Investec Bank plc (which is secured by a fixed and
floating charge over the Group's assets and includes covenants
which are tested quarterly) will be repaid in full. The facility
was not being utilised at 31 March 2017, but at the time of
approval of the financial statements is drawn to the extent of
GBP6,094,000 with a net debt position of GBP4,167,000. No banking
covenants have been breached at the time of approval of the
financial statements and waivers to covenant tests have been agreed
with Investec during the testing period to date. At the time of
approval of the financial statements nothing has been drawn down
under the additional GBP5.25 million 15 month loan facility with
Herald Investment Trust but any drawn amount will also be repaid in
full following a successful divestment.
Should the proposed divestment of the Video Business proceed as
expected, the cash requirements of the retained Thruvision Group
for the period up to and including 30 September 2018 will be
comfortably accommodated within the Group's enlarged cash resources
and a return of surplus cash to investors is anticipated. Should
the divestment not proceed as expected, the Board has reviewed cash
flow projections for the Group, including the Video Business, for
the period up to and including 30 September 2018. These forecasts
and projections take into account reasonably possible changes in
trading performance and show that the Group will be able to operate
within the level of current funding resource, including applicable
financial covenants. However, in the event that the Group trades
outside of this reasonably foreseeable scenario, the Board believes
it can take appropriate cost reduction measures which will allow
the Group to trade within its financial resources.
Given the above the Board confirms that it has a reasonable
expectation that the Group will continue as a going concern.
Therefore, these financial statements have been prepared on this
basis and do not contain any adjustments that would result if the
Group was unable to continue as a going concern.
Basis of consolidation
The consolidated financial statements for the year include those
of Digital Barriers plc and all of its subsidiary undertakings
(together 'the Group') drawn up at 31 March 2017.
Subsidiary undertakings are those entities controlled directly
or indirectly by the Company. Control is achieved when the Group is
exposed or has rights to variable returns from its involvement with
the investee and has the ability to affect those returns through
its power over the investee. Subsidiaries are consolidated from the
date of their acquisition, being the date on which the Group
obtains control, and continue to be consolidated until the date
that such control ceases. Assets, liabilities, income and expenses
of a subsidiary acquired or disposed of during the year are
included in the consolidated financial statements from the date the
Group gains control until the date the Group ceases to control the
subsidiary.
Subsidiaries are consolidated using the Group's accounting
policies. Business combinations are accounted for using the
acquisition method of accounting except for the acquisition of
Digital Barriers Services Limited by Digital Barriers plc which has
been accounted for using the pooling of interests method. All
inter-company balances and transactions, including unrealised
profits arising from them, are eliminated on consolidation. A
change in the ownership interest of a subsidiary, without a loss of
control, is accounted for as an equity transaction. If the Group
loses control over a subsidiary, it derecognises the related assets
(including goodwill), liabilities, non-controlling interest and
other components of equity while any resultant gain or loss is
recognised in profit or loss. Any investment retained is recognised
at fair value.
Classification as a discontinued operation occurs on disposal or
when the operation meets the criteria to be classified as held for
sale , if earlier. When an operation is classified as a
discontinued operation, the comparative income is re-presented as
it the operation had been discontinued from the start of the
comparative year.
Critical accounting estimates and judgements
In preparing the consolidated financial statements, management
has to make judgements, estimates and assumptions that affect the
reported amounts of assets and liabilities, income and expenses.
The critical judgements and estimates made in preparing the
consolidated financial statements are detailed below. These
judgements and estimates involve assumptions in respect of future
events which can vary from what is anticipated.
Revenue and profit recognition
Fixed price contracts are accounted for in accordance with IAS
11 'Construction Contracts'. Revenue and profits are recognised on
a percentage-of-completion basis, when the outcome of a contract
can be estimated reliably. Determining whether a contract's outcome
can be estimated reliably requires management to exercise
judgement, whilst the calculation of the contract's profit requires
estimates of the total contract costs to completion. Cost estimates
and judgements are continually reviewed and updated as determined
by events or circumstances.
Intangible assets
In accordance with IFRS 3 'Business Combinations' goodwill
arising on the acquisition of subsidiaries is capitalised and
included in intangible assets. IFRS 3 also requires the
identification of other intangible assets acquired. The method used
to value intangible assets is the 'Income Approach' which requires
the use of a number of estimates. These might include revenue and
margin projections and assessments of likelihood of contract
renewal and these estimates may differ from actual outcomes. The
useful economic life of other intangibles also requires the use of
estimates which may differ from actual outcomes.
Impairment of assets
The Group assess annually whether there is an indication that an
asset may be impaired. If any such indication exists, or when
annual impairment testing for an asset is required, the group makes
an estimate of the asset's recoverable amount. The recoverable
amount is the higher of the cash-generating units (CGUs) fair value
less costs of disposal and its value in use and is determined for
an individual asset, unless the asset does not generate cash flows
that are largely independent of those from other assets of groups
of assets. Where the carrying amount of an asset, or group of
assets, exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
The calculation of value in use of the aggregate cash-generating
units to which goodwill has been allocated, includes an estimate of
the short-term (up to year three) and long-term (beyond year three
up to five years) growth rate of the cash-generating units,
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.
The carrying amount of goodwill and the key assumptions used in
the calculation of value in use of the cash-generating units are
disclosed in note 5, together with details on the impairment of
goodwill in the year ended 31 March 2017.
Impairment of goodwill
The determination of whether or not goodwill has been impaired
requires an estimate to be made of the value in use of the
cash-generating units to which goodwill has been allocated. The
value in use calculation includes estimates about the future
financial performance of the cash-generating units, including
management's estimates of long-term operating margins and
long--term growth rates. This calculation is performed annually
each year and compared with the recoverable amount to determine
impairment. The testing is only re-performed if an impairment
triggering event occurs in the intervening period.
Deferred consideration
In recognising the fair value of deferred consideration in
respect of business combinations, contingent on future events such
as revenue and profit, management make estimates as to the extent
to which the maximum deferred consideration will be paid, based on
weighted probability models in accordance with IFRS 3. These
estimates may differ from actual outcomes.
Income taxes
In recognising deferred tax assets, management make estimates of
the forecast future profitability of entities within the Group and
the likely certainty that these forecasts will be achieved. Where
the final outcome of such matters is different, or expected to be
different, from previous assessments made by management, a change
to the carrying value of income tax assets and liabilities will be
recorded in the period in which such determination is made.
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, measured at acquisition date fair
value and the amount of any non-controlling interest in the
acquiree. Payments made that are contingent on the vendors
continuing to be employed by the Group are treated as remuneration
and recognised within the administration cost line in the income
statement. For each business combination, the acquirer measures the
non-controlling interest in the acquiree either at fair value or at
the proportionate share of the acquiree's identifiable net
assets.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent
consideration which is deemed to be an asset or liability, will be
recognised in the income statement. If the contingent consideration
is classified as equity, it should not be remeasured until it is
finally settled within equity.
Goodwill is initially measured at cost being the excess of the
aggregate of the consideration transferred and the amount
recognised for 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 the income statement.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of
the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the
carrying amount of the operation when determining the gain or loss
on disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash-generating unit
retained.
Intangible assets
In accordance with IFRS 3 'Business Combinations', goodwill
arising on the acquisition of subsidiaries is capitalised and
included in intangible assets. IFRS 3 also requires the
identification of other intangible assets acquired. The method used
to value intangible assets is the 'Income Approach'. The Income
Approach indicates the fair value of an asset based on the value of
the cash flows that the asset might reasonably be expected to
generate.
Other intangible assets
Intangible assets acquired from a business combination are
capitalised at fair value as at the date of acquisition and
amortised over their estimated useful economic life. An intangible
asset acquired as part of a business combination is recognised
outside goodwill if the asset is separable or arises from
contractual or other legal rights. The estimated useful lives of
the intangible assets are as follows:
Customer relationships - three to twelve years;
Order backlog - one to three years;
Intellectual property and Software - one to seven years;
Patents - eight years; and
Trademarks - ten years.
Amortisation is charged to administration expenses in the
Consolidated Income Statement on a straight-line basis. Intangible
assets, other than development costs, created within the business
are not capitalised and expenditure thereon is charged to the
income statement in the period in which the expenditure is
incurred.
The carrying value of other intangible assets is reviewed for
impairment when events or changes in circumstance indicate that it
may be impaired. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss. The recoverable amount is estimated to be
the higher of the other intangible assets fair value less costs of
disposal and its value in use and is determined for an individual
asset, unless the asset does not generate cash flows that are
largely independent of those from other assets of groups of assets.
Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the
cash-generating unit to which it belongs.
Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts, rebates, VAT and other
sales taxes.
Revenue from the sale of products is recognised when the risks
and rewards of ownership are transferred to the customer, which is
usually at the point at which goods are delivered to the
customer.
Licence income is recognised in accordance with the substance of
the agreement. Revenue from licence agreements which have no
significant remaining performance obligations is recognised where
there is persuasive evidence that an arrangement exists, delivery
has occurred, the fee is fixed or determinable and collectability
is probable.
Revenue arrangements may include the sale of products together
with installation and/or on-going support services. Where the
commercial substance of such a combination is that the individual
components operate independently of each other and fair values can
be attributed to each of the components, each are then recognised
in accordance with their respective policies.
Revenue from support contracts is spread evenly over the period
of the support contract.
Revenue derived from services billed to customers on a time and
materials or fixed-price basis represents the value of work
completed, including attributable profit, based on the stage of
completion achieved on each project. For time and materials
projects, revenue is recognised as services are performed. For
fixed-price projects, revenue is recognised according to the stage
of completion which is determined using the
percentage-of-completion method based on the Directors' assessment
of progress against key project milestones and risks, and the ratio
of costs incurred to total estimated project costs. The cumulative
impact of any revisions to the estimate of percentage-of-completion
of any fixed-price contracts is reflected in the period in which
such impact becomes known.
Revenue is presented as the gross amount billed to a customer
where it is earned from revenue from the sale of goods or services
as principal. Revenue is presented as the net amount retained where
it is earned through a commission or fee.
Accrued income
Accrued income represents revenue recognised to date less
amounts invoiced to customers. Full provision is made for known or
anticipated project losses.
Trade and other receivables
Trade receivables are recognised and measured at their original
invoiced amount less provision for any uncollectible amounts. An
estimate for doubtful debts is made when the collection of the full
amount is no longer probable. Bad debts are written off to the
income statement when they are identified. Financial assets are
initially measured at fair value and subsequently at amortised
cost.
Provisions
Provisions are recognised in the statement of financial position
when there is a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation and a
reliable estimate can be made of the obligation; discounting at a
pre-tax discount rate when the time value of money is material.
Onerous contract provisions are recognised for unavoidable costs of
meeting the obligations under a contract that exceed the economic
benefits expected to be received under it.
Income taxes
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities,
based on tax rates and laws that are enacted or substantively
enacted by the statement of financial position's date.
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following
exceptions:
-- where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss;
-- in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures, where
the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will
not reverse in the foreseeable future; and
-- deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available against
which the deductible temporary differences, carried forward tax
credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax
rates and laws enacted or substantively enacted at the statement of
financial position date.
The carrying amount of deferred income tax assets is reviewed at
each statement of financial position's date. Deferred income tax
assets and liabilities are offset, only if a legally enforceable
right exists to set off current tax assets against current tax
liabilities, the deferred income taxes relate to the same taxation
authority and that authority permits the Group to make a single net
payment.
Income tax is charged or credited to other comprehensive income
if it relates to items that are charged or credited to other
comprehensive income. Similarly, income tax is charged or credited
directly to equity if it relates to items that are credited or
charged directly to equity. Otherwise income tax is recognised in
the income statement.
Equity
Equity comprises the following: Share capital represents the
nominal value of equity shares. Share premium represents the excess
over nominal value of the fair value of consideration received for
equity shares, net of expenses of the share issue. The Capital
redemption reserve represents the difference between the proceeds
received and the par value of the shares bought back by the
Company. The Merger reserve represents the difference between the
fair value and the nominal value of shares issued on the
acquisition of Digital Barriers SAS (formerly known as Keeneo SAS),
as merger relief was applicable to this business combination. The
Translation reserve represents the impact of currency translation
on the foreign currency net investment in Digital Barriers SAS,
Digital Barriers Inc, Brimtek Inc and other foreign subsidiaries.
Other reserves represents the difference between the carrying value
of the net assets acquired and shares issued in consideration on
the pooling of interests transaction. The Profit and loss reserve
represents the cumulative total profit or loss attributable to
shareholders, excluding those items recognised in other
reserves.
Research and development costs
Research expenditure is charged to the income statement in the
year in which it is incurred.
Expenditure incurred in the development of software and hardware
products for use or sale by the business, and their related
intellectual property rights, is capitalised as an intangible asset
only when:
-- technical feasibility has been demonstrated;
-- adequate technical, financial and other resources exist to
complete the development, which the Group intends to complete and
use;
-- future economic benefits expected to arise are deemed probable; and
-- the costs can be reliably measured.
Development costs not meeting these criteria are expensed in the
income statement as incurred. When capitalised, development costs
are amortised on a straight-line basis over their useful economic
lives once the related software and hardware products are available
to use. During the period of development the asset is tested for
impairment annually. Development costs with a value of GBPnil
(2016: GBPnil) have been capitalised in the period.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and accumulated impairment losses. Such cost includes
the cost of replacing part of the plant and equipment and borrowing
costs for any long-term construction projects if the recognition
criteria are met. Subsequent expenditure is capitalised only when
it is probable that the future economic benefits associated with
the expenditure will flow to the Group. All other repair and
maintenance costs are recognised in profit or loss as incurred.
Depreciation is charged on the following bases to reduce the cost
of the Company's property, plant, and equipment to their residual
values over their expected useful lives at the following rates:
Leasehold improvements - 20% to 33% straight line;
Office furniture and equipment - 20% straight line;
Computer equipment - 33% straight line;
Vehicles - 25% straight line; and
Demonstration stock - 20% to 50% straight line.
The carrying value of property, plant and equipment is reviewed
for impairment when events or changes in circumstances indicate the
carrying value may be impaired.
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in income statement when the asset
is derecognised.
The residual values, useful lives and methods of depreciation of
property, plant and equipment are reviewed at each financial year
end and adjusted prospectively, if appropriate.
Inventories
Inventories are valued at the lower of cost and net realisable
value on a first-in first-out basis. In the case of finished goods,
cost includes all direct expenditure and production overheads based
on the normal level of activity. Where necessary, an appropriate
allowance is made for obsolete, slow-moving and defective
inventories. In certain instances stock items are used for
demonstration purposes, in this case the stock item is classified
as a fixed asset and depreciated in line with the Group
depreciation policy.
Trade and other payables
Trade and other payables are initially recognised at fair value.
Subsequent to initial recognition, they are measured at amortised
cost.
Cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at bank and in hand and short-term deposits with an
original maturity of three months or less.
For the purpose of the consolidated statement of cash flows,
cash and cash equivalents consist of cash and short-term deposits,
as defined above, net of outstanding bank overdrafts as they are
considered an integral part of the Group's cash management.
Up to September 2016, a cash pooling arrangement existed across
most HSBC Bank Plc bank accounts, cash and overdraft balances held
within individual subsidiary companies were reported gross on the
statement of financial position in accordance with IAS 32.This is
because it is not deemed that these arrangements qualify for net
presentation. Net cash reserves is defined as the net of these cash
and overdraft balances.
Financial instruments
The Group classifies financial instruments, or their component
parts, on initial recognition as a financial asset, a financial
liability or an equity instrument in accordance with the substance
of the contractual arrangement.
Non-derivative financial assets
Non-derivative financial instruments comprise cash at bank,
trade and other receivables and trade and other payables. The Group
initially records the financial assets on the date they are
originated. All other financial assets (including assets designated
as at fair value through profit or loss) are recognised initially
on trade date, which is the date that the Group becomes a party to
the contractual provision of the instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in transferred
financial assets that is created or retained by the Group is
recognised as a separate asset or liability.
Loans and receivables
Loans and receivables are financial assets with fixed or
determinable payments that are not quoted in an active market. Such
assets are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortised cost using the
effective interest method, less any impairment losses.
Loans and receivables comprise of loans to related parties and
trade and other receivables.
Cash and cash equivalents comprise cash balances with original
maturities of three months or less.
Non-derivative financial liabilities
The Group initially recognises financial liabilities on the date
that they are originated. All other financial liabilities are
recognised initially on the trade date, which is the date that the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire. The
Group classifies non-derivative financial liabilities into other
financial liabilities category. Such financial liabilities are
recognised initially at fair value less any directly attributable
transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortised cost using the
effective interest method.
Foreign currency translation
The Group's consolidated financial statements are presented in
Sterling, which is also the Parent Company's functional currency.
Each entity in the Group determines its own functional currency and
items included in the financial statements of each entity are
measured using that functional currency.
Transactions in foreign currencies are initially recorded in the
entity's functional currency by applying the spot exchange rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at
the functional currency rate of exchange ruling at the statement of
financial position's date. All differences are taken to the income
statement, except when hedge accounting is applied and for
differences on monetary assets and liabilities that form part of
the Group's net investment in a foreign operation. These are taken
to other comprehensive income until the disposal of the net
investment, at which time they are reclassified from equity to
profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates as at
the dates of the initial transactions.
The assets and liabilities of foreign operations are translated
into Sterling at the rate of exchange ruling at the statement of
financial position's date. Income and expenses are translated at
weighted average exchange rates for the period where this is a
reasonable approximation of the actual rates. Where weighted
average exchange rates are not a reasonable approximation of the
actual rates, the actual exchange rates at the date of the
transaction are used. The resulting exchange differences are
recognised in other comprehensive income. On disposal of a foreign
entity, the deferred cumulative amount recognised in equity
relating to that particular foreign operation is recognised in the
income statement.
Retirement benefits
The Group operates a Group defined contribution personal pension
plan for certain employees. Pension costs are calculated annually
and charged to the income statement as they arise.
Share-based payments
Certain employees of the Company receive remuneration in the
form of awards under a Long Term Incentive Plan ('LTIP') in the
form of nil-cost options and HMRC Approved Options. The Group
combines Parallel Options at nil-cost with HMRC Approved Options so
that the value awarded to employees is not more than a Top-Up
Award.
All awards made under the LTIP after 31 March 2015 are subject
service conditions and performance conditions that relate to
revenue (with a profit related underpin) in the future. The total
amount to be expensed over the vesting period of the awards is
determined by reference to the fair value at the date at which the
awards or options are granted and the number of awards that are
expected to vest. The fair value is determined using the
Black-Scholes model. Expected volatility was determined taking into
account historic volatility of the Group's share price and the
volatility of similar companies' share price. The number of awards
expected to vest are adjusted to reflect the extent to which
non-market performance and service conditions are expected to be
satisfied, based on conditions prevailing at each statement of
financial position's date and up to the date of vesting. At the
vesting date, the cumulative expense recognised in the income
statement is adjusted to take account of the number of awards and
options that actually vest on the above basis. Parallel Options are
valued at the difference between the value of a Top-Up Award and an
HMRC Approved Option. At the date of grant, it was assumed that the
non-market performance conditions would be met. Adjustments are
made subsequently, where necessary, to reflect updated assessments
of whether non-market performance conditions will be met.
It is the intention of the Group that shares needed to satisfy
awards will be purchased in the market to the extent that they are
not already held by the Group's employee share trust, unless it is
in the interests of the Group to issue new shares.
Certain of the Executive Directors have been issued an aggregate
of 217,500 Incentive Shares. The Incentive Shares only reward
participants if shareholder value is created, thereby aligning the
interests of the Executive Directors with those of shareholders.
The Incentive Shares carry the right to 12.5% of any increase in
the value of the Company in excess of the retail prices index after
1 February 2010. The Incentive Shares do not carry any voting or
dividend rights and are not transferable except in limited
circumstances. The holders of Incentive Shares can realise value
from the shares either by converting them into Ordinary Shares or
by the Company, at its election, responding to a request to so
convert the shares by choosing to redeem them. They are treated as
equity-settled awards with a market vesting condition. The fair
value at the date at which the Incentive Shares were acquired was
determined using a Stochastic model. This original fair value
(GBP217,500) was recognised as a current liability on the statement
of financial position as it becomes repayable if the Executive
Directors leave office.
At a General Meeting held on 27 December 2012, the terms
relating to the Incentive Shares were changed, triggering a
revaluation. The total amount to be expensed over the vesting
period of the modified Incentive Shares has been calculated in the
year by reference to the incremental fair value on 27 December 2012
of the modified Incentive Shares compared to the fair value on 27
December 2012 of the original Incentive Shares. This resulted in a
charge to the Consolidated Income Statement in the year of GBP5,000
(2016: GBP35,000).
Employee Benefit Trust
The Digital Barriers plc Employee Benefit Trust (the 'Trust'),
which purchases and holds Ordinary Shares of the Company in
connection with employee share schemes, is included in the Group
financial statements. Any consideration paid or received by the
Trust for the purchase or sale of the Company's own shares is shown
as a movement in shareholders' equity.
Operating Leases
Leases in which a significant proportion of the risk and rewards
of ownership are retained by the lessor are classified as operating
leases. Operating lease rentals payable or receivable are charged
or credited to the income statement on a straight--line basis over
the lease term.
Adoption of new and revised International Financial Reporting
Standards
The Group's accounting policies have been prepared in accordance
with IFRS effective as for its reporting date of 31 March 2017.
The IASB issued amendments to four standards under Annual
improvement 2012-2014 cycle together with amendments to IAS 1.
These amendments had an effective date after the date of 1 January
2016 and have been applied by the Group. Theses did not have a
material impact on the Company's financial statements in the period
of initial application.
Standards Issued by not yet effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial
statements are disclosed below. The Group intends to adopt these
standards, if applicable, when they become effective.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model
to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer.
The new revenue standard will supersede all current revenue
recognition requirements under IFRS. Either a full retrospective
application or a modified retrospective application is required for
annual periods beginning on or after 1 January 2018. Early adoption
is permitted.
The Group plans to adopt the new standard on the required
effective date using the full retrospective method. During 2017,
the Group will perform a preliminary assessment of IFRS 15 using
the clarifications issued by the IASB in April 2016 and will
monitor any further developments.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. IFRS
16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The
standard includes two recognition exemptions for lessees - leases
of 'low-value' assets (e.g., personal computers) and short-term
leases (i.e., leases with a lease term of 12 months or less). At
the commencement date of a lease, a lessee will recognise a
liability to make lease payments (i.e., the lease liability) and an
asset representing the right to use the underlying asset during the
lease term (i.e., the right-of-use asset). Lessees will be required
to separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g., a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
IFRS 16 also requires lessees and lessors to make more extensive
disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
In 2018, the Group plans to assess the potential effect of IFRS
16 on its consolidated financial statements.
2. Segmental information
Historically the Group has been organised into Services and
Solutions. In light of the potential transaction of the Video
business the directors believe that providing segment analysis that
shows the Video Business as a separate segment to the Thruvision
business would aid readers of the Annual Report. Combined, the
Video Business and Thruvision make up the previously reported
Solutions segment.
Until the disposal of the segment, the Group's Services Division
was predominantly focused on the UK market and integrated third
party technology and own product into UK Services customers. The
Services Division was no longer strategic to the Group, and
therefore signed an agreement for the disposal of the business on 1
April 2016..
The Group's 'Video Business' Division is focused on the advanced
surveillance market. This covers image and data capture (for
example, unattended ground sensors), a range of processing and
enhancement techniques (for example, thermal image processing,
image stabilisation, and enhancing low light performance), image
transmission (both wired and wireless technologies) and a range of
analytics algorithms.
The Group's Thruvision Division is focused on the stand-off
passive body scanning technology.
In accordance with IFRS 8, the Group has derived the information
for its operating segments using the information used by the Chief
Operating Decision Maker and supplemented this with additional
analysis to assist readers of the Annual Report better understand
the impact of the proposed divestment. The Group has identified the
Board of Directors as the Chief Operating Decision Maker as it is
responsible for the allocation of resources to operating segments
and assessing their performance.
Central overheads, which primarily relate to operations of the
Group function, are not allocated to the business units. Group
financing (including finance costs and finance income) and income
taxes are managed centrally and are not allocated to an operating
segment. No operating segments have been aggregated to form the
above reportable segments.
Services Solutions Central
------------------------ ---------------- ---------------------------------------------- -------------- ----------
Services
Video
Business Thruvision Central
(discontinued) (continuing) (continuing) (continuing) Total
Total
2017 2017 2017 Solutions 2017 2017
GBP'000 GBP'000 GBP'000 (continuing) GBP'000 GBP'000
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Total segment
revenue 243 24,480 2,025 26,505 - 26,748
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Inter-segment
revenue - - (1) (1) - (1)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Revenue 243 24,480 2,024 26,504 - 26,747
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Depreciation - 385 96 481 - 481
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Segment adjusted
operating loss (207) (7,333) (106) (7,439) (3,590) (11,236)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Amortisation
of intangibles
initially recognised
on acquisition - (1,411) (98) (1,509) - (1,509)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Share based
payment charge - - - - (424) (424)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Acquisition
related income/(costs)
and exceptional
write off of
bad debt - - - - 627 627
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Impairment
of goodwill
and intangibles - (7,500) - (7,500) - (7,500)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Release of
deferred consideration - - - - 2,329 2,329
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Segment operating
loss (207) (16,244) (204) (16,448) (1,058) (17,713)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Loss attributable
to discontinued
operations 207
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Segment operating
loss from continuing
operations (17,506)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Finance income 1,872
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Finance costs (1,081)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Loss before
tax from continuing
operations (16,715)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Income tax
credit 242
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Loss for the
year from continuing
operations (16,473)
------------------------ ---------------- -------------- -------------- -------------- -------------- ----------
Services Solutions Central
----------------------- ---------------- ---------------------------------------------- -------------- ----------
Services
Video
Business Thruvision Central
(discontinued) (continuing) (continuing) (continuing) Total
Total
2016 2016 2016 Solutions 2016 2016
GBP'000 GBP'000 GBP'000 (continuing) GBP'000 GBP'000
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Total segment
revenue 3,777 18,778 2,649 21,427 - 25,204
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Inter-segment
revenue - (291) - (291) - (291)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Revenue 3,777 18,487 2,649 21,136 24,913
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Depreciation 66 256 93 349 - 415
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Segment adjusted
operating loss (565) (1,152) (98) (1,250) (3,621) (5,436)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Amortisation
of intangibles
initially recognised
on acquisition (120) (1,215) (105) (1,320) - (1,440)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Acquisition
related costs
and exceptional
write off of
bad debt - - - - (792) (792)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Share based
payment charge - - - - (1,718) (1,718)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Loss on disposal
of businesses (528) - - - - (528)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Impairment of
goodwill (3,619) - - - - (3,619)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Segment operating
loss (4,832) (2,367) (203) (2,570) (6,131) (13,533)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Loss attributable
to discontinued
operations 4,832
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Operating loss
attributable
to continuing
operations (8,701)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Finance income 227
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Finance costs (32)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Loss before
tax from continuing
operations (8,506)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Income tax credit 716
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Loss for the
year from continuing
operations (7,790)
----------------------- ---------------- -------------- -------------- -------------- -------------- ----------
Analysis of revenue by customer
There have been two (2016: three) individually material
customers in the Video Business operating segment during the year.
These customers individually represented GBP6,481,000 and
GBP3,638,000 of Group turnover for the year (2016: GBP2,763,000,
GBP2,628,000 and GBP2,200,000).
There has been one (2016: none) individually material customers
in the ThruVsion operating segment during the year representing
GBP1,000,646.
There were no (2016: no) material customers in the Services
operating segment during the year.
Other segment information
The following table provides disclosure of the Group's
continuing revenue analysed by geographical market based on the
location of the customer.
2017 2016
GBP'000 GBP'000
-------------------------- --------- ---------
United Kingdom 2,378 3,108
-------------------------- --------- ---------
United States of America 18,232 5,340
-------------------------- --------- ---------
Indonesia 1,210 3,996
-------------------------- --------- ---------
Malaysia 19 2,962
-------------------------- --------- ---------
Rest of World 4,665 5,730
-------------------------- --------- ---------
26,504 21,136
-------------------------- --------- ---------
The Group's non-current assets by geography are detailed
below:
2017 2016
GBP'000 GBP'000
-------------------------- --------- ---------
United Kingdom 8,945 16,126
-------------------------- --------- ---------
United States of America 20,643 19,422
-------------------------- --------- ---------
29,588 35,548
-------------------------- --------- ---------
3. Adjusted loss before tax
An adjusted loss before tax measure has been presented as the
Directors believe that this is a better measure of the Group's
underlying performance. Adjusted loss is not defined under IFRS and
has been shown as the Directors consider this to be helpful for a
better understanding of the performance of the Group's underlying
business. It may not be comparable with similarly titled
measurements reported by other companies and is not intended to be
a substitute for, or superior to, IFRS measures of profit. The net
adjustments to loss before tax are summarised below:
2017 2016
GBP'000 GBP'000
---------------------------------------- --------- ---------
Amortisation of intangibles initially
recognised on acquisition 1,509 1,320
---------------------------------------- --------- ---------
Share based payment (i) 424 792
---------------------------------------- --------- ---------
Financing set up costs (ii) 421 -
---------------------------------------- --------- ---------
Acquisition related (income)/costs
and exceptional write off of bad debt
(iii) (627) 1,718
---------------------------------------- --------- ---------
Release of deferred consideration
(iv) (2,329) -
---------------------------------------- --------- ---------
Impairment of goodwill (note 5) (v) 7,500 -
---------------------------------------- --------- ---------
Total adjustments (6,898) 3,830
---------------------------------------- --------- ---------
(i) The performance condition associated with LTIP awards made
from July 2015 are subject to a non-market based performance
measure. Accordingly, should these LTIP awards fail to vest, the
share based payment charge will be added back to the income
statement. Historic LTIP awards have been made with a market based
performance measure which in the event that LTIPs fail to vest the
share based payment charge is not added back to the income
statement. To date the majority of historic LTIP awards have failed
to vest. The inclusion provides consistency over time allowing a
better understanding of the financial position of the Group.
(ii) During the year end 31 March 2017 the Group obtained a new
facility, incurring legal and set up fees.
(iii) During the year ended 31 March 2016 the Group acquired
100% of the share capital of Brimtek Inc. Costs in relation to the
acquisition totalled GBP1.7 million. Included within these costs is
GBP0.5 million in relation to an amount due from Brimtek to Digital
Barriers which was fully provided for immediately prior to the
acquisition of Brimtek. Acquisition costs remained largely unpaid
as at 31 March 2016. During the year ended 31 March 2017 GBP0.6
million of these acquisition costs were released to the income
statement as they were no longer due. This release was recorded
within other income.
(iv) During the year the deferred consideration held in relation
to the Brimtek Inc. acquisition was released. The release is
recorded within other income. The carrying value of the deferred
consideration is now GBPnil, and is disclosed in note 10.
(v) During the year ended 31 March 2017 a GBP7.5 million
non-cash impairment charge has been recorded against the carrying
value of goodwill within the Video Business segment and has been
separately disclosed within Other Costs in the Consolidated Income
Statement. This impairment reflects the reduction in the forecasted
recoverable amounts of the cash-generating units as a result of the
unpredictable and extended sales cycles. Further detail is given in
note 5.
4. Loss per share
Unadjusted loss per share
Weighted Weighted
Loss average Loss Loss average Loss
after number per after number per
taxation of shares share taxation of shares share
2017 2017 2017 2016 2016 2016
GBP'000 No. Pence GBP'000 No. Pence
------------------------- ---------- ------------ -------- ---------- ------------ --------
Basic loss per
share - continuing
operations (16,473) 165,120,640 (9.98) (7,790) 105,052,916 (7.42)
------------------------- ---------- ------------ -------- ---------- ------------ --------
Diluted loss
per share - continuing
operations (16,473) 165,120,640 (9.98) (7,790) 105,052,916 (7.42)
------------------------- ---------- ------------ -------- ---------- ------------ --------
Basic loss per
share - continuing
and discontinued
operations (16,680) 165,120,640 (10.10) (12,622) 105,052,916 (12.01)
------------------------- ---------- ------------ -------- ---------- ------------ --------
Diluted loss
per share - continuing
and discontinued
operations (16,680) 165,120,640 (10.10) (12,622) 105,052,916 (12.01)
------------------------- ---------- ------------ -------- ---------- ------------ --------
Adjusted loss per share
Weighted Weighted
Loss average Loss Loss average Loss
after number per after number per
taxation of shares share taxation of shares share
2017 2017 2017 2016 2016 2016
GBP'000 No. Pence GBP'000 No. Pence
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Loss from continuing
operations attributable
to ordinary shareholders (16,473) 165,120,640 (9.98) (7,790) 105,052,916 (7.42)
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Add back:
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Amortisation
of acquired intangible
assets, net of
tax 1,107 - 0.67 1,264 - 1.20
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Share based payment
charge* 424 - 0.26 792 - 0.75
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Acquisition related
(income)/costs
and exceptional
write off of
bad debt (627) - (0.38) 1,718 - 1.64
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Release of deferred
consideration (2,329) - (1.41) - - -
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Financing set
up fees 421 - 0.25 - - -
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Impairment of
goodwill 7,500 - 4.54 - - -
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Basic adjusted
loss per share (9,977) 165,120,640 (6.04) (4,016) 105,052,916 (3.82)
--------------------------- ---------- ------------ ------- ---------- ------------ -------
Diluted adjusted
loss per share (9,977) 165,120,640 (6.04) (4,016) 105,052,916 (3.82)
--------------------------- ---------- ------------ ------- ---------- ------------ -------
The inclusion of potential Ordinary Shares arising from LTIPs
and Incentive Shares would be anti-dilutive. Basic and diluted loss
per share has therefore been calculated using the same weighted
number of shares. Ordinary Shares would have been issued in respect
of the Incentive Share conversion. Full details of the basis of
calculation is given in the Admission Document available on the
Company's website. The Incentive Shares will immediately vest on
change of control of the Company.
5. Goodwill
Goodwill
GBP'000
------------------------------------------------- ---------
At 31 March 2015 18,186
------------------------------------------------- ---------
Acquisition of Brimtek 8,309
------------------------------------------------- ---------
Impairment of goodwill associated with Services
division (3,582)
------------------------------------------------- ---------
Exchange movements 410
------------------------------------------------- ---------
At 31 March 2016 23,323
------------------------------------------------- ---------
Adjustment to acquisition of Brimtek value (288)
------------------------------------------------- ---------
Impairment of goodwill associated with Video
Business division (7,500)
------------------------------------------------- ---------
Exchange movements 1,541
------------------------------------------------- ---------
At 31 March 2017 17,076
------------------------------------------------- ---------
Carrying amount of goodwill allocated to operating segments
2017 2016
GBP'000 GBP'000
---------------- --------- ---------
Video Business 17,076 23,323
---------------- --------- ---------
Thruvision - -
---------------- --------- ---------
17,076 23,323
---------------- --------- ---------
Historically the Group has been organised into Services and
Solutions. In light of the proposed divestment of the Video
business the directors believe that providing segment analysis that
shows the Video Business as a separate segment to the Thruvision
business would aid readers of the Annual Report. Combined, the
Video Business and Thruvision make up the previously reported
Solutions segment. Consequently goodwill acquired through business
combinations has been allocated for impairment testing purposes.
These segments are deemed to be the two cash-generating units
('CGUs') for impairment testing. The Group conducts annual
impairment tests on the carrying value of the CGUs in the statement
of financial position. Although required to perform annual
impairment tests, these do not have to take place at 31 March but
the test should be consistently carried out at the same time
annually.
The Group carries out its annual impairment testing as at 28
February each year. Impairment testing is only re-performed if an
impairment triggering event occurs in the intervening period. As a
result of the proposed divestment the impairment review conducted
at the annual testing date has been revisited to ensure the outcome
remains appropriate.
Value in use calculations are used to determine the recoverable
amount of the cash-generating units. The key assumptions for the
value in use calculations include the forecast revenue growth of
the CGU, cost allocations, the discount rate applied and the
long-term growth rate of the net operating cash flows, along with
the gross margin for sales. In determining the key assumptions,
management have taken into consideration the nature of the markets
in which it operates, expected growth of the markets in which it
operates, the ability of the CGU to exploit those opportunities and
the current economic climate, the resulting impact on expected
growth and pre-tax discount rates, and the pressure this places on
impairment calculations.
The Group prepares cash flow forecasts for the cash-generating
unit based on the most recent three-year detailed financial
forecasts. The table below sets out the key assumptions included in
these forecasts:
Video Business
----------------------------------- -----------------
2017 2016
----------------------------------- -------- -------
Revenue growth compound from FY17
to FY20 (years one to three) (1) 25% 40%
----------------------------------- -------- -------
Revenue growth from FY20 onwards
(year four onwards) (2) 2.0% 2.5%
----------------------------------- -------- -------
Gross margin improvement compound
from FY17 to FY20 (years one to
three) (3) 6% 1%
----------------------------------- -------- -------
Discount rate (4) 11.1% 10.6%
----------------------------------- -------- -------
(1) Forecasts are based on an internal assessment of the
strength of the CGU in the markets in which it operates with the
expected growth reflecting the opportunities in its core strategic
markets, sales pipeline and relationships being developed.
(2) Revenue growth of 2.0% (2006: 2.5%) is an external estimate
of the UK's long-term growth rate .
(3) Gross margin is forecast to improve against FY17 as the
product mix continues to evolve through the next three years to
include a greater proportion of software sales together with
revenues generated by the legacy Brimtek business (which attract a
lower gross margin) forming a decreasing percentage of total
revenues.
(4) Discount rate is based on the weighted cost of capital
applying to businesses in the same sector, and reflects the current
market assessments of the time value of money and of the risks
specific to the cash generating units.
An impairment loss of GBP7.5 million (2016: GBPnil) arises in
the year ended 31 March 2017 for the Video Business based on these
base assumptions.
The Directors consider that an absolute change in the key
assumptions set out below is reasonably possible.
Video Business
-------------------------------------- -----------------
2017 2016
-------------------------------------- -------- -------
Reduction in forecast revenue growth
compound from FY17 to FY20 (years
one to three) -10% -9%
-------------------------------------- -------- -------
Reduction in forecast revenue growth
FY20 onwards (year four onwards) -2.5% -2.5%
-------------------------------------- -------- -------
Increase in discount rate (4) 2.5% 2.5%
-------------------------------------- -------- -------
If these assumptions were to change in isolation, they would
result in an increase in the impairment charge of goodwill of
between full impairment of goodwill (reduction in revenue forecast)
to a GBP0.2 million impairment (reduction in long term growth
rate). In the prior year, if these assumptions were to change in
isolation, they would not have resulted in an impairment charge of
goodwill. The value in use calculations are most sensitive to
changes in assumptions around forecast revenue growth and gross
margin improvement. An absolute reduction in the forecast revenue
growth of 10% (compound over years one to three) would result in
full impairment of goodwill. In the prior year an absolute
reduction in the forecast revenue growth of 10% (compound over
years one to three) would have resulted in the recoverable amount
of Solutions goodwill being equal to the carrying amount (a
reduction in the headroom from GBP17.5 million to GBPnil). A rise
in the discount rate to 13.6% (i.e. +2.5%) would result in a
further impairment of GBP10 millions
As indicated in the interim results announcement on 11 December
2015, the Board believed that the Services division was no longer
strategic to the Group. As a consequence the Board initiated a plan
for the potential disposal of the business, and on 1 April 2016 the
Board signed an agreement for the proposed disposal of the business
for nominal consideration. Consequently the recoverable amount of
the Services CGU in year ended 31 March 2016 was based on fair
value less costs of disposal, being the sales price of GBP1. As a
result the carrying value of the goodwill attributable to the
Services segment was reduced to GBPnil in the year ended 31 March
2016 and an impairment charge GBP3,582,000 was been included in the
loss attributable to discontinued operations for the year then
ended.
6. Trade and other receivables
Gross Provision Net Gross Provision Net
carrying for carrying carrying for carrying
amounts impairment amounts amounts impairment amounts
2017 2017 2017 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- ------------ ---------- -------------- ------------ ----------
Trade receivables 6,388 (376) 6,012 11,814 (431) 11,383
------------------- ---------- ------------ ---------- -------------- ------------ ----------
Prepayments 616 - 616 780 - 780
------------------- ---------- ------------ ---------- -------------- ------------ ----------
Accrued income 168 - 168 339 - 339
------------------- ---------- ------------ ---------- -------------- ------------ ----------
Social security
and other taxes 718 - 718 581 - 581
------------------- ---------- ------------ ---------- -------------- ------------ ----------
Other receivables 142 - 142 156 - 156
------------------- ---------- ------------ ---------- -------------- ------------ ----------
8,032 (376) 7,656 13,670 (431) 13,239
------------------- ---------- ------------ ---------- -------------- ------------ ----------
The Group's credit risk on trade and other receivables is
primarily attributable to trade receivables and amounts recoverable
on contracts. Two customer represents GBP2,382,000 (2016: one
customer GBP2,648,000) of the Group's trade receivables at 31 March
2017. There is no other significant concentration of credit
risk.
The Group believes that the carrying amounts of the Group's
trade receivables by the type of customer gives a fair presentation
of the credit quality of the assets:
2017 2016
GBP'000 GBP'000
---------------------- --------- ---------
Government customers 2,491 3,745
---------------------- --------- ---------
Commercial customers 3,521 7,638
---------------------- --------- ---------
6,012 11,383
---------------------- --------- ---------
Trade receivables of GBP2,704,000 (2016: GBP2,410,000) were past
due but not impaired; trade receivables of GBP2,560,000 (2016:
GBP64,000) are past due and stated after reflecting a partial
impairment. These relate to a number of independent customers and
are considered to be fully recoverable.
The movement in the provision for doubtful debts is as
follows:
GBP'000
-------------------- --------
At 31 March 2015 1,208
-------------------- --------
Provided in period 128
-------------------- --------
Utilised (767)
-------------------- --------
Released (178)
-------------------- --------
Foreign exchange 40
-------------------- --------
At 31 March 2016 431
-------------------- --------
Provided in period 150
-------------------- --------
Utilised (51)
-------------------- --------
Released (158)
-------------------- --------
Foreign exchange 4
-------------------- --------
At 31 March 2017 376
-------------------- --------
Trade receivables, net of an allowance of GBP376,000 (2016:
GBP431,000) for doubtful debts, are aged as follows:
2017 2016
GBP'000 GBP'000
------------------------------------- --------- ---------
Not due 3,308 8,909
------------------------------------- --------- ---------
Not more than three months past due 617 693
------------------------------------- --------- ---------
More than three months but not more
than six months past due - 150
------------------------------------- --------- ---------
More than six months past due 2,087 1,631
------------------------------------- --------- ---------
6,012 11,383
------------------------------------- --------- ---------
The Group experiences credit risk which reflects its early stage
of development into international markets with challenging
political landscapes and sometimes protracted payment cycles. This
is reflected in the provision for doubtful debts and ageing
analysis and the fact that the Group had an extended debtor in Asia
Pacific, where a delayed project implementation has resulted in the
likely replacement of the local partner by the contracting
government agency. Whilst legally contracted, fulfilled and
invoiced, and government agency confirmation of their intent to
continue the project and implement the Group's technology the Group
has elected to write down the overdue debtor. The net impact on the
income statement was GBP1.9 million in the year ended 31 March
2017.
7. Trade and other payables
2017 2016
GBP'000 GBP'000
--------------------------------- --------- ---------
Current
--------------------------------- --------- ---------
Trade payables 5,115 4,833
--------------------------------- --------- ---------
Accruals 1,735 2,737
--------------------------------- --------- ---------
Deferred income 349 774
--------------------------------- --------- ---------
Social security and other taxes 359 441
--------------------------------- --------- ---------
Other payables 350 341
--------------------------------- --------- ---------
7,908 9,126
--------------------------------- --------- ---------
On 17th October 2016 the Group replaced an existing GBP5.0
million secured working capital facility for export activities with
a new two year GBP10.0 million secured revolving credit facility
with Investec Bank plc. The funds available through this facility
will be used to meet the increasing working capital requirements of
the Group's organic growth. The facility is secured by a fixed and
floating charge over the Group's assets and includes covenants
which are tested quarterly. The facility was not being utilised at
31 March 2017, but at time of approval of the financial statements
is drawn to the extent of GBP6,094,000 with a net debt position of
GBP4,167,000. No banking covenants have been breached at the time
of approval of the Annual Report and waivers to covenants tests
have been agreed with Investec during the testing period to date.
In addition to this secured facility, on 28 September 2017 the
Group has arranged an unsecured GBP5.25 million loan facility with
Herald Investment Trust to supplement the above facility for a
period of 15 months, which has not been drawn on.
8. Share capital
Number GBP'000
--------------------------------- ------------ --------
Authorised, allotted, called-up
and fully paid
--------------------------------- ------------ --------
Ordinary Shares of 1 pence each
--------------------------------- ------------ --------
At 31 March 2015 84,489,481 845
--------------------------------- ------------ --------
Shares issued in the year 80,616,758 806
--------------------------------- ------------ --------
At 31 March 2016 165,106,239 1,651
--------------------------------- ------------ --------
Shares issued in the year 23,785 -
--------------------------------- ------------ --------
At 31 March 2017 165,130,024 1,651
--------------------------------- ------------ --------
Number GBP'000
--------------------------------- -------- --------
Authorised, allotted, called-up
and fully paid
--------------------------------- -------- --------
Incentive Shares of GBP1 each
--------------------------------- -------- --------
At 31 March 2016 54,375 54
--------------------------------- -------- --------
At 31 March 2017 - -
--------------------------------- -------- --------
Authorised, allotted, called-up
and fully paid
--------------------------------- -------- --------
Deferred Shares of GBP1 each
--------------------------------- -------- --------
At 31 March 2016 108,749 109
--------------------------------- -------- --------
At 31 March 2017 163,124 163
--------------------------------- -------- --------
On 5 January 2015 19,864,865 Ordinary Shares were issued at 37
pence per share for a total cash consideration of GBP7,350,000. On
30 December 2015 80,571,429 Ordinary Shares were issued at 35 pence
per share for a total consideration of GBP28,200,000, primarily
funds to be used by the group to purchase the share capital of
Brimtek Inc.
In July 2016, 23,785 shares were issued in the year (2015:
45,329 Ordinary Shares) for nil consideration to certain employees
as a bonus payment.
Of the 163,124 incentive shares outstanding as at 31 March 2015,
none converted into Ordinary Shares. Initial provision had not been
made in the Articles for the circumstance whereby Incentive Shares
were valued at nil and did not convert into Ordinary Shares on the
conversion date. On 21 September 2015, a new class of Deferred
share in lieu of Incentive shares was created so that Incentive
Shares which did not convert to Ordinary Shares on the relevant
conversion date converted into Deferred Shares with very limited
rights and value. Accordingly, 108,749 shares were converted into
deferred shares of GBP1 each on 21 September 2015, with a further
54,375 shares on 15 February 2017.
9. Related party transactions
Loan facility
Herald Investment Trust have provided the Group with a GBP5.25
million working capital facility as detailed in note 1. This
facility is unsecured with no covenants attached to it, but
otherwise is on principally the same financial terms as the
Investec facility as detailed in note 7, with interest payable at
10% over 3 month Libor.
Tom Black is a member of the Herald Investment Trust Board and
is also a director of Digital Barriers plc.
Herald Investment Trust holds 15,329,712 ordinary shares in
Digital Barriers plc equating to 9.28% of the issued share capital
of the Group.
10. Post balance sheet event
Loan facility with Herald Investment Trust
On 28 September 2017, Digital Barriers PLC agreed a 15 month
GBP5.25 million unsecured loan facility with Herald Investment
Trust. The funds available through the facility are in addition to
the Group's existing revolving credit facility and will be used to
meet the working capital requirements of the Group.
Release of deferred consideration
In June 2017 Digital Barriers reached early finalisation terms
with the vendors of Brimtek Inc. The terms of the finalisation
involved a release of $1.45 million from the escrow account back to
Digital Barriers and no deferred consideration to be paid. The
performance conditions for the deferred consideration were set at a
level significantly above forecast, and consequently deferred
consideration balance at 31 March 2017 had been reduced to GBPnil
against an expectation of a significant shortfall to the
performance conditions set. (2016: GBP2,018,000).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEMSDUFWSELU
(END) Dow Jones Newswires
September 29, 2017 02:02 ET (06:02 GMT)
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