Final Results

RNS Number : 6811A

Ebiquity PLC

28 March 2017

 

Ebiquity plc

Final results for the year ended 31 December 2016

Ebiquity, a leading independent marketing analytics specialist, announces final results for the year ended 31 December 2016. Ebiquity provides services to 80% of the top 100 global advertisers, with data-driven insights spanning over 90 countries.

Continued revenue, profit and earnings growth

·      Revenue up 9.1% to £83.6m (CY2015: £76.6m), with like for like constant currency revenue growth of 2.1%

·      Underlying operating profit up 4.4% to £13.0m (CY2015:£12.4m)

·      Underlying PBT up 5.5% to £11.8m (CY2015:£11.2m)

·      Underlying diluted EPS up 5.0% to 11.3p (CY2015: 10.8p)

·      Underlying net cash inflow from operations £11.3m (CY2015: £13.7m) with cash conversion from underlying profit of 88%

·      Net debt reduced to £28.1m (31 December 2015: £28.9m)

·      Proposed dividend of 0.65p per share continuing progressive dividend policy

Growing revenue contribution from Media Value Measurement and Marketing Performance Optimization

·      Media Value Measurement ("MVM") achieved total revenue growth of 12.3% over CY2015, an increase of 3.6% on a like-for-like, constant currency basis

·      Marketing Performance Optimization ("MPO") continued to deliver strong revenue growth with total revenue growth of 31.2% over CY2015 and like for like constant currency revenue growth of 21.6%

·      Together MVM and MPO accounted for 72% of Group revenues (CY2015: 68%)

·      Market Intelligence ("MI") revenues were down by 5.2% on a total basis and by 8.5% on a like for like constant currency basis, with the decrease largely due to an expected substantial decline in revenues from our project based research business

Delivered on a number of milestones set out in Growth Acceleration Plan

·      Formally launched Strategic Media Consultancy service offering in Q4 2016

·      Commenced rollout of marketing effectiveness practice into Germany, France and Asia Pacific, with first local projects in Continental Europe in Q1 2017, Asia Pacific in H2 2016

·      Digital product development on track with rollout of Portfolio Digital commencing in Asia Pacific and launch of digital attribution service expected in Q2 2017

·      Talent review programme undertaken in Q1 2017, kicking off first phase of the Growth Support Programme

Michael Karg, CEO, commented:

"We have seen continued strong performance from our consultancy businesses MVM and MPO, which are at the core of the changing nature of the media landscape particularly around effectiveness and efficiency of marketing investments. We have already made good progress with our growth acceleration plan, which will replicate our service offering across key territories, further strengthening our ability to service global clients.

Investments into expanding our digital services across our three practice areas coupled with events in the media marketplace - such as the debate around the performance of digital advertising - create significant medium-term growth opportunities. The implementation of our plans, the opportunities arising from the changing nature of the industry, make us excited for the future."

27 March 2017

FY2016 is the year ended 31 December 2016 (audited)

FY2015 is the financial period from 1 May 2015 to 31 December 2015 (audited)

CY2015 is the calendar year from 1 January 2015 to 31 December 2015 (unaudited)

¹Like for like means prior year results are adjusted to include the results of recent acquisitions as if they had been owned for the same period in the prior year.

²Constant currency is calculated by taking current year denominated results restated at last year's foreign exchange rates.

Enquiries:

Ebiquity Michael Karg, CEO Andrew Noble, CFO	020 7650 9600
Instinctif Partners Matthew Smallwood Guy Scarborough	020 7457 2020
Numis Securities Nick Westlake, Oliver Hardy (NOMAD) Toby Adcock (Corporate Broker)	020 7260 1000

Chairman's statement

For Ebiquity, 2016 was a year of both progress and change.

Financially, reported revenue grew 9.1% to £83.6m, underlying operating profit increased 4.4% to £13.0m, and underlying fully diluted earnings per share were up 5% to 11.3p. I am also pleased to report we have continued to increase the dividend in line with our progressive dividend policy, with a proposed payment of 0.65p per share.

Change has been a constant during the year, both in the marketing industry and at Ebiquity. Technology has helped make the broad marketing ecosystem ever-more complex, inevitably more confusing, and often less transparent than one might expect. This is particularly true when we reflect that digital data should - if anything - enable much more detailed and meaningful analysis.

It is a striking fact that today only about 40% of digital programmatic advertising investment reaches the consumer, with value being eroded by the multiple links between advertisers and publishers, fraud, lack of viewability and non-human traffic. I don't envy any business leader who has to tell his board and shareholders that they're investing in anything that suffers up to 60% wastage. The trouble is, that's what many CMOs should be saying.

Digital complexity and the increasing calls for transparency mean that our clients - the world's biggest advertisers - need more help than ever from an independent firm with the necessary knowledge and expertise to navigate their way through this.

Within Ebiquity itself there was significant change in 2016. Michael Karg took the helm as Group CEO early in the year and undertook a complete review of the business. There were great foundations in place, with businesses around the world, tremendous talent and expertise, and a client list that includes more than three quarters of the world's biggest advertisers. Michael has now set about moving these individual businesses into a single, aligned organization that can address the global requirements of our international clients as well as the local needs of domestic ones.

Meeting these challenges will be achieved both by continuing to bring in and develop talent, but also by increasing the underpinning processes and technology that enables us to handle the demands of analysing and drawing actionable intelligence from the avalanche of data that digital marketing creates.

We are, I believe, a leader in the ongoing debate about media transparency, and that position has only been enhanced throughout 2016. Our independence is paramount, and we must remain at the heart of the marketing ecosystem, enabling marketers to seize the opportunities offered by digital.

2016 was just the beginning of the process of evolution in the industry, but as it gathers momentum the opportunities for Ebiquity can only grow. There will also be more change to come, as - for example - in 2018 new regulations over the use of personal data come into force in Europe. These will add another level of complexity and will reinforce the need for the professional independent expert - Ebiquity.

As always, we couldn't achieve any of this without the people around the world who bring their individual expertise and efforts to the business and create the capability that the whole group can deploy for the benefit of its clients.

Thank you to you all.

Michael Higgins

Chairman

27 March 2017

Strategic Report

2016 in review

2016 represented another good year of revenue and profit growth for Ebiquity. Operating profit growth over the year was on track with the growth plan we outlined in Autumn 2016.

Revenues grew 9.1% to £83.6m over pro-forma revenue for the 12 months ended 31 December (CY2015). Underlying operating profit increased to £13.0m. This represents an increase of 4.4% over CY2015, reflecting a slight drop in operating margin to 15.5%, at the higher end of our direct peer group.

Underlying profit before tax increased by 5.3% to £11.8m. Reported operating profit grew to £7.7m, up from £3.6m in CY2015, and reported profit before tax increased to £6.5m, up from £2.5m in CY2015.

With approximately 68% of revenue denominated in currencies other than sterling, revenue was significantly boosted by the depreciation of Sterling during the year. In total, foreign exchange benefitted revenue by 5.8%, with acquisitions further increasing revenue by 1.2%. This resulted in like-for-like, constant currency revenue growth of 2.1%.

Our Media Value Measurement (MVM) practice reported revenue increase of 12.3%, an increase of 3.6% on a like-for-like, constant currency basis. MVM now accounts for 56% of group revenue. Revenue grew fastest from our international media practice and business units in Continental Europe, and we continued to see strong demand for both our digital and pitch management services.

Overall MVM revenue growth was held back by a decline in revenue from our contract compliance business, FirmDecisions, due to clients reflecting on the findings of the U.S. Association of National Advertisers' (ANA) media transparency report. We continue to view the ongoing industry debate about media transparency as a long-term growth driver for the MVM practice. Underlying Operating margins dropped from those achieved in CY2015 principally as a result in the decline in revenue from our contract compliance business feeding through to profitability.

Revenue from our Marketing Performance Optimization (MPO) practice continued to grow strongly, with reported revenue growth of 31.2% and like-for-like, constant currency revenue growth of 21.6%. Revenue grew from both our US based Multi-Channel Analytics practice (13.9%) and our European based Marketing Effectiveness practice (24.8%). Our underlying operating margin rose slightly year on year.

Together, our faster growing practices - MVM and MPO - now represent 72% of Group revenues.

Revenue from our Market Intelligence (MI) practice declined by 5.2% on a reported basis, and by 8.5% on a like-like, constant currency basis. As indicated in our half-year report, revenue from our project-based research business declined sharply following the loss of a specific contract at the beginning of the year. The decline in revenue was largely anticipated, and the cost base of the business was managed appropriately.

The market intelligence sector is highly competitive, mature, and experiencing low growth rates across the world. Revenue from Portfolio, our Advertising Intelligence (AI) subscription service, grew by 1.7% on a reported basis. Eliminating the impact of currency, revenue from AI declined 1.7% owing to the loss of three contracts in our U.S. business unit at the beginning of the year. Renewal rates were 88% on a value basis, and we have already seen a positive reaction from clients to the upgrade to our new Portfolio media platform rolled out from September 2016 onwards. Due to good cost control and a decline in revenue contribution from our project-based research business, underlying operating margins rose year on year.

Building for the future

I became Group Chief Executive in January 2016, and inherited a company with great foundations on which to build. A company with a global presence, a client base including 80% of the world's top 100 advertisers, and a strong brand with global leadership in MVM. With advertisers under increasing pressure to validate and justify marketing expenditure, I also found a powerful and thriving MPO practice: strong talent, unique and proprietary methodologies, and growing revenue.

Since I took the helm of Ebiquity, we've put in place several important building blocks we need to ensure that the business is fit for the next stage of our development and growth. These are significant steps on the road to transforming Ebiquity from what was effectively a collective of independently-run, local entities into a global, professional services business. What's more, this is more straightforward to achieve currently, with most of our acquisitions now beyond earn-out and becoming fully integrated the into the Ebiquity business. Founder entrepreneurs of these companies are therefore less concerned about individual profitability and more focused on our collective journey of change.

1. To achieve this transformation, we have developed and articulated a distinctive statement of corporate purpose, grounded in our clients' needs: "we are creating clarity for our clients". This statement of purpose is designed to change the way we think and talk about why we do what we do, and how we do it. "Creating clarity" is not a one-off statement. Rather, it represents the start of a continuous process that takes courage and conviction, guided by our teams' expertise. It requires us always to deliver analysis and recommendations that are straightforward, transparent, and precise.

2. To achieve this transformation, we are now taking a dedicated, client-first approach. We have identified and appointed a global Chief Client Officer - Andrew Challier - who is responsible for several of our most important client relationships. We are embedding our client-first approach across the business through clear client partner job profiles, training, and development by region, by market, and by expertise.

We want to work closer still with those clients who partner with us because they see the greatest value in our services. By providing them with the right level of service, we can help them to become even more effective and efficient advertisers. We know that deepening and expanding the relationships with our key clients will be a critical lever of growth.

3. To achieve this transformation, we've introduced a matrix organizational structure, creating global practice responsibilities. This is designed to drive better and clearer accountability to those responsible for markets and those running products and services across geographies. We have done this to ensure that we deliver our products and services at consistently-high standards. And we have done this to ensure that these products and services reflect and accommodate local-market differences.

4. And to achieve this transformation, we've started to develop more sophisticated approaches to talent management. During 2016, we developed new global processes for reviewing our talent base to drive development and retention programs, and to support succession planning. These are rolling out into the business in 2017. We are committed to also continue to improve our ability to recruit the specialist talent that our clients' needs demand, and to further enhance employee engagement.

An aspiration for the future

Ebiquity as the partner of choice for the media, data, and adtech communities

The purpose of our business is creating clarity for our clients on the return on investment that their media investments yield for them in all channels. By understanding simply and clearly the effectiveness and efficiency of their media choices, we help them to optimize performance. This performance is mediated through an increasingly diverse range of partner businesses. The most significant of these partners is usually the advertiser's media agency of record, although it now also includes an array of specialist digital, technology, and data businesses across the adtech and martech ecosystem.

Because we evaluate the performance of the output of our clients' agencies, it is our long-term ambition and aspiration to work in partnership with them too. It is our role to test - independently - and demonstrate the real value that they are delivering for our clients, as well as to recommend strategies for improving media performance still further. This is why we would like - over the coming years - to become the partner of choice of our clients' partner agencies, too.

This is true across all our services, from pitch management to marketing performance optimization; from media value measurement to market intelligence; from strategic media consultancy to contract compliance reviews. We recognize that some of our services - including agency pitch management and contract compliance reviews - are a cost of doing business for agencies. Nevertheless, they are important aspects of good governance, and we try to deliver these services in a straightforward and professional manner for all parties.

Our desire to become the partner of choice for the media industry is also why - for instance - we are developing our new Connect data management platform to allow seamless and automated uploads of media data from media agencies. This will reduce the load on agencies, improving the accuracy of data, and save time for agencies and advertisers.

If an advertiser decides to change its agency of record, for instance, and we're appointed to manage the pitch process, it's important that we should have good relationships with and deep knowledge of the capabilities of all potential media agency partners. We also need good relationships with the leadership of agencies, data partners, and adtech providers such as ad servers and DSPs. We are building these relationships in both local markets and at a global level.

Part of our commitment to being the partner of choice to the global advertiser community extends to our close working relationship with leading industry trade bodies. This includes the World Federation of Advertisers (WFA), the Incorporated Society of British Advertisers (ISBA), the U.S. Association of National Advertisers (ANA), and representative bodies in other key global markets including Australia, France, Germany, and Spain.

Our Growth Acceleration Plan

Across our one global Ebiquity, we are now actively embedding our matrix structure, our people strategy, and our narrative purpose as fundamentals required to grow the business. In the next stage of our development, we are actively transforming Ebiquity into a technology-enabled consultancy.

Our clients demand and rightly expect quick turnaround of analysis of large volumes of data. Over the coming years, we can only meet these expectations and scale our business by making our products and services technology-enabled throughout.

We have identified that, compared with similar services firms, we have been running "too lean" - delivering 16% underlying operating profit margin against 10-11% for comparable firms. By investing in technology to make our business technology-enabled, we should nevertheless be able to deliver above average margin of 12-13%.

Enhanced technology is critical to our future success, right across our three, core practice areas.

In Marketing Performance Optimization, we face a rapidly-growing need to analyse enterprise scale sets of consumer and media, behavioural and transactional data. Our ability to deliver here will be underpinned by technology.

In Media Value Management, we need to ingest and integrate large sets of media data from multiple different sources - from ad servers to Demand Side Platforms - to help our clients optimize campaigns in near real time. Our ability to deliver here will be underpinned by technology.

And in Market Intelligence, we bring together the world's display advertising - from print, broadcast, and online services; creative executions, media placement, and spend data - into fully searchable, properly tagged databases. Our ability to deliver here will be underpinned by technology.

Our five-year objectives

Our 5Ps strategy provides the framework for our five-year objectives: 

·      People: Attract, retain and develop high calibre talent from the media, data science and consultancy sectors.

·      Product: Launch proprietary products and services that harness our data and insights and enable us to be trusted advisors for our clients.

·      Process: Shape the organization and its processes to support broader and deeper client relationships.

·      Profile: Raise our brand profile and broaden the perception of our expertise to support our growth plans.

·      Performance: Delivery of our Growth Acceleration Plan resulting in sustainable double-digit revenue growth at sustainable operating margins.

As we start to meet these objectives, we will increasingly be known as one of the leading, independent, technology-enabled marketing and media analytics consultancies, right around the world. Board-level executives will trust us more deeply. Our services and methodologies will help to set the standards for the industry. And advertisers, industry bodies, analysts, and the media will increasingly seek out our thought leadership.

Summary of results

	FY2016	CY2015	FY2015
	Audited For the 12 months ended  31 Dec 2016	Unaudited For the 12 months ended 31 Dec 2015	Audited For the 8 months ended 31 Dec 2015
Revenue	£'000	£'000	£'000
Media Value Measurement	47,161	41,998	20,409
Marketing Performance Optimization	13,048	9,936	6,899
Market Intelligence	23,360	24,650	16,002
Total revenue	83,569	76,584	43,310
Underlying operating profit/(loss)
Media Value Measurement	12,124	12,057	(81)
Marketing Performance Optimization	3,739	2,802	1,874
Market Intelligence	3,902	3,668	2,070
Central costs	(6,806)	(6,116)	(3,866)
Total underlying operating profit/(loss)	12,959	12,411	(3)
Highlighted items	(5,202)	(8,768)	(6,656)
Reported operating profit/(loss)	7,757	3,643	(6,659)
Net finance costs	(1,132)	(1,199)	(800)
Share of profit of associates	-	18	13
Reported profit/(loss) before tax	6,625	2,462	(7,446)
Underlying profit/(loss) before tax	11,827	11,230	(790)
Underlying diluted earnings per share	11.3p	10.8p	(0.4)p

Revenues grew to £83.6m which represents 9.1% total revenue growth over £76.6m recorded over the 12 months ended 31 December 2015 (CY2015). Ebiquity received a very positive revenue benefit from the depreciation of Sterling against the US$ and Euro. With 24% of revenues denominated in Euros, and 19% in US Dollars the depreciation of Sterling against these currencies by 11% and 11% respectively led to a revenue boost of £4.5m or 5.8%. 

Revenue growth was further benefitted by the impact of the acquisition of Fairbrother Marsh Company Limited in March 2016 and the full year impact of our acquisition of Media Value SL in March 2015. The impact on revenue was to increase revenue growth by 1.2% over CY2015. Discounting the impact of currency movements and the impact of current and prior year acquisitions, like for like constant currency revenue growth was 2.1% over CY2015.

Taken together our Media Value Measurement and Marketing Performance Optimization practices contributed 72% of revenue (CY2015: 68%). Together the two practices achieved like for like constant currency revenue growth of 7%.  Further detail of performance by practice is outlined on pages 29 and 30.

Underlying operating profit increased by 4.4% from £12.4m in CY2015 to £13.0m and reflected a slight decrease in underlying operating profit margin from 16.2% from 15.6%. Reported operating profit increased from £3.6m in CY2015 to £7.8m in 2016. The prior year included a non-cash charge in respect of the impairment of goodwill, purchased intangible asset and related capitalised development costs of the Reputation business.

Net finance costs were £1.1m in the year to December 2016 (CY2015: £1.2m), the reduction reflects lower gross debt in 2016 compared with 2015.

Underlying profit before tax was 5.3% higher at £11.8m in the year to December 2016 (CY2015: £11.2m). Reported profit before tax increased by £4.1m to £6.6m in the year to December 2016 (CY2015: £2.5m), due to the non-cash goodwill impairment booked in the prior period.

Earnings per share

Underlying diluted earnings per share was 11.3p in the year to December 2016 (CY2015: 10.8p), being an increase of 5% comparable with the increase in underlying profit before tax.

Highlighted items

Highlighted items total £5.2m in the year to December 2016, (CY2015: £8.8m). Highlighted items comprised the following:

·      £1.9m related to purchased intangible asset amortisation (CY2015: £2.0m);

·      £0.6m share based payment expenses (CY2015: £0.8m);

·      £2.0m of acquisition related costs, (CY2015: credit £0.1m) including £0.8m in relation to the increase of the Stratigent earn-out and deferred consideration adjustments of £0.6m resulting from foreign exchange differences net of the impact of discounting to present value; and

·      £0.7m of integration costs, (CY2015: £1.6m) including the cost of management restructure of £0.5m and a further £0.2m relating to fees in relation to the appointment of the new Group CEO.

Performance by practice is outlined below:

MVM - Media Value Measurement (56% of total revenue)

	FY2016	CY2015	FY2015
	Audited	Unaudited	Audited
	£'000	£'000	£'000
Revenue	47,161	41,998	20,409
Underlying operating profit/(loss)	12,124	12,057	(81)
Underlying operating profit/(loss) margin %	25.7%	28.7%	(0.4)%

Our Media Value Measurement (MVM) practice reported revenue increase up 12.3%, an increase of 3.6% on a like-for-like, constant currency basis. MVM now accounts for 56% of group revenue. The recent acquisitions of Fairbrother Marsh Company in Ireland and the full year impact of the 2015 acquisition of Media Value SL in Spain increased revenue by 2.2%. Revenue growth was held back by a decline in revenue from our contract compliance business which itself represents less than 10% of total MVM revenue. Excluding contract compliance, the MVM practice achieved 6.6% like for like constant currency revenue growth.

Operating margin reduced to 25.7% from 28.7% in FY2015 primarily as a result of the revenue decline in the contract compliance business which directly impacted operating profit, investment in additional resources in our Media business in China to enable sustainable revenue growth in that rapidly evolving market and the shift in revenue to lower margin international benchmarking engagements.

MPO - Marketing Performance Optimization (16% of total revenue)

	FY2016	CY2015	FY2015
	Audited	Unaudited	Audited
	£'000	£'000	£'000
Revenue	13,037	9,936	6,899
Underlying operating profit	3,739	2,802	1,874
Underlying operating profit margin %	28.7%	28.2%	27.2%

Revenue from our Marketing Performance Optimization (MPO) practice continued to grow strongly, with reported revenue growth of 31.2% and like-for-like, constant currency revenue growth of 21.6%.  MPO now accounts for 16% of total revenue (CY2015: 13%), which we expect to continue to grow as a proportion of our total business. Operating margins were marginally ahead of CY2015 at 28.7%, with resources growing largely in line with revenue growth. As we expand our MPO practice into new markets and resource for sustainable growth, we anticipate a reduction from current operating margin levels.

MI - Market Intelligence (28% of total revenue)

	FY2016	CY2015	FY2015
	Audited	Unaudited	Audited
	£'000	£'000	£'000
Revenue	23,360	24,650	16,002
Underlying operating profit	3,902	3,668	2,070
Underlying operating profit margin %	16.7%	14.9%	12.9%

Revenue from Market Intelligence (MI) declined by 5.2% on a reported basis, and by 8.5% on a like-like, constant currency basis. As indicated in our half-year report and as largely anticipated, revenue from our project-based research business declined sharply during the year and now represents less than 10% of MI revenues. Revenue from Portfolio, our Advertising Intelligence (AI) subscription service, and related insight services grew by 1.7% on a reported basis. Eliminating the impact of currency, revenue from AI declined 1.7% owing to the loss of three contracts in our U.S. business unit at the beginning of the year.

Despite the decline in revenue, operating margins improved by 1.8% to 16.7% in 2016 because of both cost control within the AI business and the change in business mix, with costs being managed down with revenue in the lower margin project-based research business.

Central costs

	FY2016	CY2015	FY2015
	Audited	Unaudited	Audited
	£'000	£'000	£'000
Central costs	(6,806)	(6,116)	(3,866)

Central costs include central salaries (Board, Finance, IT, Marketing and HR), legal and advisory costs and property costs. Central costs have increased by £0.7m or in 2016 due to increased staff costs, travel costs and IT costs. The increase in travel costs, especially in the second half of the year, reflected the need to bring management teams together more often as our matrix organisation was implemented.

Taxation

The total tax charge for the year ended December 2016 is £2.2m (FY2015 credit: £1.3m) representing a current tax charge of £1.8m (FY2015: credit of £0.1m) and a deferred tax charge of £0.4m (FY2015: £1.2m).

On a calendar year comparative basis, the effective rate of tax on underlying profit before tax for the year ended 31 December 2016 is 21.7% (CY2015: 22.2%). The effective rate of tax is raised by under provision from previous periods. Excluding the release of under provisions the underlying effective tax rate is 21.0%.

Dividend

It is the Board's intention to pay a dividend of 0.65 pence per share for the 12 months ended 31 December 2016, (FY15: 0.4 pence per share). This would represent an increase in dividend per share on a pro-rata basis and would also represent the continuation of a progressive dividend policy which commenced with our maiden dividend paid in October 2015. The dividend will be recommended as a final dividend at the Company's AGM on 10 May 2017.

Equity

During the 12 months to December 2016, 38,063 shares were issued upon the exercise of employee share options. As a result our share capital increased to 77,199,751 ordinary shares (31 December 2015: 77,161,688).

Acquisitions

On 11 March 2016, the Group acquired the outstanding 50% interest in its Irish media consultancy associate, Fairbrother Marsh Company Limited ('FMC'). The 50% interest in FMC was acquired for an initial cash consideration of €150,000 (£118,000). €643,000 (£500,000) in deferred consideration was recognised at acquisition, however the maximum total purchase consideration is up to €2,000,000 (£1,559,000), payable in cash, depending on the performance of the FMC business during the period ending 31 December 2020.

Cash conversion

	Year ended	Year ended	8 months to
	December	December	December
	2016	2015	2015
	Audited	Unaudited	Audited
	£'000	£'000	£'000
Reported cash from operations	10,782	11,515	5,028
Underlying cash from operations	11,342	13,673	6,889
Underlying operating profit/(loss)	12,959	12,411	(3)
Cash conversion	87.5%	110.2%	n/a

Underlying cash from operations represents the cash flows from operations excluding the impact of highlighted items. The underlying net cash inflow from operations was £11.3m in the year ended 31 December 2016 (CY2015: £13.7m).

After highlighted items are considered, reported net cash inflow from operations for 2016 was £10.8m to (CY2015: £11.5m).

Cash conversion has improved significantly since the interim results due to the seasonality of cash flows, but is below the very strong cash conversion in CY2015. Improvement in the processes around working capital management remains a key focus for the business in 2017.

Net debt and banking facilities

	31 December	31 December
	2016	2015
	Audited	Audited
	£'000	£'000
Net cash	4,600	6,364
Bank debt1	(32,750)	(35,250)
Net debt1	(28,150)	(28,886)

¹ Bank debt in the Statement of Financial Position at 31 December 2016 is shown net of £0.1m (December 2015: £0.2m,) of loan arrangement fees that have been paid and which are amortised over the life of the facility. The bank debt stated above excludes these costs.

All bank borrowings are held jointly with Barclays and Royal Bank of Scotland ('RBS'). The committed facility, totalling £40,000,000, comprises a term loan of £10,000,000 (of which £3,750,000 remains outstanding at 31 December 2016 (31 December 2015: £6,250,000)), and a revolving credit facility of £30,000,000, (of which £29,000,000 was drawn down at 31 December 2016 (31 December 2015: £29,000,000).

During the period the Group continued to trade within each of its banking facilities and associated covenants. Net debt to EBITDA ratio was 1.94x at the 31 December 2016 (31 December 2015: 2.04).

Statement of financial position and net assets

Net current assets as at 31 December 2016 increased by £3.6m to £9.2m (2015: £5.6m) and total net assets increased by £9.7m to £52.1m (2015: £42.4m) as a result of the profit for the year of £4.7m and foreign exchange gains on the translation of overseas subsidiaries. Trade and other receivables increased by £4.1m to £28.4m reflecting an increase in trade receivables of £3.0m and accrued income of £1.8m.

Goodwill as at 31 December 2016 was £58.0m (2015: £54.8m) with the increase due to foreign exchange gains on retranslation of overseas subsidiaries of £2.8m and the acquisition of FMC in Ireland adding £0.4m to goodwill.

Deferred contingent consideration has decreased by £2.9m since 31 December 2015 to £2.0m, due to the settlement of deferred consideration. Two earnouts relating to our recent acquisitions ended during 2016, and in total £5.1m was paid to former shareholders. At 31 December 2016 of the remaining deferred consideration of £2.0m, which relates to the recent acquisition of FMC and our media business in China, £1.8m is expected to be settled in the next 12 months.

Outlook

Our delivery on the milestones set out in the Growth Acceleration Plan, coupled with events in the media marketplace - such as the debate around the performance of digital advertising - create significant medium-term growth opportunities. The implementation of our plans, the opportunities arising from the changing nature of the industry, make us excited for the future. 

Consolidated income statement
for the year ended 31 December 2016

		Year ended 31 December 2016			Eight month period ended 31 December 2015
		Before	Highlighted		Before	Highlighted
		highlighted	items		highlighted	items
		items	(note 3)	Total	items	(note 3)	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	2	83,569	-	83,569	43,310	-	43,310
Cost of sales		(38,282)	-	(38,282)	(22,514)	-	(22,514)
Gross profit		45,287	-	45,287	20,796	-	20,796
Administrative expenses		(32,328)	(5,202)	(37,530)	(20,799)	(6,656)	(27,455)
Operating profit/(loss)		12,959	(5,202)	7,757	(3)	(6,656)	(6,659)
Finance income		18	-	18	13	-	13
Finance expenses		(1,150)	-	(1,150)	(813)	-	(813)
Net finance costs		(1,132)	-	(1,132)	(800)	-	(800)
Share of profit of associates		-	-	-	13	-	13
Profit/(loss) before taxation		11,827	(5,202)	6,625	(790)	(6,656)	(7,446)
Taxation (charge)/credit	4	(2,570)	340	(2,230)	576	756	1,332
Profit/(loss) for the year/period		9,257	(4,862)	4,395	(214)	(5,900)	(6,114)
Attributable to:
Equity holders of the parent		8,987	(4,837)	4,150	(336)	(5,885)	(6,221)
Non-controlling interests		270	(25)	245	122	(15)	107
		9,257	(4,862)	4,395	(214)	(5,900)	(6,114)
Earnings/(loss) per share
Basic	5			5.38p			(8.08)p
Diluted	5			5.20p			(8.08)p

Consolidated statement of comprehensive income

for the year ended 31 December 2016

		Eight month
	Year ended	period ended
	31 December	31 December
	2016	2015
	£'000	£'000
Profit/(loss) for the year/period	4,395	(6,114)
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss
Exchange differences on translation of overseas subsidiaries	4,844	(116)
Total other comprehensive income/(expense) for the year/period	4,844	(116)
Total comprehensive income/(expense) for the year/period	9,239	(6,230)
Attributable to:
Equity holders of the parent	8,994	(6,337)
Non-controlling interests	245	107
	9,239	(6,230)

Consolidated statement of financial position
as at 31 December 2016

		31 December	31 December
		2016	2015
	Note	£'000	£'000
Non-current assets
Goodwill	6	58,045	54,827
Other intangible assets	7	14,034	13,527
Property, plant and equipment		2,438	2,928
Investment in associates		-	45
Deferred tax asset		1,338	2,267
Total non-current assets		75,855	73,594
Current assets
Trade and other receivables		28,416	24,318
Cash and cash equivalents		6,662	8,755
Total current assets		35,078	33,073
Total assets		110,933	106,667
Current liabilities
Trade and other payables		(5,919)	(6,566)
Accruals and deferred income		(11,890)	(12,340)
Financial liabilities	8	(6,253)	(8,227)
Current tax liabilities		(1,841)	(251)
Provisions		(9)	(89)
Total current liabilities		(25,912)	(27,473)
Non-current liabilities
Financial liabilities	8	(30,448)	(34,055)
Provisions		(393)	(486)
Deferred tax liability		(2,125)	(2,244)
Total non-current liabilities		(32,966)	(36,785)
Total liabilities		(58,878)	(64,258)
Total net assets		52,055	42,409
Equity
Ordinary shares		19,300	19,290
Share premium		-	11,764
Other reserves		6,134	656
Retained earnings		25,860	9,891
Equity attributable to the owners of the parent		51,294	41,601
Non-controlling interests		761	808
Total equity		52,055	42,409

Consolidated statement of changes in equity
for the year ended 31 December 2016

						Equity attributable
		Ordinary	Share	Other	Retained	to owners   of the	Non-controlling	Total
		shares	premium	reserves1	earnings	parent	interests	equity
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000
1 May 2015		19,193	11,657	772	16,012	47,634	1,024	48,658
(Loss)/profit for the period		-	-	-	(6,221)	(6,221)	107	(6,114)
Other comprehensive expense		-	-	(116)	-	(116)	-	(116)
Total comprehensive (expense)/income for the period		-	-	(116)	(6,221)	(6,337)	107	(6,230)
Shares issued for cash		97	107	-	-	204	-	204
Acquisition of non-controlling interest		-	-	-	(23)	(23)	(20)	(43)
Share options charge		-	-	-	228	228	-	228
Deferred tax on share options		-	-	-	186	186	-	186
Dividends paid to shareholders		-	-	-	(291)	(291)	-	(291)
Dividends paid to non-controlling interests		-	-	-	-	-	(303)	(303)
31 December 2015		19,290	11,764	656	9,891	41,601	808	42,409
Profit for the year		-	-	-	4,150	4,150	245	4,395
Other comprehensive income		-	-	4,844	-	4,844	-	4,844
Total comprehensive income for the year		-	-	4,844	4,150	8,994	245	9,239
Shares issued for cash		10	16	-	-	26	-	26
Share premium reduction2		-	(11,780)	-	11,780	-	-	-
Convertible loan note		-	-	634	-	634	-	634
Share options charge		-	-	-	652	652	-	652
Deferred tax on share options		-	-	-	(321)	(321)	-	(321)
Dividends paid to shareholders		-	-	-	(292)	(292)	-	(292)
Dividends paid to non-controlling interests		-	-	-	-	-	(292)	(292)
31 December 2016		19,300	-	6,134	25,860	51,294	761	52,055

1      Includes £3,667,000 (31 December 2015: £3,667,000) in the merger reserve; a debit balance of £1,478,000 (31 December 2015: £1,478,000) in the ESOP reserve; a convertible loan note reserve of £634,000 created during the year to 31 December 2016; and a gain of £3,311,000 (31 December 2015: 1,533,000 loss) recognised in the translation reserve.

2      On 8 June 2016, the Group announced the cancellation of the share premium account (the "Capital Reduction") effective 9 June 2016 following registration of the Court order confirming the Capital Reduction by the Registrar of Companies.

Consolidated statement of cash flows
for the year ended 31 December 2016

			Eight month
		Year ended	period ended
		31 December	31 December
		2016	2015
	Note	£'000	£'000
Cash flows from operating activities
Cash generated from operations	10	10,782	5,028
Finance expenses paid		(1,092)	(601)
Finance income received		18	13
Income taxes paid		(166)	(892)
Net cash generated from operating activities		9,542	3,548
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired	11	(4,431)	(3,002)
Purchase of property, plant and equipment		(479)	(502)
Purchase of intangible assets	7	(1,872)	(826)
Net cash used in investing activities		(6,782)	(4,330)
Cash flows from financing activities
Proceeds from issue of share capital (net of issue costs)		26	205
Proceeds from bank borrowings		3,336	2,578
Repayment of bank borrowings		(6,411)	(1,982)
Acquisition of interest in a subsidiary from non-controlling interests		-	(1,105)
Dividends paid to shareholders	11	(292)	(291)
Dividends paid to non-controlling interests		(546)	(195)
Capital repayment of finance leases		(4)	(4)
Net cash flow used in financing activities		(3,891)	(794)
Net decrease in cash, cash equivalents and bank overdrafts		(1,131)	(1,576)
Cash, cash equivalents and bank overdraft at beginning of year/period		6,364	7,884
Effect of unrealised foreign exchange gains		(633)	56
Cash, cash equivalents and bank overdraft at end of year/period		4,600	6,364

 

Notes to the consolidated financial statements

for the year ended 31 December 2016

1. Accounting policies

General information

Ebiquity plc ('the Company') and its subsidiaries (together, 'the Group') provide independent data-driven insights to the global media and marketing community. The Group has 21 offices across 14 countries.

The Company is a public limited company, which is listed on the London Stock Exchange's AIM Market and is incorporated and domiciled in the UK. The address of its registered office is CityPoint, One Ropemaker Street, London, EC2Y 9AW.

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and IFRS IC Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by European Union (Adopted IFRSs) and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements under Adopted IFRSs. The consolidated financial statements have been prepared on a going concern basis.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The consolidated financial statements are presented in pounds sterling and rounded to the nearest thousand.

The principal accounting policies adopted in these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of each subsidiary are included from the date that control is transferred to the Group until the date that control ceases.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests represent the portion of the results and net assets in subsidiaries that is not held by the Group.

Critical accounting estimates and judgements

In preparing the consolidated financial statements, the Directors have made certain estimates and judgements relating to the reporting of results of operations and the financial position of the Group. Actual results may significantly differ from those estimates often as a result of the need to make assumptions about matters which are uncertain. The estimates and judgements discussed below are considered by the Directors to be those that have a critical accounting impact to the Group's financial statements.

Revenue recognition

The Group is required to make an estimate of the project completion levels in respect of contracts which straddle the year end for revenue recognition purposes. This involves a level of judgement and therefore differences may arise between the actual and estimated result.

Carrying value of goodwill and other intangible assets

Impairment testing requires management to estimate the value in use of the cash-generating units to which goodwill and other intangible assets have been allocated. The value in use calculation requires estimation of future cash flows expected to arise from the cash-generating unit and the application of a suitable discount rate in order to calculate present value. The sensitivity around the selection of particular assumptions including growth forecasts and the pre-tax discount rate used in management's cash flow projections could significantly affect the Group's impairment evaluation and therefore the Group's reported assets and results. Further details, including a sensitivity analysis, are included in notes 9 and 10 to the consolidated financial statements.

Contingent deferred consideration

The Group has recorded liabilities for deferred consideration on acquisitions made in the current and prior periods. The calculation of the deferred consideration liability requires judgements to be made regarding the forecast future performance of these businesses for the earn-out period. Any changes to the fair value of the contingent deferred consideration after the measurement period are recognised in the income statement within administrative expenses as a highlighted item.

Taxation

The Group is subject to income taxes in all the territories in which it operates, and judgement and estimates of future profitability are required to determine the Group's deferred tax position. If the final tax outcome is different to that assumed, resulting changes will be reflected in the income statement, unless the tax relates to an item charged to equity in which case the changes in the tax estimates will also be reflected in equity. The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.

Provisions

The Group provides for certain costs of reorganisation that has occurred due to the Group's acquisition and disposal activity. When the final amount payable is uncertain, these are classified as provisions. These provisions are based on the best estimates of management.

Adoption of new standards and interpretations

On 1 January 2016, the Group adopted the following amendments to IFRS. The accounting pronouncements, none of which is considered by the Group as significant on adoption, are:

·      Amendments to IAS 1 "Disclosure Initiative". These amendments are as part of the IASB's initiative to improve presentation and disclosure in financial reports.

·      Amendments to IFRS 11 "Accounting for Acquisitions of Interests in Joint Operations". This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business.

·      Amendments to IAS 16 'Property, plant and equipment' and IAS 38 'Intangible assets'. This amendments provide clarification of acceptable methods of depreciation and amortisation.

·      Improvements to IFRS: 2012-2014 cycle.

2. Segmental reporting

In accordance with IFRS 8 the Group's operating segments are based on the reports reviewed by the Executive Directors that are used to make strategic decisions.

Certain operating segments have been aggregated to form three reportable segments, Media Value Measurement, Market Intelligence and Marketing Performance Optimization:

·    Media Value Measurement includes our media benchmarking, financial compliance and associated services.

·    Market Intelligence includes our advertising monitoring, reputation management and research/insight services.

·    Marketing Performance Optimization consists of our marketing effectiveness and multi-channel analytics services.

The Executive Directors are the Group's chief operating decision-maker. They assess the performance of the operating segments based on operating profit before highlighted items. This measurement basis excludes the effects of non-recurring expenditure from the operating segments such as restructuring costs and purchased intangible amortisation. The measure also excludes the effects of equity-settled share-based payments. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group.

The segment information provided to the Executive Directors for the reportable segments for the year ended 31 December 2016 is as follows:

Year ended 31 December 2016

	Media Value Measurement	Market Intelligence	Marketing Performance Optimization	Reportable segments	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	47,161	23,360	13,048	83,569	-	83,569
Operating profit/(loss) before highlighted items	12,124	3,902	3,739	19,765	(6,806)	12,959
Total assets	56,948	32,469	11,868	101,285	9,648	110,933
Other segment information
Capital expenditure - property, plant and equipment	46	455	4	505	35	540
Capital expenditure - intangible assets	586	591	155	1,332	765	2,097
Capital expenditure - goodwill	464	-	-	464	-	464
Total	1,096	1,046	159	2,301	797	3,098

Eight month period ended 31 December 2015

			Marketing
	Media Value	Market	Performance	Reportable
	Measurement	Intelligence	Optimization	segments	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	20,409	16,002	6,899	43,310	-	43,310
Operating (loss)/profit before highlighted items	(81)	2,070	1,874	3,863	(3,866)	(3)
Total assets	53,011	29,398	10,640	93,049	13,618	106,667
Other segment information
Capital expenditure - property, plant and equipment	26	-	12	38	512	550
Capital expenditure - intangible assets	77	-	-	77	750	827
Total	103	-	12	115	1,262	1,377

A reconciliation of segment operating profit before highlighted items to total profit before tax is provided below:

		Eight month
	Year ended	period ended
	31 December	31 December
	2016	2015
	£'000	£'000
Reportable segment operating profit before highlighted items	19,765	3,863
Unallocated costs1:
Staff costs	(5,219)	(3,281)
Property costs	(786)	(260)
Exchange rate movements	(158)	31
Other administrative expenses	(643)	(356)
Operating profit/(loss) before highlighted items	12,959	(3)
Highlighted items (note 3)	(5,202)	(6,656)
Operating profit/(loss)	7,757	(6,659)
Net finance costs	(1,132)	(800)
Share of profit of associates	-	13
Profit/(loss) before tax	6,625	(7,446)

1      Unallocated costs comprise central costs that are not considered attributable to the segments.

A reconciliation of segment total assets to total consolidated assets is provided below:

	31 December	31 December
	2016	2015
	£'000	£'000
Total assets for reportable segments	101,285	93,049
Unallocated amounts:
Property, plant and equipment	1,900	2,278
Other intangible assets	1,517	2,853
Other receivables	1,015	2,892
Cash and cash equivalents	3,989	3,478
Deferred tax asset	1,227	2,113
Investments in associates	-	4
Total assets	110,933	106,667

The table below presents revenue and non-current assets by geographical location:

	Year ended		Eight month period ended
	31 December 2016		31 December 2015
	Revenue by		Revenue by
	location of	Non-current	location of	Non-current
	customers	assets	customers	assets
	£'000	£'000	£'000	£'000
United Kingdom	22,627	46,617	13,142	46,955
Rest of Europe	31,586	9,378	14,786	7,957
North America	20,032	7,257	10,376	6,297
Rest of world	9,324	11,265	5,006	10,118
	83,569	74,517	43,310	71,327
Deferred tax assets	-	1,338	-	2,267
Total	83,569	75,855	43,310	73,594

No single customer (or group of related customers) contributes 10% or more of revenue.

3. Highlighted items

Highlighted items comprise non-cash charges and non-recurring items which are highlighted in the income statement because separate disclosure is considered relevant in understanding the underlying performance of the business.

	Year ended			Eight month period ended
	31 December 2016			31 December 2015
	Cash	Non-cash	Total	Cash	Non-cash	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Administrative expenses recurring:
Recurring:
Share option (credit)/charge	(92)	652	560	203	228	431
Amortisation of purchased intangibles	-	1,865	1,865	-	1,327	1,327
	(92)	2,517	2,425	203	1,555	1,758
Non-recurring:
Acquisition and integration costs	2,777	-	2,777	533	-	533
Impairment charge	-	-	-	-	4,365	4,365
	2,777	-	2,777	533	4,365	4,898
Total highlighted items before tax	2,685	2,517	5,202	736	5,920	6,656
Taxation credit	(252)	(88)	(340)	(128)	(628)	(756)
Total highlighted items after tax	2,433	2,429	4,862	608	5,292	5,900

Amortisation of purchased intangibles relates to acquisitions made in the current financial year of £26,000 and to acquisitions made in prior years of £1,839,000.

The share option cash credit of £92,000 arising during the year is in relation to national insurance contributions on share options not exercised. In addition, a non-cash IFRS 2 charge of £652,000 was also recorded.

Total acquisition and integration costs of £2,777,000 were recognised during the year.

Acquisition costs totalling £1,996,000 primarily consists of £841,000 in relation to an earn-out extension agreed in March 2016 and associated to the Stratigent acquisition in 2013; deferred consideration adjustments of £575,000 resulting from foreign exchange differences net of the impact of discounting to present value; £295,000 of professional fees were incurred in relation to acquisitions; and £285,000 was recognised following the transparency work performed for the US Association of National Advertisers.

Integration costs totalling £781,000 primarily consists of severance costs of £568,000 arising from the restructure of senior management in Spain, Ireland and France; and fees of £251,000 in relation to the appointment of the new Group CEO. Other one-off charges recognised in highlighted items during the year include a credit of £66,000 following the write-off of certain dilapidation provisions and £28,000 of other integration costs.

Current tax arising on the highlighted items is included as a cash item, while deferred tax on highlighted items is included as a non-cash item. Refer to note 7 for more detail.

Deferred consideration adjustments, within acquisition and integration costs, are included as a cash item.

As at 31 December 2016, £1,197,000 of the £2,685,000 cash highlighted items had been settled.

4. Taxation charge/(credit)

	Year ended			Eight month period ended
	31 December 2016			31 December 2015
	Before			Before
	highlighted	Highlighted		highlighted	Highlighted
	items	items	Total	items	items	Total
	£'000	£'000	£'000	£'000	£'000	£'000
UK tax
Current year/period	912	(187)	725	194	(128)	66
Adjustment in respect of prior year/period	(205)	-	(205)	(236)	-	(236)
	707	(187)	520	(42)	(128)	(170)
Foreign tax
Current year/period	1,409	(65)	1,344	248	-	248
Adjustment in respect of prior year/period	(94)	-	(94)	(160)	-	(160)
	1,315	(65)	1,250	88	-	88
Total current tax	2,022	(252)	1,770	46	(128)	(82)
Deferred tax
Origination and reversal of temporary differences (note 20)	160	(88)	72	(622)	(628)	(1,250)
Adjustment in respect of prior year/period	388	-	388	-	-	-
Total tax charge/(credit)	2,570	(340)	2,230	(576)	(756)	(1,332)

The difference between tax as charged/(credited) in the financial statements and tax at the nominal rate is explained below:

		Eight month
	Year ended	period ended
	31 December	31 December
	2016	2015
	£'000	£'000
Profit/(loss) before tax	6,625	(7,446)
Corporation tax at 20% (31 December 2015: 20%)	1,325	(1,489)
Non-deductible taxable expenses	265	943
Overseas tax rate differential	189	24
Overseas losses not recognised	66	832
Share options	319
Losses utilised not previously recognised	(7)	(80)
Adjustment in respect of prior years	89	(396)
Effect of change in statutory tax rates	9	(265)
Deferred tax movement	224	(985)
Recognition of deferred tax not previously recognised	(249)	-
Other	-	84
Total tax charge/(credit)	2,230	(1,332)

Reductions in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. Further reductions to 17% (effective 1 April 2020) were substantively enacted on 6 September 2016. As these changes have been substantively enacted at the statement of financial position date, their effects are included in these financial statements.

5. Earnings/(loss) per share

The calculation of the basic and diluted earnings per share is based on the following data:

		Eight month
	Year ended	period ended
	31 December	31 December
	2016	2015
	£'000	£'000
Earnings for the purpose of basic earnings per share being net profit/(loss) attributable to equity holders of the parent	4,150	(6,221)
Adjustments:
Impact of highlighted items (net of tax)1	4,837	5,885
Earnings for the purpose of underlying earnings per share	8,987	(336)
Number of shares:
Weighted average number of shares during the period
- Basic	77,186,127	76,976,240
- Dilutive effect of share options	2,598,806	1,993,033
- Diluted	79,784,933	78,969,273
Basic earnings/(loss) per share	5.38p	(8.08)p
Diluted earnings/(loss) per share	5.20p	(8.08)p
Underlying basic earnings/(loss) per share	11.64p	(0.44)p
Underlying diluted earnings/(loss) per share	11.26p	(0.43)p

1    Highlighted items attributable to equity holders of the parent (see note 3), stated net of their total tax impact.

6. Goodwill

	£'000
Cost
At 1 May 2015	58,096
Adjustments in respect of a pre-acquisition period	(177)
Foreign exchange differences	37
At 31 December 2015	57,956
Additions1	426
Foreign exchange differences	2,792
At 31 December 2016	61,174
Accumulated impairment
At 1 May 2015	-
At 31 December 2015	(3,129)
Impairment	-
At 31 December 2016	(3,129)
Net book value
At 31 December 2016	58,045
At 31 December 2015	54,827

1      £426,000 of goodwill was recognised following the acquisition of the remaining 50% interest in the Group's Irish media consultancy associate, Fairbrother Marsh Company Limited. Refer to note 28 for further details.    

Goodwill has been allocated to the following segments:

		Eight month
	Year ended	period ended
	31 December	31 December
	2016	2015
	£'000	£'000
Media Value Measurement	28,778	26,886
Market Intelligence	22,360	21,904
Marketing Performance Optimization	6,907	6,037
	58,045	54,827

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be potentially impaired. Goodwill is allocated to the Group's cash-generating units (CGUs) in order to carry out impairment tests. The Group's remaining carrying value of goodwill by CGU at 31 December was as follows:

			Eight month
		Year ended	period ended
		31 December	31 December
		2016	2015
Cash-generating unit	Reporting segment	£'000	£'000
Advertising UK/USA/International	Market Intelligence	19,114	19,114
Media UK and International1	Media Value Measurement	9,238	8,770
Stratigent (MCA)	Marketing Performance Optimization	5,229	4,359
China	Media Value Measurement	4,966	4,429
Media Germany	Media Value Measurement	4,319	4,297
Media Value Group	Media Value Measurement/Marketing Performance Optimization	3,035	2,624
FirmDescisions	Media Value Measurement	2,981	2,981
Media Australia	Media Value Measurement	2,506	2,115
Advertising Germany	Market Intelligence	2,333	2,016
Effectiveness	Marketing Performance Optimization	1,678	1,678
Advertising Australia	Market Intelligence	764	645
Media America	Media Value Measurement	604	604
Media France	Media Value Measurement	559	527
Media Italy	Media Value Measurement	381	330
Russia	Media Value Measurement	337	337
		58,045	54,827

1      At 31 December 2016, the balance includes £426,000 of acquired goodwill recognised following the acquisition of the remaining 50% interest in the Group's Irish media consultancy associate, Fairbrother Marsh Company Limited. Refer to note 28 for further details.

The impairment test involves comparing the carrying value of the CGU to which the goodwill has been allocated to the recoverable amount. The recoverable amount of all CGUs has been determined based on value in use calculations.

Under IFRS, an impairment charge is required for goodwill when the carrying amount exceeds the recoverable amount, defined as the higher of fair value less costs to sell and value in use. No impairment of goodwill was recognised in the year ended 31 December 2016 (8 months ended 31 December 2015: £3,129,000).

Value in use calculations

The key assumptions used in management's value in use calculations are budgeted operating profit, pre-tax discount rate, and the long-term growth rate. The Directors prepare a three year pre-tax cash flow forecast based on the following financial year's budget as approved by the Board, with revenue and cost forecasts for the following two years adjusted by segment and geography. The forecast takes account of actual results from previous years combined with management expectations of market developments.

The Directors estimate discount rates using rates that reflect current market assessments of the time value of money and risk specific to the cash-generating units. The three-year pre-tax cash flow forecasts have been discounted at between 7.2% and 8.7% (31 December 2015: between 8.2% and 9.7%).

Cash flows beyond the three year period are extrapolated at a rate of 2.25% (31 December 2015: 2.25%), which does not exceed the long-term average growth rate in any of the markets in which the Group operates.

The excess of the value in use to the goodwill carrying values for each CGU gives the level of headroom in each CGU. The estimated recoverable amounts of the Group's operations in all CGU's significantly exceed their carrying values with the exception of China, where the headroom exceeds its carrying value by £1.8 million.

Sensitivity analysis

The Group's calculations of value in use for its respective CGUs are sensitive to a number of key assumptions. Other than disclosed below, management does not consider a reasonably possible change in isolation, of any of the key assumptions to cause the carrying value of any CGU to exceed its value in use.

		China %
Budgeted operating profit		(21.7)
Pre-tax discount rate		1.6
Long-term growth rate		(1.9)

7. Other intangible assets

	Capitalised		Purchased	Total
	development	Computer	intangible	intangible
	costs	software	assets1	assets
	£'000	£'000	£'000	£'000
Cost
At 1 May 2015	2,997	2,194	23,259	28,450
Additions	652	175	-	827
Disposals	-	(13)	-	(13)
Foreign exchange differences	(11)	27	40	56
At 31 December 2015	3,638	2,383	23,299	29,320
Additions	1,091	781	-	1,872
Acquisitions2	-	-	225	225
Disposals	(453)	(260)	-	(713)
Foreign exchange differences	68	147	1,414	1,629
At 31 December 2016	4,344	3,051	24,938	32,333
Amortisation and impairment
At 1 May 2015	(1,136)	(1,120)	(11,016)	(13,272)
Charge for the period3	(194)	(190)	(1,327)	(1,711)
Disposals	-	12	-	12
Impairment4	(214)	-	(559)	(773)
Foreign exchange differences	-	(22)	(27)	(49)
At 31 December 2015	(1,544)	(1,320)	(12,929)	(15,793)
Charge for the year3	(256)	(330)	(1,865)	(2,451)
Disposals	425	260	-	685
Foreign exchange differences	(1)	(127)	(612)	(740)
At 31 December 2016	(1,376)	(1,517)	(15,406)	(18,299)
Net book value
At 31 December 2016	2,968	1,534	9,532	14,034
At 31 December 2015	2,094	1,063	10,370	13,527

1      Purchased intangible assets consist principally of customer relationships with a typical useful life of 10 years.

2      Customer relationships of £142,000 and a brand valuation of £83,000 were recognised during the year as part of the acquisition of Fairbrother Marsh Company Limited. Refer to note 28 for further details.

3      Amortisation is charged within administrative expenses so as to write off the cost of the intangible assets over their estimated useful lives. The amortisation of purchased intangible assets is included as a highlighted administrative expense.

4      No impairment charge is required for the year to 31 December 2016 following management's review of the carrying value of other intangible assets. In the prior period, an impairment charge of £773,000 was recorded to fully write off the purchased intangible assets and related capitalised development costs of the Reputation business.

8. Financial liabilities

	31 December	31 December
	2016	2015
	£'000	£'000
Current
Bank overdraft	2,062	2,391
Bank borrowings	2,410	2,410
Finance lease liabilities	4	4
Contingent deferred consideration	1,777	3,422
	6,253	8,227
Non-current
Bank borrowings	30,205	32,615
Finance lease liabilities	5	9
Contingent deferred consideration	238	1,431
	30,448	34,055
Total financial liabilities	36,701	42,282

	Bank	Bank	Finance lease	Contingent deferred
	overdrafts	borrowings	liabilities	consideration	Total
	£'000	£'000	£'000	£'000	£'000
At 1 May 2015	1,411	34,291	17	8,999	44,718
Additions	980	-	-	-	980
Paid	-	-	(4)	(4,063)	(4,067)
Charged to the income statement	-	60	-	(82)	(22)
Discounting charged to the income statement	-	-	-	(148)	(148)
Discounting charged to the statement of financial position	-	-	-	(49)	(49)
Borrowings	-	2,578	-		2,578
Repayments	-	(1,982)	-	-	(1,982)
Foreign exchange released to the Income statement	-	78	-	198	276
Foreign exchange released to reserves	-	-	-	(2)	(2)
At 31 December 2015	2,391	35,025	13	4,853	42,282
Recognised on acquisition	-	-	-	557	557
Additions	(329)	-	-	-	(329)
Paid	-	-	(4)	(5,110)	(5,114)
Charged to the income statement	-	90	-	638	728
Discounting charged to the income statement	-	-	-	155	155
Discounting charged to the statement of financial position	-	-	-	(39)	(39)
Borrowings	-	3,336	-	-	3,336
Repayments	-	(6,410)	-	-	(6,410)
Foreign exchange released to the income statement	-	574	-	808	1,382
Foreign exchange released to reserves	-	-	-	153	153
At 31 December 2016	2,062	32,615	9	2,015	36,701

A currency analysis for the bank borrowings is shown below:

	31 December	31 December
	2016	2015
	£'000	£'000
Pounds Sterling	32,615	32,096
Euros	-	2,929
Total bank borrowings	32,615	35,025

All bank borrowings are held jointly with Barclays and Royal Bank of Scotland ('RBS'). The committed facility, totalling £40,000,000, comprises a term loan of £10,000,000 (of which £3,750,000 remains outstanding at 31 December 2016 (31 December 2015: £6,250,000)), and a revolving credit facility ('RCF') of £30,000,000 (of which £29,000,000 was drawn down at 31 December 2016 (31 December 2015: £29,000,000)). Both the term loan and the RCF have a maturity date of 2 July 2018. The £10,000,000 term loan is being repaid on a quarterly basis to maturity, and the drawn RCF and any further drawings under the RCF are repayable on maturity of the facility. The facility may be used for deferred consideration payments on past acquisitions, to fund future potential acquisitions, and for general working capital requirements.

Loan arrangement fees of £135,000 (31 December 2015: £225,000) are offset against the term loan, and are being amortised over the period of the loan.

The facility bears variable interest of LIBOR plus a margin of 2.50%. The margin rate is able to be lowered each quarter end depending on the Group's net debt to EBITDA ratio.

The undrawn amount of the revolving credit facility is liable to a fee of 40% of the prevailing margin. The Group may elect to prepay all or part of the outstanding loan subject to a break fee, by giving 5 business days' notice.

All amounts owing to the bank are guaranteed by way of fixed and floating charges over the current and future assets of the Group. As such, a composite guarantee has been given by all significant subsidiary companies in the UK, USA and Germany.

Contingent deferred consideration represents additional amounts that are expected to be payable for acquisitions made by the Group and is held at fair value at the statement of financial position date. All amounts are expected to be fully paid by August 2017.

All finance lease liabilities fall due within five years. The minimum lease payments and present value of the finance leases are as follows:

	Minimum lease payments
	31 December	31 December
	2016	2015
	£'000	£'000
Amounts due:
Within one year	6	6
Between one and five years	6	12
	12	18
Less: finance charges allocated to future periods	(3)	(5)
Present value of lease obligations	9	13

The minimum lease payments approximate the present value of minimum lease payments.

9. Dividends

	31 December	31 December
	2016	2015
	£'000	£'000
Dividend in respect of the prior year	292	291
Total dividend paid	292	291

A dividend of £292,000 (0.4p per share) was paid during the current financial year (31 December 2015: £291,000). Dividends were paid to non-controlling interests as shown in the consolidated statement of changes in equity.

10. Cash generated from operations

	31 December	31 December
	2016	2015
	£'000	£'000
Profit/(loss) before taxation	6,625	(7,446)
Adjustments for:
Depreciation	1,231	770
Amortisation (note 7)	2,451	1,711
Impairment of goodwill	-       K	3,129
Impairment of intangible assets	-	773
Loss on disposal	33	18
Unrealised foreign exchange loss	(107)	(95)
Share option charges	653	228
Finance income	(18)	(13)
Finance expenses	1,150	813
Share of profit of associates	-	(13)
Contingent deferred consideration revaluations	1,599	(32)
	13,617	(157)
(Increase)/decrease in trade and other receivables	(3,968)	5,549
Increase/(decrease) in trade and other payables	1,312	(333)
Movement in provisions	(179)	(31)
Cash generated from operations	10,782	5,028

11. Acquisitions

Fairbrother Marsh Company Limited ('FMC')

On 11 March 2016, the Group acquired the outstanding 50% interest in its Irish media consultancy associate, Fairbrother Marsh Company Limited ('FMC'). The 50% interest in FMC was acquired for an initial cash consideration of €150,000 (£118,000). €643,000 (£500,000) in deferred consideration was recognised at acquisition however, the maximum total purchase consideration is up to €2,000,000 (£1,559,000), payable in cash, depending on the performance of the FMC business during the period ending 31 December 2020.

The fair value of the purchase consideration for the acquisition of FMC is as follows:

		£'000
Cash		118
Net present value of contingent deferred consideration1		500
Total purchase consideration		618

1      The fair value of contingent deferred consideration payable is based on EBIT for the years ending 31 December 2019 and 31 December 2020 with stage payments each year from 2017 onwards based on two year averages. The potential range of future payments that Ebiquity plc could be required to make under the contingent consideration arrangement is between £nil and £1,441,000 and will be paid in cash. All contingent deferred consideration payments are expected to be paid by June 2021.

The carrying value and the provisional fair value of the net assets recognised at the date of acquisition are as follows:

	Carrying value	Fair value adjustments1	Fair value
	£'000	£'000	£'000
Customer relationships	-	142	142
Brands	-	83	83
Property, plant and equipment	10	-	10
Trade and other receivables	140	-	140
Cash and cash equivalents	162	-	162
Trade and other payables	(250)	(27)	(277)
Deferred tax liabilities	-	(28)	(28)
Net assets acquired	62	170	232
Fair value of 50% previously held equity interest2			(40)
Goodwill arising on acquisition3			426
Total purchase consideration			618

1      The fair value adjustments relate to the finalisation of the allocation of the purchase consideration accounting for intangible assets (customer relationships and brands), trade and other payables and deferred tax liabilities. The fair value of trade and other receivables includes trade receivables with a fair value and gross contractual value of £94,000.

2      A loss of £5,000 was recognised and charged to the income statement on the disposal of the original 50% previously held equity interest in FMC.

3      The goodwill recognised of £426,000 is attributable to the assembled workforce, expected synergies and other intangible assets, which do not qualify for separate recognition. None of the goodwill arising from the acquisition is expected to be tax deductible.

FMC contributed £519,000 to revenue and £62,000 to profit before tax for the period between the date of acquisition and the year ended 31 December 2016. If the above transaction had been completed on 1 January 2016, management estimates Group revenue would have been £83,640,000 and Group operating profit before highlighted items would have been £12,922,000 during the financial year to 31 December 2016.

Acquisition-related costs of £20,000 were charged to the Group's financial statements as administrative expenses during the year ended 31 December 2016. Refer to note 3 "highlighted items" for further details.

Fairbrother Iberica and Partners SL

On 15 December 2015, the Group acquired the remaining 35% in its subsidiary undertaking, Fairbrother Iberica and Partners SL, from the minority shareholder for cash consideration of €60,000 (£43,000). Subsequently, Fairbrother Iberica and Partners SL was liquidated and its business and assets were transferred to Media Value SL.

12. Events after the reporting period

There have been no events after the reporting period requiring disclosure.

13. Financial Information

The financial information included in this report does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and financial statements for the period ended 31 December 2016, on which an unqualified report has been made by the Company's auditors, PricewaterhouseCoopers LLP. Financial statements for the period ended 31 December 2016 have been delivered to the Registrar of Companies; the report of the auditors on those accounts was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The 31 December 2016 statutory accounts are expected to be published on 12 April 2017.

 

END

 

 

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