Preliminary Results
17 September 2020
Wilmington plc
('Wilmington', 'the Group' or 'the Company')
Financial results for the twelve months ended 30 June 2020
Wilmington plc, the provider of data, information, education and networking services in Risk & Compliance, Healthcare and Professional knowledge areas, today announces its full year results for the twelve months ended 30 June 2020.
Financial Headlines
- Results at the top end of range previously provided for both revenue and profit
- Revenues for the year down 8% to £113.1m (2019: £122.5m), impacted by no face-to-face events or training in final quarter
o Successfully minimised the revenue decline through rapid conversion to virtual formats
o Achieved stated aim of organic1 revenue growth in first three quarters, final quarter impacted by Covid-19
o Benefited from diversified portfolio with data and information revenue streams up 2%
- Adjusted EBITA2 decreased by 35% to £14.0m (2019: £21.5m)
o Resilient model, remained profitable in all four quarters, despite the impact of Covid-19
- Adjusted profit before tax3 down 39% to £11.9m (2019: £19.3m)
- Profit before tax at £6.4m (2019: £14.7m)
o Reflects trading impact of Covid-19 and non-repeat of prior year benefit from the sale of ICP
- Adjusted earnings per share4 down to 10.71p (2019: 17.44p) and basic earnings per share of 5.33p (2019: 12.74p)
- Continued strong cash conversion5 at 189% (2019: 123%)
o 133% when adjusted for IFRS 16 and one-off working capital fluctuations, demonstrating year-on-year improvement.
- Improved Group net debt6 £27.7m at 30 June 2020 (2019: £33.9m). Represents 1.4 times adjusted EBITDA (2019: 1.4 times)
o Decisive action taken throughout pandemic to reduce costs, protect cash and liquidity
o Debt facilities in place to July 2023, with strong headroom projected throughout
- Dividend suspended but the Board remains committed to a resumption of dividends as soon as the trading environment normalises
Covid-19 has accelerated strategic progress
- Covid-19 has accelerated our strategy, with three years of digitisation achieved in just three months
o Resilient model tested with swift action taken to successfully convert events and training across the portfolio to virtual formats, which have been well received
o Remained focussed on three strategic objectives to generate organic growth, manage our portfolio and invest in our business
o Progressed four key areas of operational excellence: product management, technology and data, sales and marketing, and people
o Identified 'digital capabilities' and 'data enabled' as two new Wilmington business characteristics
Operational Headlines
- Risk & Compliance - revenue down 2% on an organic basis against a strong prior period comparator
o Rapid transition to online training with Covid-19 disruption accelerating the planned digitisation
o ICA's first fully digital post graduate diploma was launched in June and has seen a solid uptake
o Compliance Week benefitted from the launch of its new online platform and a revised pricing strategy
o Axco's new data platform launched in January 2020, enhancing product offering
- Healthcare - revenue declined 11%, largely due to RISE National event not physically taking place
o RISE National converted to a successful virtual event to partly mitigate the impact of Covid-19 restrictions
o HSJ and APM News products proved invaluable to healthcare leaders and key workers, providing latest developments and insights
o Strong demand for APMi product drove 6% organic growth in APM revenue
o Product innovation with Quantis Covid-19 tracker launched to provide analysis of patient waiting times, admissions and treatment pathways
- Professional - revenue down 10%
o Loss of face-to-face training partially mitigated by successful conversion of training to virtual formats
o Launch of Mercia LIVE in Accountancy business
o Good performance in investment banking business, and agility demonstrated by delivering summer training programmes digitally
1 Organic - eliminating the effects of exchange rate fluctuations and the impact of acquisitions and disposals
2 Adjusted operating profit ('adjusted EBITA') - see note 3
3 Adjusted profit before tax - see note 3
4 Adjusted earnings per share - see note 10
5 Cash conversion - see note 17
6 Net debt - see Cash flow statement
Current Trading and Outlook
- Sustained resilience in the face of Covid-19 disruption
o Remained profitable in the first two months of the new financial year
o Expect this to continue despite no anticipated face-to-face delivery in H1
- Phased return to face-to-face events planned for second half
Mark Milner, Chief Executive Officer, commented:
"In the first nine months of the year we made significant progress on our strategic objectives of generating organic growth through operational excellence, managing our portfolio, and investing in our business. Whilst results were impacted in the last quarter by the unprecedented challenges and restrictions on running-face-to-face events, Covid-19 has accelerated our strategy of digital transformation, demonstrating Wilmington is fully capable of operating digitally.
Our talented and dedicated employees innovated quickly, successfully converting our events and training to virtual formats which was a huge undertaking. I would like to thank them for adapting brilliantly to this new digital format and for their ongoing efforts to serve our customers seamlessly, all while working from home. The resilience of our business model has been tested and has highlighted the strength of our diversified portfolio, in particular our core, subscription-led data businesses which are holding up well.
In the first two months of the new financial year, we have remained profitable, in what is traditionally a quiet period for trading during the UK and European holiday season. The work that we have done in the last couple of years meant we entered this crisis as an agile and resilient business and I believe these actions will help us to navigate the current challenges and enable us to emerge in a much stronger position."
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement this inside information is now considered to be in the public domain.
For further information, please contact:
|
Wilmington plc Mark Milner, Chief Executive Officer Richard Amos, Chief Financial Officer
FTI Consulting Charles Palmer / Dwight Burden / Emma Hall / Debbie Oluwaseyi Sonaike |
020 7422 6800
020 3727 1000 |
Notes to Editors
Wilmington plc is the recognised knowledge leader and partner of choice for data, information, education and networking in Risk & Compliance, Healthcare and Professional areas. Wilmington employs close to 1,000 people and sells to around 120 countries. Wilmington is a premium listed company on the main market of the London Stock Exchange.
Chairman's statement
I am pleased to present the report for the year ended 30 June 2020, a year which has been very much one of two parts. In the first nine months of the year we made good progress in each of our three core strategic areas: generating sustained organic revenue growth, managing our portfolio and investing in our business. We were then faced with the global outbreak of Covid-19 which has seen us face unprecedented challenges. Our results have been impacted by the restrictions on running face-to-face training and events. However, the business has demonstrated the benefit of being diversified with the consequential resilience this brought to a challenging situation. Our colleagues' efforts in the way they responded to these challenges have been inspirational and I cannot commend them highly enough. Actions taken throughout the pandemic will enable us to emerge in a stronger position. Covid-19 has accelerated our strategy of digital transformation, with at least three years of digitisation being achieved in just three months, resulting in a business that is fully capable of operating digitally. It has highlighted the strength of our diversified portfolio, with our core subscription-led data businesses holding up particularly well.
Results, net debt and dividend
Overall financial performance in the year reflects a strong result for the first three quarters with us focussing on, and achieving, our stated aim of organic revenue growth. The final quarter was impacted by the Covid-19 pandemic which prevented us from holding any face-to-face events (which typically account for approximately 14% of annual revenue) or face-to-face training. We were able to accelerate the transformation to a digital business which was already underway and moved swiftly to convert as much as possible of these training and events to virtual equivalents. This allowed us to minimise, but not wholly offset, the revenue impact. Ultimately the Covid-19 related impact resulted in an 8% full year organic revenue decline to £113.1m (2019: £122.5m).
Adjusted profit before tax is down at £11.9m (2019: £19.3m) with the fall in revenue partially offset by direct cost savings plus the benefits obtained globally from Covid-19 government assistance schemes. Statutory profit before tax fell by 56% to £6.4m (2019: £14.7m) in part due to a one-off gain on disposal from the sale of ICP in the prior year not being repeated.
We entered the Covid-19 crisis with a strong balance sheet and significant headroom in our banking facilities and moved quickly to protect cash. This was successful with net debt at the year end of £27.7m being £6.2m lower than the prior year (2019: £33.9m). In July 2019, the Group had renewed its £65.0m banking facilities for a further four years with an option to extend until October 2024. On 25 June 2020, in response to the Covid-19 impact, we announced a partial relaxation of the covenants attached to these facilities and the agreement to access an additional £15.0m of facilities through the Government's Coronavirus Large Business Interruption Scheme ('CLBILS') for twelve months from August 2020.
In light of the exceptional circumstances currently prevailing and to ensure that sufficient cash reserves remain within the business to tackle the ongoing impacts of Covid-19, the Board decided to cancel the interim dividend due to be paid 9 April 2020. It is also not proposing a final dividend for the financial year just ended. The Board recognises the importance of regular dividend income to its shareholders and remains committed to a resumption of dividends as soon as the trading environment normalises.
Covid-19 and people
The work put in, and the investments made, over the last two years gave us a strong foundation when entering the pandemic crisis. In his review later in this report, our Chief Executive Mark Milner, who joined us in July 2019, highlights the actions we took to manage the situation, and our plans and expectations to deal with the challenges it will continue to present in the new financial year. Throughout the crisis we have been, and will continue to be, guided first and foremost by the need to protect the health and wellbeing of our employees and to serving our customers.
I have been incredibly impressed by the response of our people who have not only adapted to new ways of working but also moved swiftly to find new and innovative ways to serve our customers. I would like to take this opportunity to thank them personally for their ongoing commitment and resilience.
Strategy
Following Mark Milner's appointment we undertook a review of our strategy. Mark identified three core strategic areas, namely generating organic revenue growth, actively managing our portfolio, and investing in our business. These are the key pillars driving the next stage in the Group's evolution, and our future success. Mark's Chief Executive Review explains in more detail how these elements interact and the work we are undertaking in each area. In particular, it explains the logic behind our decision in February 2020 to commence strategic reviews of two of our businesses, Central Law Training and Inese, and the progress we have made. Active portfolio management will be an important part of our ongoing strategy although we are not currently working on plans beyond the two businesses mentioned above.
Board changes
On 29 April 2020 I was delighted to welcome Helen Sachdev as she joined the Board as Non-Executive Director and Chair Designate of the Remuneration Committee. Helen has a strong commercial background in a number of businesses and will provide valuable counsel to the Group.
Derek Carter, our current Senior Independent Director, and Nathalie Schwarz, Chair of the Remuneration Committee, will both step down from the Board at the conclusion of the AGM on 4 November 2020 after completing their full nine year terms as Independent Non-Executive Directors. I would like to thank both Derek and Nathalie for their outstanding contribution to Wilmington over the last nine years. Nathalie will be replaced as Chair of the Remuneration Committee by Helen Sachdev. Paul Dollman, the current Chair of the Audit Committee, will assume the role of Senior Independent Director. We are currently undertaking a recruitment process to replace Derek's other roles on the Board.
Martin Morgan
Chairman
Chief Executive's review
I am pleased to present my report on the year ended 30 June 2020, my first as Chief Executive Officer. In the first nine months of the year we made significant progress on our strategic objectives of generating organic growth through operational excellence, managing our portfolio, and investing in our business. The benefits of these efforts were beginning to be realised as demonstrated by the interim results, with organic revenue growth in all three divisions as well as increased year-on-year sales and consequently an increased deferred revenue balance heading into the second half of the year.
Covid-19 response
Much of that progress was then interrupted in the last quarter of the year as we faced the unprecedented challenges presented by the Covid-19 pandemic. Lockdown restrictions resulted in us having to close every office in our portfolio. The whole business quickly and successfully converted to virtual working and the changes in working practices have accelerated Wilmington's digital strategy. This was possible in part because of the investments made in our IT infrastructure in the last few years.
At its heart Wilmington is a data led business. Our subscription based data and information revenue streams, which make up over half of our revenue, have not been significantly affected by Covid-19, and we do not anticipate that changing materially in the foreseeable future. Within training and networking events however, despite a rapid acceleration of our existing plans to transition many of our products to a virtual equivalent, the restrictions to face-to-face delivery resulted in significant disruption particularly in the Professional division and in US Healthcare. The initiative and ingenuity of our teams have enabled us to rapidly deploy virtual alternatives to previously face-to-face activities. Customer response to these changes has been very positive and in many instances the move to virtual equivalents is likely to be a permanent one.
During the rest of calendar year 2020 we do not anticipate running many, if any, face-to-face networking events. We have been staying close to our customers through the pandemic and are planning for alternative virtual events whilst retaining the flexibility to convert back if regulations permit and customers demand it. Our proven ability to deliver professional development from our events means we expect demand for them to remain, even in a virtual format. Similarly, we are organised to run 100% of training courses virtually for the rest of the calendar year but can rapidly convert back to face to face if required. The full impacts of Covid-19, particularly on the wider economy, are yet to be seen but I am confident in our business' resilience and ability to innovate in response to further challenge.
The work we have done in the last couple of years meant we entered this crisis as an agile and resilient business. I believe these actions will enable us to emerge in a much stronger position, capable of operating as a fully digital business but with the flexibility to deliver face-to-face or hybrid solutions as the market demands.
Results summary
Despite the significant disruption caused by Covid-19, our swift actions mitigated the financial impact and we were able to not only deliver a profit in the final quarter of the year but also achieve results which were at the top end of the scenarios we predicted when the crisis broke, highlighting the agility of the business. Having been up 2% at the half year, full year Group revenue ultimately declined 8% to £113.1m (2019: £122.5m) and adjusted operating profit decreased 35% to £14.0m (2019: £21.5m) resulting in an adjusted operating margin of 12.4% (2019: 17.6%).
As the Covid-19 pandemic was unforeseen we were unable to make significant savings in our overhead cost base within the financial year which resulted in adjusted operating margin falling as explained above. Subsequently we performed a thorough review of our Group-wide overheads to ensure these are appropriate for supporting the future of our business. This business-by-business review identified £3.0m of overhead cost savings for the next financial year and also identified some areas of investment which, in combination, will result in the most appropriate future cost base for our business.
Strategy
As we strive to create sustainable value for our stakeholders, we have identified three integrated strategic imperatives which drive our decision making, namely generating organic growth, managing our portfolio, and investing in our business. Each of these strategic areas facilitates the other and we have made good progress in each area over the course of the year.
Generating organic growth
The switch in focus from acquisitive growth to organic growth was a change implemented by the Board in autumn 2018 following the arrival of Martin and Richard as Chairman and Chief Financial Officer respectively. Building a group that is capable of delivering organic growth in revenue and profit is fundamental to driving sustainable growth in shareholder value. To enable us to achieve that goal the Board and I have identified four components of operational excellence key to driving this growth, namely; product management, technology and data, people, and sales and marketing.
Product management, including new product development is an area which we believe has received insufficient investment in recent years due to the previous focus on acquisitive rather than organic growth. Last year we launched a new product development process, managed by a newly formed Investment Committee. This has provided structure around assessing and prioritising opportunities for development to ensure those which have the most potential receive the investment and focus they deserve. A number of new products have already been brought to market as part of this process including our wealth management business's new website and ecommerce solution launched in May. There are currently five more new products under development through this process including the Digital Learning Platform discussed later in my review. The Investment Committee is focussed on looking for more cross-group collaboration opportunities to allow us to gain additional value from sharing new product solutions across different parts of the Group.
Within the product development framework, we have implemented a methodology which involves stripping back requirements to the 'minimum viable product' which serves the fundamental needs of our customers, tested against 'customer advisory groups' to ensure features are of high value to our customers. This process allows us to move away from 'big-bang' product launches with long gaps between each release towards a series of iterative roll-outs. We have made good progress in embedding this philosophy across our business although there is more work to do here.
Technology was identified several years ago as a key component of the Group's strategy and significant investment has already been made, particularly in the areas of infrastructure, CRM systems and learning management systems. The benefit of this has never been clearer than in the last few months when the investment in our internal infrastructure allowed us to move seamlessly to working remotely and the ongoing work on digitising products could be rapidly accelerated to allow us to deliver in virtual formats the majority of our previously face-to-face training and events.
Since joining the Group, I have been encouraging the business to recognise the very considerable data assets that it possesses and to identify how it can monetise those assets more effectively through the better use of technology. Initiatives are underway to develop this further and we have seen manifestations of this already in some of the development work that has been undertaken, for example to allow better analysis of the data captured by the Axco insurance data business and to present that data using a more advanced front end user interface.
People are critical to achieving success within a corporation and we are very fortunate at Wilmington to have a strong and loyal group of employees. They have demonstrated that very clearly over the last few months as they have been the driving force behind the successful way we have adapted and responded to the Covid-19 crisis. I want to place on record my personal thanks to each of them for the exceptional efforts they have made throughout the pandemic and for their continued work to innovate and serve our customers seamlessly all while working from home.
As part of our continuing work with the employees we initiated a new staff engagement survey shortly after I joined. Whilst the results, based on an impressive 91% participation rate, were largely positive, the survey identified a number of areas that we needed to improve. These included the engagement of our employees with the Group strategy and the opportunities for career development. We have taken action on both these and the other points raised by the survey over the last year. Six months after the first survey we conducted another, targeted on specific areas. This showed the engagement score increasing significantly. We intend to continue the work in this area over the next twelve months.
Part of this has been the creation of a Diversity and Inclusion working party, with participants from all parts of Wilmington, aimed at ensuring our workplace is free from discrimination and prejudice in all its forms. This initiative came about through our considered response to the Black Lives Matter movement. Whilst we start from a strong place in regards to diversity and inclusion we recognise that more must be done and are committed to delivering that.
Lastly, sales and marketing is of course a key component of driving organic revenue growth. When I joined Wilmington I identified that many areas of the Group traditionally concentrated on maintaining existing customer relationships and not enough on seeking out new opportunities and clients. Over the last twelve months we have implemented a number of changes to develop a more proactive sales culture.
Over the last few years, the Group has been focussed on rolling out a Group-wide CRM solution. This has now been adopted by more than two thirds of the Group companies. Over the last twelve months we have used this to start adopting consistent, Group-wide sales KPIs to enable more dynamic tracking of sales data and management of sales opportunities and targets.
We have augmented this through adopting a more unified approach to sales processes, sharing best practice across the Group's businesses. To facilitate this we physically relocated the London based sales teams to a new centralised location or 'sales hub' in the London Head Office building.
Pre Covid-19, we were starting to see real benefits from the work here with growth in year-on-year sales in each division giving total Group sales growth in the mid-single digit percentage range. This has dropped back due to the impact of the pandemic. However we are confident that the groundwork put in place in all of our areas of operational excellence will give us the resilience to face the immediate challenges and the platform to emerge from this crisis strongly.
Managing our portfolio
Wilmington is a portfolio of businesses, united by a common set of characteristics. To support the Group's goal to deliver organic growth we need to continuously assess the portfolio to identify areas where either organic growth could be augmented by bolting on complementary acquisitions, or where organic growth is being challenged because elements of the existing portfolio are underperforming or lack a strategic fit with the rest of the Group so risk diverting focus from the common purpose. Currently this element of the strategy is targeted at the latter, and at focussing the portfolio on doing fewer things but doing them better. Following my arrival last July we completed a thorough review of our business portfolio, building on the work carried out as part of the consultant-led business review conducted last year. My review identified the key characteristics of a Wilmington business as follows.
A Wilmington business will have a differentiated offering and be in or be capable of being in a market-leading position, with a developed and defendable moat, owned IP, a strong brand position, and be valued by its customers. It will be operating in attractive, growing and sizeable markets, the macro fit being that it will operate in markets we understand, the micro fit being that our solutions, services and data are integrated into our customers' systems, workflow, businesses and decision-making processes. A Wilmington business will have attractive economics and have sales channels which veer away from single sales and towards repeatable revenues.
A Wilmington business will also receive a benefit from being in the Wilmington Group, and the Group will benefit from that company's participation, sharing synergies, for example, around commercial or product initiatives or sharing technology or product innovations and the business will have strong leadership, with a bias towards innovation, and outstanding sector knowledge.
Following the accelerated shift towards virtual products in response to the Covid-19 pandemic Wilmington will now also demonstrate best in class digital capabilities, with products available for face-to-face, virtual or blended delivery. Furthermore, a Wilmington business will be data enabled, providing unique data insights and innovative solutions to their customers.
In the Interim Report we announced that we had identified two businesses, CLT and Inese, where our ability to add value appeared limited and they would therefore be subject to a strategic review.
Since our closure of Ark in 2017, CLT, within the Professional division, has been our only remaining business in the Law for Lawyers market. It is made up of two separate operations, CLT England and CLT Scotland. CLT England has suffered over a number of years from changing requirements for continuing professional development for lawyers in England. Plans to offset the corresponding revenue and profit decline with growth in online training have not delivered the required returns. We have now completed the strategic review and made the difficult decision to close the vast majority of the CLT England business from 31 August 2020. Closure costs for the business will total £0.6m and will be accounted for as an adjusting item in the year to 30 June 2021. The review of CLT Scotland has concluded that this remains a profitable and viable operation, and as a result, we are assessing the options for this business going forward.
Inese, our Spanish business within the Risk & Compliance division, whilst performing well in its market, struggles to generate
synergies with our other insurance business due to its geographical location and focus on the Spanish speaking insurance industry.
We therefore engaged external advisors to identify potential purchasers. This process is progressing but has been delayed by the impacts of Covid-19 so is still ongoing.
Investing in our business
Achieving progress in relation to generating organic growth and portfolio management will result in the Group generating significant surplus cash. Whilst the Board's intention is to recommence, as soon as possible, the return of a considerable portion of this cash to shareholders through its progressive dividend policy, it also intends to retain a portion to reinvest back in the business. This reinvestment is of course necessary to support the organic growth strategy. It has become clear that in order to drive the growth aspirations of the business in the medium term there are areas in which our Group needs further investment. Two of these are outlined below.
Digital Learning Platform
We have worked hard in the last couple of years to convert more of our products to virtual equivalents, including the roll-out of a Group-wide online learning platform. This has of course been accelerated by our response to Covid-19. So far however, this has existed as a standalone technology and has not been integrated into other business systems. This has meant that the user experience associated with buying the product, registering for access and then using the service has been somewhat disjointed. We are now addressing this by developing an integrated online education, membership, and information platform. This will allow customers to browse, purchase, and receive our training products in one place, as well as receiving personalised content, access to a community platform, and insights into the knowledge areas relevant to them. Initially this digital platform is being developed for two of our training businesses, ICA and Bond Solon, and it is expected to be operational from early 2021. In the fullness of time we expect this solution to be rolled out and adopted much more widely across the Group.
People
As previously explained, the business-by-business overheads review performed in the year identified around £3m of cost saving initiatives across the Group in both staff and supplier costs. Also identified were a number of areas where additional expertise and talent, particularly in technology, data and virtual learning, are required to drive our business forward. We expect to invest around £2m in new talent next year to facilitate growth in these areas.
Current trading and outlook
The performance achieved in the final quarter of the last financial year demonstrated the resilience of the Group's businesses and business models. Despite being significantly impacted by lockdown restrictions imposed the Group remained profitable in that quarter and generated significant amounts of cash.
In the first two months of the new financial year, this performance has continued. We remain profitable in what is traditionally a quiet period for trading during the UK and European holiday season. We expect this pattern to carry on for the rest of the first half, despite no current expectation of being able to run face-to-face events and training for the rest of the calendar year. This is expected to yield results for the first half of the year that will be similar overall to those achieved in the second half of the year just reported.
Predictions for the second half of the year are of course harder to make at this stage. Overall performance will ultimately be determined by the extent to which we are able to run the major face-to-face events that are traditionally a feature of the second half of our year. If we are able to run those, as we currently plan, then we would expect to deliver revenue in the second half approaching that achieved in the same period of FY19. This would result in full year revenue growth in the low single digit range. However, if restrictions remain through the second half and we can offer virtual events only throughout the financial year, then the second half revenue is likely to show a low single digit growth on that achieved this year albeit profitability will improve due to the cost reduction measures we have already taken.
In either scenario we expect to remain profitable throughout the period. The actions recently taken to reset the covenants for the next twelve months and to access additional facility headroom provide us with emergency cover should the economic situation deteriorate markedly from where we see it currently. Under either scenario, our current expectations are that we will not need to call on the additional comfort that each of them provides.
Looking out longer-term we believe Wilmington is well positioned to both weather the storm and emerge strongly. The markets we serve are generally expected to be resilient to the economic challenges we will all face. Similarly, our customers are, for the most part, likely to be less affected than those in certain other sectors. And crucially, the products and services we provide will remain relevant to and be required by those customers and we are investing the resources at our disposal to enhance the value that they deliver to them.
Mark Milner
Chief Executive Officer
Review of operations
Note that variances described below as 'organic' are at constant currency exchange rates. There is no impact on either the current or comparative year from mergers, acquisitions or disposals.
Risk & Compliance
|
Revenue |
2020 |
2019 |
Absolute variance % |
Organic variance % |
|
Compliance |
28.2 |
29.0 |
(3%) |
(3%) |
|
Risk |
13.5 |
13.4 |
1% |
- |
|
Total |
41.7 |
42.4 |
(2%) |
(2%) |
|
Operating profit |
12.8 |
12.7 |
1% |
- |
|
Margin % |
31% |
30% |
|
|
Business model and market
The Risk & Compliance division comprises four businesses that operate in Compliance markets and two that operate in the Insurance market. The division provides a mixture of services to its clients with a focus on training and education which represented 48% of the division's revenue in the last financial year. Provision of data and information accounted for 48% of FY20 revenue with networking services - predominantly roundtables and conferences - making up the rest.
The main Compliance business, which was developed organically within Wilmington is the International Compliance Association ('ICA'). It is an industry body and training business that we created in 2002 which offers professional development and support to compliance officers predominantly in the financial services sector. It has offices in the UK, Singapore, Malaysia and Dubai. In total, revenue from ICA accounts for around 40% of total Risk & Compliance revenue.
Revenue earned by ICA is primarily training income although this is complemented through subscriptions paid by the professional members for their ICA accreditations. The training income is generated both through running professional development courses and associated examinations, which are open to public enrolment, that allow students to achieve their professional accreditation, and through developing bespoke in-house programmes for institutions to train staff across their businesses in compliance regulation and procedures. These accreditations are awarded in association with the University of Manchester's Alliance Manchester Business School. The courses ICA run usually extend over several weeks or even months. They traditionally mix distance learning with face-to-face sessions. Increasingly the distance learning element has been transitioning to online and digital variants, and more recently virtual programmes have been offered in place of face-to-face sessions. To support the move to virtual training in ICA a new digital learning platform ('hub') is being built for launch at the start of 2021.
ICA primarily serves the financial services industry. The material for ICA courses is developed by our own internal R&D team and external specialists, and we own the associated intellectual property.
Outside of ICA, the other Compliance businesses earn revenue from running professional development programmes for wealth managers; from offering subscription services for the provision of detailed information on regulations in the UK pensions industry; and from subscriptions to Compliance Week, the premium industry journal for US and European compliance professionals. The Compliance Week brand also generates revenue from lead generation to the compliance community and from running industry networking events.
The Risk businesses serve the global insurance industry, primarily with in-depth regulatory information, market intelligence and analysis. In addition, we provide networking events and training specifically focussed on the Spanish insurance market. Revenue in Risk is mainly earned through subscriptions to the information and analysis services and publications, and from attendance fees and sponsorship at the training and networking events.
Covid-19 response
The resilient nature of the Risk & Compliance business models has meant that the division has generally weathered the storm from Covid-19 reasonably well. Although the majority of training and education in Risk & Compliance has a face-to-face element, the business was able to transition quickly to virtual alternatives. The progress already made in the last few years to offer increased online training in Compliance was accelerated and it was possible to deliver the majority of the planned training courses for the remainder of the financial year in this virtual format. Registrations for forthcoming public courses have been at historical levels through the Covid-19 impacted period, which demonstrates the critical nature of the training provided. There have been some delays and deferrals in bookings for in-house courses as clients decide how they run such programmes. This was particularly noticeable in the early period of lockdown but booking volumes are starting to recover as restrictions ease.
There were a number of networking events due to be held in Q4, notably Compliance Week's flagship conference which was planned for May. In line with local Government advice, all face-to-face events were postponed or cancelled with a consequential revenue impact. However it was possible to convert a number of these events to virtual formats. This included the Compliance Week event which ran successfully over two days with around 1,000 delegates and 50 speakers.
The critical nature of much of the data and information services provided by the Risk & Compliance businesses meant that this element of the revenue was largely unaffected by Covid-19. Business development activities have been impacted by restrictions on face-to-face meetings and this could impact new business in the short term. Renewal rates and pricing have not been materially affected and this should provide resilience in the short and medium term.
Looking out further, we are confident in Risk & Compliance's ability to recover from Covid-19 impacts. The clients that the division serves are based primarily in the financial services and insurance industries. Whilst these will be impacted by general recessionary pressures, they are unlikely to be drastically affected in the way that other industries are. We believe that the services the division provides will remain at least as relevant for their clients in the future. There may be some reduction in demand for face-to-face training and events, but the division is very well placed to benefit from these changes and investments such as the digital hub should improve the competitive positioning in this regard.
Trading performance
With Covid-19 impacting the last quarter of the year the Risk & Compliance division performed well with revenue only 2% down on both an absolute and organic basis against what was a strong prior year performance.
Within this total the Compliance businesses' revenue declined by 3% on an absolute and organic basis. In the main Compliance business ICA, revenue fell by 4% on an organic basis. Before the impacts of Covid-19 ICA was on track to deliver low single figure growth on what was a very strong prior year performance, with good growth in the UK business offset by declines in Asia Pacific and the Middle East due to a delay in changes to regulations and the difficult political and economic conditions respectively. This growth was overshadowed by the loss of in-house programmes in the last quarter due to Covid-19. However the move to online training resulted in cost savings from reduced travel, venue and trainer costs meaning there was no impact on profit.
The Asia ICA business was placed under new leadership in the year and there has been a new funding structure introduced in Singapore which means that compliance accreditations are now 95% funded directly by the Government, so we are expecting this region to perform well next year. This view is supported by the level of registrations already seen which means that we enter FY21 with a higher level of booked revenue than twelve months ago.
Following the cessation of face-to-face training due to Covid-19 the business moved swiftly to convert all training programmes to virtual equivalents, an acceleration of the shift towards online training which had already started in the last few years. ICA's first fully virtual postgraduate diploma was launched in June and has seen a solid uptake with a more international reach and accessible timetable. ICA's face-to-face conference which was due to be held in Q4 has been converted into the 'Big Compliance Festival', a rolling programme of virtual events to take place over the next twelve months.
The Other Compliance businesses performed reasonably with revenue down by 1%. The decline came due to the required conversion to virtual of Compliance Week's mid-May flagship annual conference. Aside from this Covid-19 impact, Compliance Week performed well following the launch of its new online platform and a revised pricing strategy. The wealth management business delivered good mid-single digit growth. It launched a new website and ecommerce solution in May this year and has moved to online delivery of all UK and international programmes in response to Covid-19. Pendragon, our pensions regulation business was not immediately impacted by Covid-19 and delivered solid single digit growth.
The Risk businesses overall reported a 1% increase in revenue. On a constant currency basis revenue was flat. Axco, our insurance information business delivered low single digit growth offset by a decline in revenue in Inese, our Spanish insurance industry company.
In Axco the impacts of consolidation within the insurance sector were offset by pricing improvements. Axco's existing revenue was not immediately impacted by Covid-19 and where possible research trips have been converted to virtual meetings, generating travel cost savings. A new data platform in Axco, was launched in January 2020. During the year Axco also launched an enhanced regulatory alert system.
Inese's revenue was impacted by Covid-19 with some face-to-face events not being appropriate for digital conversion. However the closure of the Barcelona office at the start of the year and the cost savings driven by the move to online training resulted in operating profit which was up slightly year-on-year. We announced at the half year that we had engaged advisors to identify potential purchasers for the business. That process has been delayed by Covid-19 but is still ongoing.
Overall in Risk & Compliance, divisional operating profit was up 1% in absolute terms to £12.8m (2019: £12.7m). On an organic basis the operating profit was flat as the reduction of revenue was offset by cost savings driven by the switch to online training and events and reduced travel in the Risk businesses. Operating margin was slightly higher at 31% (2019: 30%).
Healthcare
Revenue | 2020 | 2019 | Absolute variance % | Organic variance % |
European Healthcare | 27.9 | 29.0 | (4%) | (4%) |
US Healthcare | 6.1 | 9.7 | (38%) | (39%) |
Other Information businesses | 7.0 | 7.6 | (7%) | (7%) |
Total | 41.0 | 46.3 | (11%) | (12%) |
Operating profit | 3.3 | 7.3 | (56%) | (56%) |
Margin % | 8% | 16% |
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Business model and markets
Wilmington offers a wide range of products and services through its Healthcare businesses predominantly around the provision of market and customer intelligence. Wilmington's Healthcare division combines these information assets with complementary products that provide similar services to a number of other communities including charities and not for profit organisations. In addition the division runs networking events, primarily in the US market and offers a small amount of online training.
The core of the data supplied by the Healthcare division comes primarily from publicly available sources. The value generated by our services is based around its collation, verification, combination with other complementary data sources and then its ease of presentation and usage. In some areas we provide proprietary analysis of the data and editorial comment which constitutes our own intellectual property.
Wilmington's European Healthcare businesses operate mainly in the UK and France. One of their core products is the provision of deep insight information on practitioners, facilities and treatments in the UK and French health sector markets that enable suppliers into those markets, including pharmaceutical companies, to understand and connect better with their customers. The majority of this revenue is earned through sales of discrete packages of data or through subscription services for the ongoing provision of information. Additionally, in the UK we publish the Health Service Journal ('HSJ'), the leading online publication in the UK for healthcare leaders, with revenue generated through providing subscriptions to NHS foundation trusts, Clinical Commissioning Groups and suppliers to the NHS. Associated with that we organise networking and training events including the flagship HSJ Awards. These events are typically funded by supplier sponsorship although this is sometimes augmented by delegate charges. We also provide a suite of online learning courses that familiarise UK industry participants with the complexities of the National Health Service.
The US Healthcare businesses are distinct from our other Healthcare assets in that they are predominantly events based with only a small proportion of revenue earned from data. They serve the US healthcare/health insurance markets and to a lesser extent the US financial and legal service communities. The prime brand is the RISE series of events that address the Medicare and Medicaid markets and is attended by health plans, physician groups and solution partners, for which the flagship event is RISE National which normally takes place in Nashville in March each year. Revenue from the US events is generated from both sponsorship and delegate sales.
The Other Information businesses consist of a portfolio of data products including charity fund-raising information, and marketing data suppression tools. They include services that are used by organisations to help prevent identify fraud. Revenue is traditionally earned through subscription to the relevant data feed.
Covid-19 response
The healthcare industry has, of course, been profoundly impacted by Covid-19, with the immediate industry response being to focus resources on addressing the pandemic challenges and to pause all other non-emergency treatment. Interest in our healthcare news services in the UK and France increased significantly during the period and we moved all Covid-19 related content in front of paywalls during the early part of the crisis to ensure maximum availability of information. Throughout the pandemic, we have kept healthcare leaders and key workers on the front line up to date with the latest developments and insight, significantly increasing brand awareness for our flagship HSJ and APM News products. The healthcare industry is starting to return to some semblance of normality following the initial response. This is resulting in a return to marketing activities by our pharmaceutical clients.
The main immediate impact of Covid-19 on the Healthcare division has been on networking events revenue. This has particularly impacted our US Healthcare business which generates the majority of its income from events and was not able to hold RISE National in late March, eventually running it as a very successful but smaller virtual event at the end of June. In total twelve US events were successfully moved online in the last quarter whilst in the UK the decision was taken to postpone the 3 events due to run until later in the calendar year.
Encouragingly there has been only a limited impact on data and information services in Healthcare due to Covid-19. The APM brand in France has fared well during the pandemic due to its impressive coverage of health stories and data, and its position as a point of reference for the French healthcare market has been strengthened. In the UK, sales of subscriptions and ongoing data analysis has continued reasonably unaffected. There was a brief hiatus in sales of one-off cuts of data in the early stages of lockdown as pharmaceutical companies deferred marketing plans and launches. These are starting to return as the NHS returns to more normal operations.
Going forward we see that the market for our products and services will recover as the pandemic recedes. Our clients, whilst impacted by the situation, will generally be expected to come through it reasonably strongly and they will continue to require the services that we provide in the future. Indeed, arguably data and information become more important and valuable in challenging times and we are well placed to support that requirement. Clearly we need to be mindful of both sponsor and delegate demand for face-to-face events over the medium term. However the fundamental needs that drove that business in the past remain, namely the need for sponsors to interact with prospective clients to drive business development activities; and for practitioners to meet each other to debate and learn about industry developments and best practice. With our unique blend of face-to-face and digital capabilities we are very well placed to develop solutions that meet those requirements whilst being sensitive to any concerns over face-to-face interaction.
Trading performance
Overall revenue for the Healthcare division declined 11% to £41.0m (2019: £46.3m) or 12% on a constant currency basis. Around half of the decline was due to being unable to hold the RISE National event in March 2020.
Within the division, European Healthcare saw a 4% decline which was fully attributable to Covid-19 causing a reduction in events revenue in the year. Revenue from other products and services was flat year-on-year.
APM, our French healthcare business, delivered 6% organic growth which was driven by both its core products and the recently launched APMi product.
After a difficult couple of years, the UK Healthcare business was on track before the onset of Covid-19 to deliver low single digit organic revenue growth for the year. The growth was predominantly driven from the sales of Specialist Share Data (SSD) and by strong mailing fulfilment, postage sales and increased digital sales. Following the impact of lockdown on the Q4 events revenue and the reduction in demand for one-off data cuts, the business ultimately reported a 6% decline in full year revenue. In May we launched the Quantis Covid tracker product which enables clients to understand the impact of Covid-19 on patient waiting times, admissions and treatment pathways. This helps them engage with relevant stakeholders in the NHS and has been well received by the market.
The US Healthcare events business, FRA, was also on track to deliver a very strong year as demonstrated by the 20% organic growth announced at the half year. In the US there have been major changes in the Medicare industry, the particular focus of the business, and this is driving positive underlying opportunities. However, 18 planned face-to-face events were impacted by Covid-19 in the latter part of the year. Of these, twelve, including RISE National, were converted into virtual events albeit with a significant revenue reduction. The impact from this resulted in full year revenue declining 39% at constant currency, with the second half down 59% year-on-year.
The Other Information businesses saw a continued slow decline in their legacy portfolio, particularly in revenue associated with physical mailings, but increases in revenues from new services in genealogy and preventing identity fraud continue to grow to partially offset this long term decline. This reduction was compounded by the impact of Covid-19 on events and physical mailing products which were suspended in April and May but have since been resumed. The business benefited in the year from the renewal of access to the wills and probate data that underpin many of its data services.
Operating profit in the Healthcare division decreased 56% in absolute and organic terms to £3.3m (2019: £7.3m). The operating margin declined to 8% (2019: 16%). This decline reflected the lost revenue which was associated with only minor venue related cost savings as most other costs in this division are essentially fixed.
Professional
| 2020 | 2019 | Absolute variance % | Organic variance % |
Revenue | 30.3 | 33.8 | (10%) | (10%) |
Operating profit | 2.9 | 5.8 | (50%) | (50%) |
Margin % | 10% | 17% |
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Business model and market
The Professional division predominantly provides training for professionals employed in three target communities: accountants in practice and in business; individuals involved in the legal system, including lawyers; and investment bankers. It runs a mix of face-to-face, online and blended learning for these communities. It provides training at various levels including inducting new joiners to the investment banking industry, providing continuing professional development for existing qualified lawyers and accountants and, in the case of the legal profession, helping them train their clients for interaction with the legal system. Additionally it provides technical support to accountancy firms which enables them to keep abreast of technical developments and changes in tax law, as well as supporting them to promote the services they then offer to their clients.
The Accountancy and Legal businesses are predominantly UK and Ireland based, reflecting the country specific laws and accounting standards that govern their profession. Investment banking is of course a global industry, and as such Wilmington's business in that area has an international presence, with centres in Europe, North America and Asia Pacific.
Around half the revenue in the Professional division is earned through clients subscribing for ongoing training support and other related activities over a period of time (usually twelve months), with the rest through one-off course attendance fees. Courses are typically single or half day events, and content is a mix of owned and third-party intellectual property. Courses are delivered either by in-house experts or by a network of independent tutors who are paid per course that they deliver.
Before the impact of Covid-19 the Accountancy market was growing, however this was somewhat offset by the continued consolidation of smaller firms, some Brexit uncertainty and relatively a stable backdrop in terms of tax legislation and accounting standards. The investment banking market remains competitive, however recent investment in technology had improved our offering in this area. The legal market remains mixed with the demand for Law for Lawyers products continuing to suffer from changing CPD requirements. In contrast the Law for Non-Lawyers market was strong with good demand for existing products as well as successful launches of new training courses.
Covid-19 response
The Professional division typically derives the majority of its revenue from delivering face-to-face training sessions for its three target communities. The inability to provide these due to Covid-19 has had a detrimental impact on revenue in Q4. Impressive efforts have been made, and continue to be made, by each of the businesses to convert this training to a virtual format, and some industry areas which have historically been resistant to virtual delivery have adapted well to this. However it has not been possible to translate all areas of training into an online equivalent either due to the nature of the topics, or to demand pausing, for example with witness familiarisation training which has largely been put on hold due to courts remaining closed.
Longer term it is difficult to assess the potential impact of Covid-19 on the markets which the Professional division serves. Whilst there will continue to be an underlying demand for the professions served (accountancy, legal and investment banking), they are likely to suffer recessionary pressures which potentially temporarily reduce the numbers of professionals employed, and hence require training. Equally there is potential for consolidation amongst small accountancy and legal practices which could reduce the number of available firms subscribing for membership type models, albeit those remaining will be larger. However, ultimately the professionals employed will still require continuing professional development, and the volume of regulations is only likely to increase which will drive an increased demand which we are well placed to serve. With likely future demand for different models in terms of face-to-face and online we are well positioned to capture further share from the market that does develop.
Trading performance
Overall revenue for the Professional division was down 10% at £30.3m (2019: £33.8m) on both an absolute and organic basis. Professional has the highest proportion of its revenue generated by training of any of the divisions and the nature of this training has in some areas made it more difficult to convert to an online format in response to Covid-19.
Before Covid-19, following a tough prior year in which three separate businesses were integrated into a single nationwide programme of products, the Accountancy business had stabilised and was showing positive signs. In Accountancy Covid-19 has impacted both face-to-face training and the file reviews provided for accountancy practices which are traditionally performed on site at the client's offices. In response, the Accountancy business worked quickly to launch Mercia LIVE, a virtual classroom to deliver training. This successfully mitigated some of the revenue reduction, although full year Accountancy revenue still declined by 7% year-on-year. Savings on venues, travel and trainer costs, through the conversion to online and the consolidation of regional face-to-face sessions into a single online event significantly mitigated the profit impact. Towards the end of the year the Accountancy business was registered as a supporting provider under the Government's apprenticeship scheme and the business is progressing a number of opportunities in relation to this.
Within Legal, Bond Solon, the Law for Non-Lawyers business, experienced significant Covid-19 impacts in what would otherwise have been a strong year. Prior to Covid-19, Bond Solon delivered 100% face-to-face training. Where possible training in Q4 was converted to online and in some areas was very successful, with expert witnesses for example taking the opportunity to complete regulatory training during lockdown. However, the sensitive nature of some training meant that conversion online was not possible for all courses. In addition, the closure of courts due to Covid-19 meant that the majority of witness familiarisation training was put on hold in Q4. Bond Solon launched two new Covid-19 related training courses in May which were well received.
The well documented decline in CPD training for lawyers continued and was exacerbated by Covid-19. This resulted in a 25% year-on-year revenue decline. Following our announcement in February 2020 that the Law for Lawyers business would be subject to a strategic review the decision has been made to close the vast majority of CLT England by 31 August 2020, options are being considered for CLT Scotland which remains profitable.
AMT, the investment banking business, relies on traditional face-to-face training for its revenue, albeit often augmented by online learning delivered through our Group-wide Totara eLearning platform. A significant proportion of its revenue is derived from the summer graduate and intern induction programmes delivered in Q1 each financial year. These had already happened by the time of Covid-19 and hence there was only a small revenue reduction in the year. AMT is working with its customers to determine how these training programmes will be delivered this summer with many of them opting for a virtual format over a longer time period.
Overall divisional operating profit decreased 50% on an absolute and organic basis to £2.9m (2019: £5.8m) driven by the fall in revenue. There were direct cost savings as a result of the decrease in revenue but these were partially offset by a one-off £0.8m cost in Accountancy to upgrade business and CRM systems to effect the integration of the business. The operating margin fell to 10% (2019: 17%).
Unallocated central overheads
Unallocated central overheads represent Board costs and head office salaries as well as other centrally incurred costs not recharged to the businesses. These were essentially flat at £4.3m (2019: £4.1m).
Finance review
Change in accounting policies - IFRS 16 Leases
From 1 July 2019 the Group has adopted the new lease accounting standard IFRS 16 which has resulted in leases being recognised on the balance sheet. Wilmington has opted to apply the modified retrospective approach to adoption meaning the prior year comparators have not been adjusted. On transition right of use assets of £11.0m were recognised, along with a corresponding £12.6m lease liability. In the current year adoption of this standard has had immaterial impacts on profit before tax, adjusted EBITA and adjusted PBT. The commentary below identifies the impact of the changes. See note 18 for a full reconciliation.
Adjusting items, measures and adjusted results
In this financial review reference is made to adjusted results as well as the equivalent statutory measures. Adjusted results, in the opinion of the Directors, can provide additional relevant information on our future or past performance where equivalent information cannot be presented using financial measures under IFRS. Adjusted results exclude adjusting items, gain on sale of subsidiaries and amortisation of intangible assets (excluding computer software).
| 2020 | 2019 | Absolute variance | Organic variance | |
| £'m | £'m | £'m | % | % |
Revenue | 113.1 | 122.5 | (9.5) | (8%) | (8%) |
Adjusted EBITA | 14.0 | 21.5 | (7.4) | (35%) | (35%) |
Margin % | 12.4 | 17.6 |
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Variances described as 'organic' are calculated using constant currencies. There were no acquisitions or disposals affecting either the financial year or the comparative period.
Revenue
In the year ended 30 June 2020 revenue decreased by 8% or £9.5m on both an absolute and organic basis to £113.1m (2019: £122.5m) which represented a positive first nine months of the financial year masked by the impacts of Covid-19 on the final quarter. The Group's major non-Sterling revenues are in US Dollars and Euros. During the year there were only small movements in these rates therefore there were not large differences between our absolute and constant currency positions.
Within revenue, the Data and Information revenue streams, which represented 51% of the Group's revenue in FY20 (2019: 47%), were not materially impacted by Covid-19 and grew 2% in the year. This revenue stream is the one that has the highest proportion of subscription type revenues and renewal rates remained reasonable in the last quarter of the year.
The next largest revenue stream, Training, which represented 39% of the Group's revenue (2019: 39%) was impacted by the inability to hold face-to-face training for the last quarter of the year and as a result fell by 8% compared to the prior year as demand for certain types of training, particularly single and half day events, decreased due to lockdown. This decrease was mitigated by the Group's ability to successfully transition almost all face-to-face training to virtual equivalents.
Networking, which is typically our smallest revenue stream and, in the year, represented 10% of total revenue (2019: 14%), was the most impacted by Covid-19 and revenue in this area fell year-on-year by 36%. Frustratingly, the Covid-19 lockdown coincided with the peak season for Networking events. These had to be cancelled, including RISE National, traditionally the Group's largest event, which was due to be held at the end of March 2020. This was converted to a successful virtual event held in June which helped mitigate some of the lost revenue.
The Covid-19 pandemic accelerated our existing plans to digitise our products, meaning that in the final quarter of the year we operated as a fully digital business. Overall across the year 43% (2019: 30%) of our training revenues were derived from digital learning.
The portion of our revenue which is generated in the UK increased slightly to 58% (2019: 57%) the small increase was due to our large US networking event RISE National not taking place and a shift in the mix of ICA's revenue with the UK growing and Asia Pacific declining in the year.
Operating expenses before adjusting items, amortisation and impairment
Operating expenses before adjusting items, amortisation of intangible assets (excluding computer software) and impairment, were £99.0m (2019: £101.1m) down 2.0% or £2.0m.
Within operating expenses, non-staff costs fell £3.6m to £45.7m (2019: £49.3m). Direct costs made up £3.5m of this decrease, being both the direct cost savings associated with the lost revenue in the final quarter of the year, and savings in direct costs driven by the virtual delivery of previously face-to-face training and events, including venue, travel and trainer costs. The remaining £0.1m reduction reflects the benefit of £1.4m received from various Covid-19 related government schemes implemented to protect jobs, mainly in the US and the UK, offset by a £0.6m increase to bad debt provision and a £0.8m write off of system integration costs in the Accountancy business.
Staff costs increased by £1.6m to £53.3m (2019: £51.8m). Salary inflation accounted for £1.0m of this increase, additionally share based payment costs increased £0.5m in the year due to revised vesting assumptions in the prior year which resulted in that year's charge being abnormally low. Investments in new staff in the year, primarily in the Compliance businesses, totalled £1.1m and this was offset by a year-on-year saving of £1.0m in relation to discretionary staff bonuses and sales commission payments. The Group's full time equivalent ('FTE') headcount at 30 June 2020 was 892 compared to 860 at 30 June 2019. The addition of 32 FTEs reflects the investment in new staff discussed above. Since the period end, recognising that the effects of Covid-19 are likely to extend well into the first half of the new financial year we have undertaken restructuring activities at a number of businesses across the Group. These have regrettably resulted in around 40 staff members being made redundant which is expected to deliver a net £1.3m saving in the new financial year.
Adjusted operating profit ('adjusted EBITA')
As a result of these changes in revenue and operating expenses, adjusted EBITA was down £7.4m (34.6%) to £14.0m (2019: £21.5m). Adjusted operating margin (adjusted EBITA expressed as a percentage of revenue) also decreased to 12.4% (2019: 17.6%).
Amortisation excluding computer software
Amortisation of intangible assets (excluding computer software) was £4.8m, compared to £5.0m in the previous year. The small decrease reflects certain historic assets being fully amortised part way through the prior year.
Adjusting items within operating expenses
Adjusting items in operating expenses are those items that in the opinion of the Directors are one-off in nature and which do not represent the ongoing trading performance of the business. In the year adjusting items within operating expenses were £0.6m (2019: £1.4m) and related to acquisition and disposal activity. Deferred consideration relating to Evantage and Interactive Medica which were both settled in the financial year accounted for £0.4m with the remaining £0.2m of cost relating to the strategic reviews of Inese and CLT.
Operating profit ('EBITA')
After the various adjusting items detailed above, plus a £1.9m prior year benefit relating to the sale of ICP which was not repeated in the current year, operating profit was down £8.3m at £8.6m (2019: £16.9m).
Net finance costs
Net finance costs increased by £0.1m to £2.2m (2019: £2.1m), within this interest payable on bank loans and overdrafts fell £0.3m due to lower average debt balances across the year. This was offset by the new lease accounting standard, IFRS 16, increasing finance costs by £0.3m, and by a £0.1m increase in loan arrangement fees due to the £15.0m additional CLBILS facility we have entered into.
Profit before taxation
After finance costs, profit before tax was £6.4m (2019: £14.7m). Adjusted profit before tax was down 38.6% to £11.9m (2019: £19.3m).
Taxation
The tax charge in the year was £1.8m compared to £3.5m in the prior year. The fall was driven by the decrease in profit before tax. The overall effective tax rate1 increased to 27.4% from 23.9% due to the relatively higher adjusting items relating to acquisitions and disposals which are not deductible for tax purposes.
The underlying tax rate2 which ignores the tax effects of adjusting items remained flat at 20.9% (2019: 20.9%).
Earnings per share
Adjusted basic earnings per share decreased by 38.6% to 10.71p (2019: 17.44p), owing to the decrease in adjusted profit before tax and a flat underlying tax rate on an essentially unchanged number of issued ordinary shares. Basic earnings per share was 5.33p compared to 12.74p in 2019 due to the decrease in profit after tax.
1 The effective tax rate is calculated as the total tax charge divided by profit before tax
2 The underlying tax rate is calculated as one minus the adjusted profit after tax divided by the adjusted profit before tax
Balance Sheet
Non-current assets
Goodwill increased by £0.3m from £77.5m to £77.9m due to fluctuations in foreign exchange rates.
Intangible assets decreased by £3.5m from £23.2m to £19.7m due to amortisation of £6.9m, which was partly offset by additions of £3.3m within computer software reflecting the strategy to invest in the existing businesses to drive organic growth. Additions included significant investments in an upgrade to the Axco data platform and the new ecommerce website in the wealth management business. Internally generated assets accounted for £0.8m of additions (2019: £0.6m).
Property, plant and equipment fell £0.9m to £5.1m from £6.0m twelve months previous. Adoption of IFRS 16 caused £0.3m of this decrease, with the amount being reclassified to right of use assets. The remaining £0.6m fall was due to depreciation of £1.1m being only partially offset by additions of £0.5m.
Right of use assets of £11.8m relate to the Group's property leases following the adoption of IFRS 16. As permitted by the standard the prior year figures have not been updated.
Deferred consideration receivable
Following the disposal of ICP in July 2018, the Group recognised £2.2m of deferred consideration receivable, which represents the net present value of the gross amount of £2.7m which will be paid over five years. The receipt of the first £0.2m of consideration was offset by a £0.2m unwind of the discount to give a closing balance of £2.2m. The unwind of the remaining £0.3m discount will continue to be recognised as a credit to net finance costs over the next three years.
Trade and other receivables
Trade and other receivables were down £3.6m at £25.5m (2019: £29.1m). Within this, trade receivables decreased £2.3m due to decreased billings in the final quarter of the year. Additionally we increased the bad debt provision in the period by £0.6m to reflect the current economic uncertainties and the resulting extra credit risk. Prepayments and other receivables fell £1.3m due to a change in the billing schedule of large supplier contracts from annual to quarterly and the shift of Q1 FY21 events to later in the year.
Current tax asset / liabilities
At 30 June 2020 the Group recognised an asset relating to current tax of £1.3m (2019: £0.3m liability). A change in the year to how large companies pay corporation tax in the UK accelerates payment of around half the tax liability from after the financial year end to in-year. This combined with a number of territories delivering lower profit in the last quarter of the year than expected due to Covid-19 has resulted in a net overpayment position.
Trade and other payables
Trade and other payables increased by £1.3m from £57.2m to £58.5m. Within this subscriptions and deferred revenue increased by £0.7m or 2.2% to £31.5m (2019: £30.8m), with trade and other payables increasing £0.7m to £27.0m (2019: £26.4m).
This increase in subscriptions and deferred revenue was driven by the delay to planned events from Q4, which has meant that we are holding more prepayments from event sponsors or delegates than we normally have at this time. We expect these credits to be used progressively over the next year. Adjusting for this, underlying deferred revenue decreased by 6% due to the absence of sales for events normally expected to be held over the summer or into the autumn for which we would usually have started billing sponsors and delegates.
The increase in trade and other payables was caused by £5.7m of UK VAT and payroll tax payments in Q4 being delayed with agreement from HMRC as a prudent response to the Covid-19 pandemic. These payments will be regularised by the end of Q3 of the current financial year. This increase was offset by a fall in normal trade payables and accruals driven by cost savings implemented in the last quarter of the year to reflect the lower levels of business activity in the face of the pandemic and a £1.6m reclassification of rent free period accruals from trade payables to right of use asset under the IFRS 16 transition.
Lease liabilities
Lease liabilities of £13.1m relate to the Group's property leases following the adoption of IFRS 16. As permitted by the standard the prior year figures have not been restated.
Net debt and cash flow
Net debt, which includes cash and cash equivalents, bank loans (excluding capitalised loan arrangement fees) and bank overdrafts, was £27.7m (2019: £33.9m). Cash generation of £6.2m compared to £5.7m in the prior year was a result of lower operating profit offset by a favourable working capital movement and the interim dividend not being paid. The favourable working capital movement was driven primarily by the previously discussed delay in settling VAT and payroll taxes.
As a result of the above, cash conversion for the year ended 30 June 2020 was an exceptional 189% (2019: 123%). As well as the impact of the abnormal working capital position, year-on-year comparison of the percentages is impacted by adoption of IFRS 16. With both these items adjusted for, the comparable cash conversion this year would be 133%.
Derivative financial instruments
The Group is exposed to foreign exchange risks, liquidity and capital risks and credit risks. The Group has policies that mitigate these risks which include the use of derivative products such as forwards and swaps subject to Board approval. The Group uses interest rate swap contracts to mitigate part of the interest rate volatility risk. These swaps have resulted in a liability of £0.1m (2019: £0.2m) at 30 June 2020. The Group's existing interest rate swaps expired in July 2020 and new swaps were entered into in the same month to reflect the timelines associated with the new banking facilities entered into in July 2019.
On 1 July 2020 the Group entered into a number of foreign currency transactions to mitigate possible exchange rate fluctuations on its 2020/21 financial results. $9.0m USD were sold forward to mature during the 2020/2021 financial year at an average rate of $1.24.
Share capital
During the year 64,350 new ordinary shares of £0.05 were issued in settlement of shares vesting under the Group's Performance Share Plan. This resulted in an increase to the number of ordinary shares outstanding at 30 June 2020 to 87,603,917 (2019: 87,539,567).
In the year the Wilmington Group plc Employee Share Ownership Trust purchased 200,000 ordinary shares for the purpose of settling employee share schemes. At 30 June 2020 it held 200,000 shares (2019: nil).
Richard Amos
Chief Financial Officer
Statement of Directors' responsibilities in respect of the financial statements
The statement of directors' responsibilities below has been prepared in connection with the Group's full Annual Report for the year ended 30 June 2020. Certain parts of the Annual Report have not been included in this announcement as set out in note 1 of the financial information.
We confirm to the best of our knowledge that:
· the consolidated financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; · the management report represented by the report of the Directors, and material incorporated by reference, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face; and · the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to access the company's performance, business model and strategy.
|
This responsibility statement was approved by the board of Directors on 16 September 2020 and is signed on its behalf by
Richard Amos
Chief Financial Officer
Consolidated income statement
for the year ended 30 June 2020
| Notes | Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Continuing operations |
|
|
|
Revenue | 4 | 113,075 | 122,525 |
Operating expenses before amortisation of intangibles excluding computer software and adjusting items |
| (99,044) | (101,074) |
Amortisation of intangible assets excluding computer software | 5b | (4,797) | (5,049) |
Adjusting items | 5b | (625) | (1,443) |
Operating expenses | 6 | (104,466) | (107,566) |
Other income - gain on sale of subsidiary |
| - | 1,906 |
Operating profit |
| 8,609 | 16,865 |
Net finance costs | 7 | (2,175) | (2,103) |
Share of loss of equity accounted investment |
| - | (50) |
Profit before tax |
| 6,434 | 14,712 |
Taxation | 8 | (1,760) | (3,519) |
Profit for the year |
| 4,674 | 11,193 |
Attributable to: |
|
|
|
Owners of the parent |
| 4,674 | 11,149 |
Non-controlling interests |
| - | 44 |
|
| 4,674 | 11,193 |
Earnings per share attributable to the owners of the parent: |
|
|
|
Basic (p) | 10 | 5.33 | 12.74 |
Diluted (p) | 10 | 5.26 | 12.64 |
Adjusted earnings per share attributable to the owners of the parent: |
|
|
|
Basic (p) | 10 | 10.71 | 17.44 |
Diluted (p) | 10 | 10.56 | 17.30 |
Consolidated statement of comprehensive income
for the year ended 30 June 2020
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Profit for the year | 4,674 | 11,193 |
Other comprehensive income/(expense): |
|
|
Items that may be reclassified subsequently to the income statement |
|
|
Fair value movements on interest rate swaps, net of tax | 116 | 32 |
Currency translation differences | 513 | 643 |
Net investment hedges, net of tax | (237) | (424) |
Other comprehensive income for the year, net of tax | 392 | 251 |
Total comprehensive income for the year | 5,066 | 11,444 |
Attributable to: |
|
|
Owners of the parent | 5,066 | 11,400 |
Non-controlling interests | - | 44 |
| 5,066 | 11,444 |
Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 8.
Balance sheet
as at 30 June 2020
| Notes |
| ||
2020 £'000 | 2019 £'000 | |||
Non-current assets |
|
|
| |
Goodwill | 11 | 77,876 | 77,535 | |
Intangible assets | 12 | 19,712 | 23,213 | |
Property, plant and equipment | 13 | 5,134 | 5,967 | |
Right of use assets | 13 | 11,760 | - | |
Deferred consideration receivable |
| 2,163 | 2,221 | |
Deferred tax assets |
| 1,189 | 555 | |
Derivative financial instruments |
| - | 23 | |
|
| 117,834 | 109,514 | |
Current assets |
|
|
| |
Trade and other receivables | 14 | 25,526 | 29,112 | |
Current tax assets |
| 1,314 | - | |
Cash and cash equivalents |
| 21,426 | 7,921 | |
|
| 48,266 | 37,033 | |
Total assets |
| 166,100 | 146,547 | |
Current liabilities |
|
|
| |
Trade and other payables | 15 | (58,495) | (57,168) | |
Current tax liabilities |
| - | (312) | |
Lease liabilities | 16 | (2,660) | - | |
Derivative financial instruments |
| (59) | - | |
Deferred consideration - cash settled |
| - | (1,550) | |
|
| (61,214) | (59,030) | |
Non-current liabilities |
|
|
| |
Borrowings |
| (48,495) | (41,790) | |
Lease liabilities | 16 | (10,461) | - | |
Derivative financial instruments |
| - | (226) | |
Deferred tax liabilities |
| (2,524) | (2,633) | |
|
|
|
| |
|
| (61,480) | (44,649) | |
Total liabilities |
| (122,694) | (103,679) | |
Net assets |
| 43,406 | 42,868 | |
Equity |
|
|
| |
Share capital |
| 4,380 | 4,377 | |
Share premium |
| 45,225 | 45,225 | |
Treasury and ESOT reserves |
| (590) | (96) | |
Share based payments reserve |
| 1,195 | 839 | |
Translation reserve |
| 3,801 | 3,288 | |
(Accumulated losses)/retained earnings |
| (10,605) | (10,765) | |
Total equity |
| 43,406 | 42,868 | |
Statements of changes in equity
for the year ended 30 June 2020
| Share capital, share premium, ESOT shares and treasury shares £'000 | Share based payments reserve £'000 | Translation reserve £'000 | Accumulated losses £'000 | Total £'000 | Non-controlling interests £'000 | Total equity £'000 |
Group |
|
|
|
|
|
|
|
At 30 June 2018 | 49,500 | 1,108 | 2,645 | (13,939) | 39,314 | 82 | 39,396 |
Profit for the year | - | - | - | 11,149 | 11,149 | 44 | 11,193 |
Other comprehensive | - | - | 643 | (392) | 251 | - | 251 |
| 49,500 | 1,108 | 3,288 | (3,182) | 50,714 | 126 | 50,840 |
Transactions with owners: |
|
|
|
|
|
|
|
Dividends | - | - | - | (7,787) | (7,787) | (34) | (7,821) |
Issue of share capital | 6 | (472) | - | 466 | - | - | - |
Share based payments | - | 203 | - | - | 203 | - | 203 |
Tax on share based payments | - | - | - | (48) | (48) | - | (48) |
Movements in non-controlling interest | - | - | - | (214) | (214) | (92) | (306) |
At 30 June 2019 | 49,506 | 839 | 3,288 | (10,765) | 42,868 | - | 42,868 |
Effect of initial application of IFRS 16 | - | - | - | (180) | (180) | - | (180) |
Tax relating to initial application of IFRS 16 | - | - | - | 34 | 34 | - | 34 |
At 1 July 2019 | 49,506 | 839 | 3,288 | (10,911) | 42,722 | - | 42,722 |
Profit for the year | - | - | - | 4,674 | 4,674 | - | 4,674 |
Other comprehensive | - | - | 513 | (121) | 392 | - | 392 |
| 49,506 | 839 | 3,801 | (6,358) | 47,788 | - | 47,788 |
Transactions with owners: |
|
|
|
|
| - |
|
Dividends | - | - | - | (4,378) | (4,378) | - | (4,378) |
Issue of share capital | 3 | (242) | - | 239 | - | - | - |
ESOT share purchases | (497) | - | - | - | (497) | - | (497) |
Sale of treasury shares | 3 | - | - | - | 3 | - | 3 |
Share based payments | - | 598 | - | - | 598 | - | 598 |
Tax on share based payments | - | - | - | (108) | (108) | - | (108) |
At 30 June 2020 | 49,015 | 1,195 | 3,801 | (10,605) | 43,406 | - | 43,406 |
Cash flow statements
for the year ended 30 June 2020
| Notes |
|
| ||
Year ended 30 June 2020 '000 | Year ended 30 June 2019 '000 |
| |||
Cash flows from operating activities |
|
|
|
| |
Cash generated from operations before adjusting items | 17 | 26,512 | 26,439 |
| |
Cash flows for adjusting items - operating activities |
| (293) | (810) |
| |
Cash flows from share based payments |
| (16) | (33) |
| |
Cash generated from operations |
| 26,203 | 25,596 |
| |
Interest paid |
| (1,632) | (1,943) |
| |
Tax paid |
| (4,377) | (3,943) |
| |
Net cash generated from operating activities |
| 20,194 | 19,710 |
| |
Cash flows from investing activities |
|
|
|
| |
Purchase of businesses net of cash acquired |
| - | (79) |
| |
Sale of subsidiary net of cash disposed |
| - | 60 |
| |
Deferred consideration paid |
| (1,957) | (1,522) |
| |
Deferred consideration received |
| 200 | - |
| |
Purchase of non-controlling interests |
| - | (224) |
| |
Cash flows for adjusting items - investing activities |
| (217) | (405) |
| |
Purchase of property, plant and equipment |
| (538) | (1,332) |
| |
Proceeds from disposal of property, plant and equipment |
| 27 | 112 |
| |
Purchase of intangible assets |
| (3,315) | (2,324) |
| |
Net cash used in investing activities |
| (5,800) | (5,714) |
| |
Cash flows from financing activities |
|
|
|
| |
Dividends paid to owners of the parent |
| (4,378) | (7,787) |
| |
Dividends paid to non-controlling interests |
| - | (34) |
| |
Share issuance costs |
| (3) | (6) |
| |
Payment of lease liabilities |
| (2,392) | - |
| |
Purchase of shares by ESOT |
| (497) | - |
| |
Fees relating to new and extended loan facility |
| (741) | (24) |
| |
Increase in bank loans |
| 14,000 | 6,000 |
| |
Decrease in bank loans |
| (7,000) | (15,399) |
| |
Net cash used in financing activities |
| (1,011) | (17,250) |
| |
Net increase/(decrease) in cash and cash equivalents, net of bank overdrafts |
| 13,383 | (3,254) |
| |
Cash and cash equivalents, net of bank overdrafts at beginning of the year |
| 7,921 | 11,033 |
| |
Exchange gain on cash and cash equivalents |
| 122 | 142 |
| |
Cash and cash equivalents, net of bank overdrafts |
| 21,426 | 7,921 |
| |
Reconciliation of net debt |
|
|
|
| |
Cash and cash equivalents at beginning of the year |
| 7,921 | 10,789 |
| |
Cash classified as held for sale |
| - | 244 |
| |
Bank overdrafts at beginning of the year |
| - | - |
| |
Bank loans at beginning of the year |
| (41,790) | (50,665) |
| |
Net debt at beginning of the year |
| (33,869) | (39,632) |
| |
Net increase/(decrease) in cash and cash equivalents, |
| 13,505 | (3,112) |
| |
Net (drawdown)/repayment in bank loans |
| (7,000) | 9,399 |
| |
Exchange loss on bank loans |
| (292) | (524) |
| |
Cash and cash equivalents at end of the year |
| 21,426 | 7,921 |
| |
Bank overdrafts at the end of the period |
| - | - |
| |
Bank loans at end of the year |
| (49,082) | (41,790) |
| |
Net debt at end of the year |
| (27,656) | (33,869) |
| |
Net debt at end of the year does not include lease liabilities of £13,121,000 (2019: nil).
Notes to the financial statements
1. Nature of the Financial Statements
The following financial information 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 year ended 30 June 2020 on which an unqualified report has been made by the Company's auditors.
Financial statements for the year ended 30 June 2019 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 2020 statutory accounts will be delivered in due course.
Copies of the Annual Report and Financial Statements will be made available to shareholders shortly and printed copies will be available from the Company's registered office at 10 Whitechapel High Street, London, E1 8QS.
2. Statement of accounting policies
The preliminary announcement for the year ended 30 June 2020 has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The accounting policies applied in this preliminary announcement are consistent with those reported in the Group's annual financial statements for the year ended 30 June 2019 along with new standards and interpretations which became mandatory for the financial year. Of these new standards and interpretations, the adoption of IFRS 16 led to a change in the Group's accounting policies.
3. Measures of profit
Reconciliation to profit on continuing activities before tax
To provide shareholders with additional understanding of the trading performance of the Group, adjusted EBITA has been calculated as profit before tax after adding back:
• amortisation of intangible assets excluding computer software;
• adjusting items (included in operating expenses);
• other income - gain on sale of subsidiary;
• share of loss of equity accounted investment; and
• net finance costs.
Adjusted profit before tax, adjusted EBITA and adjusted EBITDA reconcile to profit on continuing activities before tax as follows:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Profit before tax | 6,434 | 14,712 |
Amortisation of intangible assets excluding computer software | 4,797 | 5,049 |
Adjusting items (included in operating expenses) | 625 | 1,443 |
Other income - gain on sale of subsidiary | - | (1,906) |
Adjusted profit before tax | 11,856 | 19,298 |
Share of loss of equity accounted investment | - | 50 |
Net finance costs | 2,175 | 2,103 |
Adjusted operating profit ('adjusted EBITA') | 14,031 | 21,451 |
Depreciation of property, plant and equipment included in operating expenses | 1,105 | 1,359 |
Depreciation of right of use assets | 2,094 | - |
Amortisation of intangible assets - computer software | 2,080 | 1,477 |
Adjusted EBITA before depreciation ('adjusted EBITDA') | 19,310 | 24,287 |
4. Segmental information
In accordance with IFRS 8 the Group's operating segments are based on the operating results reviewed by the Board, which represents the chief operating decision maker.
The Group's organisational structure reflects the main communities to which it provides data, information, education and networking. The three divisions (Risk & Compliance, Professional and Healthcare) are the Group's segments and generate all of the Group's revenue. The Board considers the business from both a geographic and product perspective. Geographically, management considers the performance of the Group between the UK, North America, Europe (excluding the UK) and the Rest of the World.
a) Business segments
| Revenue Year ended 30 June 2020 £'000 | Profit Year ended 30 June 2020 £'000 | Revenue Year ended 30 June 2019 £'000 | Profit Year ended 30 June 2019 £'000 |
Risk & Compliance | 41,739 | 12,849 | 42,453 | 12,670 |
Healthcare | 40,993 | 3,260 | 46,310 | 7,337 |
Professional | 30,343 | 2,901 | 33,762 | 5,808 |
Group total | 113,075 | 19,010 | 122,525 | 25,815 |
Unallocated central overheads | - | (4,255) | - | (4,152) |
Share based payments | - | (724) | - | (212) |
| 113,075 | 14,031 | 122,525 | 21,451 |
Amortisation of intangible assets excluding computer software |
| (4,797) |
| (5,049) |
Adjusting items (included in operating expenses) |
| (625) |
| (1,443) |
Other income - gain on sale of subsidiary |
| - |
| 1,906 |
Finance costs |
| (2,175) |
| (2,103) |
Share of loss of equity accounted investment |
| - |
| (50) |
Profit before tax |
| 6,434 |
| 14,712 |
Taxation |
| (1,760) |
| (3,519) |
Profit for the financial year |
| 4,674 |
| 11,193 |
There are no intra-segmental revenues which are material for disclosure. Unallocated central overheads represent central costs that are not specifically allocated to segments. Total assets and liabilities for each reportable segment are not presented; as such, information is not provided to the Board.
b) Segmental information by geography
The UK is the Group's country of domicile and the Group generates the majority of its revenue from external customers in the UK. The geographical analysis of revenue is on the basis of the country of origin in which the customer is invoiced:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
UK | 65,793 | 69,839 |
Europe (excluding the UK) | 21,037 | 22,055 |
North America | 18,042 | 20,829 |
Rest of the World | 8,203 | 9,802 |
Total revenue | 113,075 | 122,525 |
c) Timing of revenue recognition
The timing of the Group's revenue recognition is as follows:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Revenue from products and services transferred at a point in time | 59,524 | 51,054 |
Revenue from products and services transferred over time | 53,551 | 71,471 |
Total revenue | 113,075 | 122,525 |
The value of revenue recognised in the year which was included in subscriptions and deferred revenue at the start of the year was £30,794,000 (2019: £28,384,000).
5. Profit from continuing operations
a) Profit for the year from continuing operations is stated after charging/(crediting):
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Depreciation of property, plant and equipment - included in operating expenses | 1,105 | 1,359 |
Depreciation of right of use assets | 2,094 | - |
Rent and rates relating to leases | 394 | 2,661 |
Amortisation of intangible assets - computer software | 2,080 | 1,477 |
Profit on disposal of property, plant and equipment | (7) | 36 |
Share based payments (including social security costs) | 724 | 212 |
Amortisation of intangible assets excluding computer software | 4,797 | 5,049 |
Adjusting items (included in operating expenses) | 625 | 1,443 |
Gain on sale of subsidiary | - | (1,906) |
Foreign exchange loss/(gain) (including forward currency contracts) | 14 | (55) |
Fees payable to the auditors for the audit of the Company and consolidated financial statements | 87 | 87 |
Fees payable to the auditors and their associates for other services: |
|
|
- The audit of the Company's subsidiaries pursuant to legislation | 152 | 154 |
- Audit related other services | 15 | 15 |
Rent and rates relating to leases reflect expenses incurred in relation to leasehold properties accounted for under IAS 17 (for the year ended 30 June 2019) and expenses incurred in relation to right of use assets that do not fall into scope for IFRS 16 (for the year ended 30 June 2020).
b) Adjusting items
The following items have been charged to the income statement during the year but are considered to be adjusting so are shown separately:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Costs relating to strategic activities | 218 | 74 |
Increase in liability for deferred consideration | 407 | 489 |
| 625 | 563 |
Impairment of loan receivable | - | 331 |
Costs associated with the change in CEO | - | 549 |
Other adjusting items (included in operating expenses) | 625 | 1,443 |
Amortisation of intangible assets excluding computer software | 4,797 | 5,049 |
Total adjusting items (classified in profit before tax) | 5,422 | 6,492 |
The increase in the liability for deferred consideration relates to adjustments to deferred consideration in respect of Interactive Medica Limited, and Evantage Consulting Limited that were settled in the year. The costs relating to strategic activities in the year to 30 June 2020 are in respect of strategic reviews of two of the Group's businesses, Central Law Training Limited and Wilmington Inese SL.
6. Operating expenses
| Year ended 30 June 2020 |
| Year ended 30 June 2019 | ||||
| Cost of sales £'000 | Administration £'000 | Total £'000 |
| Cost of sales £'000 | Administration £'000 | Total £'000 |
Operating expenses before depreciation and amortisation | 89,363 | 4,402 | 93,765 |
| 93,626 | 4,612 | 98,238 |
Depreciation of property, plant and equipment and right of use assets | 3,199 | - | 3,199 |
| 1,359 | - | 1,359 |
Amortisation of intangible assets - computer software | 2,080 | - | 2,080 |
| 1,477 | - | 1,477 |
Operating expenses before amortisation | 94,642 | 4,402 | 99,044 |
| 96,462 | 4,612 | 101,074 |
Amortisation of intangible assets - databases | 1,673 | - | 1,673 |
| 1,745 | - | 1,745 |
Amortisation of intangible assets - customer relationships | 1,309 | - | 1,309 |
| 1,501 | - | 1,501 |
Amortisation of intangible assets - brands | 1,241 | - | 1,241 |
| 1,185 | - | 1,185 |
Amortisation of intangible assets - publishing rights and titles | 574 | - | 574 |
| 618 | - | 618 |
Other adjusting items (note 5) | - | 625 | 625 |
| - | 1,443 | 1,443 |
Operating expenses | 99,439 | 5,027 | 104,466 |
| 101,511 | 6,055 | 107,566 |
7. Net finance costs
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Net finance costs comprise: |
|
|
Interest payable on bank loans and overdrafts | 1,587 | 1,921 |
Unwinding of the discount on royalty payments receivable | (142) | (127) |
Bank arrangement fees | 388 | 309 |
Notional interest on lease liabilities | 342 | - |
| 2,175 | 2,103 |
Included within bank arrangement fees are costs relating to the negotiations securing access to £15m of additional facility headroom through the Government's Coronavirus Large Business Interruption Scheme ('CLBILS').
8. Taxation
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Current tax |
|
|
UK corporation tax at current rates on UK profits for the year | 1,859 | 2,163 |
Adjustments in respect of previous years | 30 | (106) |
| 1,889 | 2,057 |
Foreign tax | 769 | 1,153 |
Adjustments in respect of previous years | (75) | 350 |
Total current tax | 2,583 | 3,560 |
Total deferred tax | (823) | (41) |
Taxation | 1,760 | 3,519 |
Factors affecting the tax charge for the year:
The effective tax rate is higher (2019: higher) than the average rate of corporation tax in the UK of 19.00% (2019: 19.00%). The differences are explained below:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Profit before tax | 6,434 | 14,712 |
Profit before tax multiplied by the average rate of corporation tax in the year of 19.00% | 1,222 | 2,795 |
Tax effects of: |
|
|
Foreign tax rate differences | 48 | 384 |
Adjustment in respect of previous years | (45) | 244 |
Other items not subject to tax | 328 | 96 |
Effect on deferred tax of change of corporation tax rate | 207 | - |
Taxation | 1,760 | 3,519 |
Deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal.
The Company's profits for this accounting year are taxed at an effective rate of 27.4% (2019: 23.9%).
Included in other comprehensive income are a tax charge of £27,000 (2019: £8,000) and a tax credit of £55,000 (2019: £99,000 credit) relating to the interest rate swaps and net investment hedges respectively.
The tax effect of adjusting items as disclosed in note 10 is a credit of £712,000 (2019: £475,000).
9. Dividends
Amounts recognised as distributions to owners of the parent in the year:
| Year ended 30 June 2020 Pence per share | Year ended 30 June 2019 Pence per share | Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Final dividends recognised as distributions in the year | 5.0 | 4.8 | 4,378 | 4,200 |
Interim dividends recognised as distributions in the year | - | 4.1 | - | 3,587 |
Total dividends paid |
|
| 4,378 | 7,787 |
Final dividend proposed | - | 5.0 | - | 4,375 |
In light of the exceptional circumstances currently prevailing and to ensure that sufficient cash reserves remain within the business to tackle the impacts of Covid-19 the Board cancelled the interim dividend due to be paid 9 April 2020 and is not proposing a final dividend for the year ended 30 June 2020.
10. Earnings per share
Adjusted earnings per share has been calculated using adjusted earnings calculated as profit after taxation and non-controlling interests but before:
• amortisation of intangible assets excluding computer software; • adjusting items (included in operating expenses); and • other income - gain on sale of subsidiary. |
The calculation of the basic and diluted earnings per share is based on the following data:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Earnings from continuing operations for the purpose of basic earnings per share | 4,674 | 11,149 |
Add/(remove): |
|
|
Amortisation of intangible assets excluding computer software | 4,797 | 5,049 |
Adjusting items (included in operating expenses) | 625 | 1,443 |
Other income - gain on sale of subsidiary | - | (1,906) |
Tax effect of adjustments above | (712) | (475) |
Adjusted earnings for the purposes of adjusted earnings per share | 9,384 | 15,260 |
| Number | Number |
Weighted average number of ordinary shares for the purposes of basic and adjusted earnings per share | 87,590,511 | 87,513,422 |
Effect of dilutive potential ordinary shares: |
|
|
Future exercise of share awards and options | 1,254,878 | 719,509 |
Weighted average number of ordinary shares for the purposes of diluted and adjusted diluted earnings per share | 88,845,389 | 88,232,931 |
Basic earnings per share | 5.33p | 12.74p |
Diluted earnings per share | 5.26p | 12.64p |
Adjusted basic earnings per share ('adjusted earnings per share') | 10.71p | 17.44p |
Adjusted diluted earnings per share | 10.56p | 17.30p |
11. Goodwill
| £'000 |
Cost |
|
At 1 July 2018 | 109,824 |
Exchange translation differences | 432 |
At 30 June 2019 | 110,256 |
Exchange translation differences | 341 |
At 30 June 2020 | 110,597 |
Accumulated impairment |
|
At 1 July 2018, 30 June 2019 and 30 June 2020 | 32,721 |
Net book amount |
|
At 30 June 2020 | 77,876 |
At 30 June 2019 | 77,535 |
At 30 June 2018 | 77,103 |
As at 30 June 2020 the Group had recognised goodwill of £77.9m (2019: £77.5m) with the movement fully attributable to foreign exchange. Goodwill arising on business combinations is not amortised but reviewed for impairment on an annual basis, or more frequently if there are indications that goodwill may be impaired. Determining whether the carrying value of acquired goodwill is recoverable is a significant judgement given the material nature of the goodwill balance and the significant assumptions underpinning management's impairment assessment of the Group's cash generating units ('CGUs').
The recoverable amount for each CGU has been determined using value in use calculations. These calculations use the pre-tax future cash flow forecasts covering a three year period based on Board approved budgets. Pre-tax cash flows beyond the three year period are then extrapolated using estimated long term growth rates. Key assumptions for the value in use calculations are those regarding discount rates, three year cash flow forecasts and long term growth rates.
Discount rates
Management has applied pre-tax discount rates as follows:
Territory | Year ended 30 June 2020 (%) | Year ended 30 June 2019 (%) |
United Kingdom | 11.2 | 10.5 |
United States | 12.1 | 11.3 |
Spain | 11.8 | 11.6 |
France | 12.4 | 11.0 |
Pre-tax discounts rates are calculated on a company specific participant basis, movements in the pre-tax discount rates for CGUs since the prior year are driven by changes in company specific market-based inputs. Management considers the pre-tax discount rates to be calculated using appropriate methodology. The rates are in in line with its peers, and the Board views the rates as accurately reflecting the return expected by a market participant.
Three year cash flow forecasts and Covid-19
The three year cash flow forecasts which drive the value in use calculations take into account the impact of Covid-19, they assume no face-to-face training or events for the remainder of the 2020 calendar year with a gradual return thereafter. They also assume a general recessionary impact on products which are not reliant on face-to-face delivery. Given these unprecedented times, the outlook remains uncertain however management believes these cash flows reflect a reasonable scenario.
Compliance Week
For Compliance Week, the value in use exceeds the carrying value by 36% (2019: 6%). The increase in headroom is due to a fall in the asset value of the business in the year due to amortisation and increased three year cash flow forecasts which are based on better performance in the business's core subscription product and the assumed gradual return to face-to-face events. The impairment review of Compliance Week is sensitive to a reasonably possible change in the key assumptions used, most notably the projected cash flows and the pre-tax discount rate. The value in use exceeds the carrying value unless any of the assumptions are changed as follows:
· a decrease in the projected operating cash flows of 35% in each of the next three years; or · an increase in the pre-tax discount from 12.1% to 17.0%.
|
UK Healthcare
The UK Healthcare CGU has a relatively high goodwill carrying value due to a number of fairly recent acquisitions. The healthcare industry, and consequently our Healthcare business, has been disrupted by the Covid-19 pandemic and the planned growth in the CGU in the year has not been delivered. The value in use calculation exceeds the goodwill carrying value by 30% (2019: 123%). The value in use calculation assumes growth in years two and three of the three year cash flow forecast driven by both a return to normality for revenue streams disrupted by Covid-19 and the success of new products being developed and launched through our NPD process. Management has performed sensitivities on this CGU and the value in use exceeds the carrying value unless any of the assumptions are changed as follows:
· a decrease in the projected operating cash flows of 24% in each of the next three years; · a decrease in the forecasted cash flows associated with new products being developed through our NPD process of 69% in each of the next three years; or · an increase in the pre-tax discount rate from 11.2% to 14.7% |
Management will continue to monitor performance against the assumptions made as the Covid-19 pandemic progresses.
As a result of the increased integration of the UK Healthcare businesses into one single UK Healthcare business, it is no longer possible to identify cash flows generated by Interactive Medica independently from the other UK Healthcare businesses. Therefore, going forward Interactive Medica will be included in the UK Healthcare CGU from the year ending 30 June 2021. As such the year ended 30 June 2020 will be the final year in which Interactive Medica is disclosed as a separate CGU.
The following table details the net book amount of each CGU:
CGU | 30 June 2020 £'000 | 30 June 2019 £'000 |
UK Healthcare | 21,182 | 21,182 |
Axco and Pendragon | 11,150 | 11,150 |
Accountancy | 8,307 | 8,307 |
Legal | 6,830 | 6,830 |
AMT | 6,203 | 6,203 |
Compliance | 7,972 | 7,972 |
Compliance Week | 4,854 | 4,732 |
FRA | 7,550 | 7,331 |
Business Intelligence | 3,240 | 3,240 |
Interactive Medica | 588 | 588 |
| 77,876 | 77,535 |
12. Intangible assets
Group | Computer software £'000 | Databases £'000 | Customer relationships £'000 | Brands £'000 | Publishing rights and titles £'000 | Total £'000 |
Cost |
|
|
|
|
|
|
At 1 July 2018 | 10,193 | 16,741 | 24,802 | 13,633 | 30,289 | 95,658 |
Additions | 2,324 | - | - | - | - | 2,324 |
Acquisitions | - | - | - | - | 104 | 104 |
Disposal | (326) | - | - | - | - | (326) |
Exchange translation differences | (17) | 30 | 167 | 124 | - | 304 |
At 30 June 2019 | 12,174 | 16,771 | 24,969 | 13,757 | 30,393 | 98,064 |
Additions | 3,215 | - | - | - | 100 | 3,315 |
Disposal | (62) | - | - | - | - | (62) |
Exchange translation differences | 111 | 24 | 135 | 100 | - | 370 |
At 30 June 2020 | 15,438 | 16,795 | 25,104 | 13,857 | 30,493 | 101,687 |
Accumulated amortisation |
|
|
|
|
|
|
At 1 July 2018 | 6,642 | 12,048 | 17,096 | 5,496 | 27,071 | 68,353 |
Charge for the year | 1,477 | 1,745 | 1,501 | 1,185 | 618 | 6,526 |
Disposals | (251) | - | - | - | - | (251) |
Exchange translation differences | (18) | 17 | 123 | 101 | - | 223 |
At 30 June 2019 | 7,850 | 13,810 | 18,720 | 6,782 | 27,689 | 74,851 |
Charge for the year | 2,080 | 1,673 | 1,309 | 1,241 | 574 | 6,877 |
Disposals | (62) | - | - | - | - | (62) |
Exchange translation differences | 135 | 13 | 73 | 88 | - | 309 |
At 30 June 2020 | 10,003 | 15,496 | 20,102 | 8,111 | 28,263 | 81,975 |
Net book amount |
|
|
|
|
|
|
At 30 June 2020 | 5,435 | 1,299 | 5,002 | 5,746 | 2,230 | 19,712 |
At 30 June 2019 | 4,324 | 2,961 | 6,249 | 6,975 | 2,704 | 23,213 |
At 30 June 2018 | 3,551 | 4,693 | 7,706 | 8,137 | 3,218 | 27,305 |
13. Property, plant and equipment
Group | Land, freehold and leasehold buildings '000 | Fixtures and fittings £'000 | Computer equipment £'000 | Motor vehicles '000 | Total '000 | Right of use assets '000 |
Cost |
|
|
|
|
|
|
At 1 July 2018 | 5,283 | 4,033 | 3,900 | 460 | 13,676 | - |
Additions | 248 | 324 | 302 | 135 | 1,009 | - |
Acquisitions | - | - | 13 | - | 13 | - |
Disposals | - | (786) | (477) | (198) | (1,461) | - |
Exchange translation differences | - | 14 | 7 | - | 21 | - |
At 30 June 2019 | 5,531 | 3,585 | 3,745 | 397 | 13,258 | - |
Transition to IFRS 16 (note 18) | (273) | - | - | - | (273) | 11,043 |
At 1 July 2019 | 5,258 | 3,585 | 3,745 | 397 | 12,985 | 11,043 |
Additions | - | 126 | 369 | 43 | 538 | 2,854 |
Disposals | - | (23) | (114) | (63) | (200) | - |
Exchange translation differences | 2 | 17 | 17 | - | 36 | (43) |
At 30 June 2020 | 5,260 | 3,705 | 4,017 | 377 | 13,359 | 13,854 |
Accumulated depreciation |
|
|
|
|
|
|
At 1 July 2018 | 959 | 2,961 | 3,059 | 234 | 7,213 | - |
Charge for the year | 325 | 491 | 452 | 91 | 1,359 | - |
Disposals | - | (693) | (467) | (153) | (1,313) | - |
Acquisitions | - | - | 13 | - | 13 | - |
Exchange translation differences | - | 11 | 8 | - | 19 | - |
At 30 June 2019 | 1,284 | 2,770 | 3,065 | 172 | 7,291 | - |
Charge for the year | 287 | 263 | 483 | 72 | 1,105 | 2,094 |
Disposals | - | (14) | (114) | (52) | (180) | - |
Exchange translation differences | (5) | 35 | (20) | (1) | 9 | - |
At 30 June 2020 | 1,566 | 3,054 | 3,414 | 191 | 8,225 | 2,094 |
Net book amount |
|
|
|
|
|
|
At 30 June 2020 | 3,694 | 651 | 603 | 186 | 5,134 | 11,760 |
At 30 June 2019 | 4,247 | 815 | 680 | 225 | 5,967 | - |
At 30 June 2018 | 4,324 | 1,072 | 841 | 226 | 6,463 | - |
Included in land, freehold and leasehold buildings is £970,000 (2019: £970,000) of non-depreciated land.
Depreciation of property, plant and equipment is charged to operating expenses within the income statement.
14. Trade and other receivables
|
|
| ||
| 30 June 2020 £'000 | 30 June 2019 £'000 |
| |
Current |
|
|
| |
Trade receivables | 20,752 | 23,058 |
| |
Prepayments and other receivables | 4,774 | 6,054 |
| |
| 25,526 | 29,112 |
| |
15. Trade and other payables
|
| ||
| 30 June 2020 £'000 | 30 June 2019 £'000 |
|
Trade and other payables | 27,030 | 26,374 |
|
Subscriptions and deferred revenue | 31,465 | 30,794 |
|
| 58,495 | 57,168 |
|
16. Lease liabilities
The following table shows the discounted lease liabilities included in the Group balance sheet:
|
|
| ||
30 June 2020 £'000 | 30 June 2019 £'000 |
| ||
Current | 2,660 | - |
| |
Non-current | 10,461 | - |
| |
| 13,121 | - |
| |
17. Cash generated from operations
|
|
| ||
Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
| ||
Profit from continuing operations before income tax | 6,434 | 14,712 |
| |
Gain on sale of subsidiary | - | (1,906) |
| |
Adjusting items | 625 | 1,443 |
| |
Depreciation of property, plant and equipment included in operating expenses | 1,105 | 1,359 |
| |
Depreciation of right of use assets | 2,094 | - |
| |
Amortisation of intangible assets | 6,877 | 6,526 |
| |
(Profit)/loss on disposal of property, plant and equipment | (7) | 36 |
| |
Share based payments (including social security costs) | 724 | 212 |
| |
Share of loss of equity accounted investment | - | 50 |
| |
Finance costs | 2,175 | 2,103 |
| |
Operating cash flows before movements in working capital | 20,027 | 24,535 |
| |
Decrease/(increase) in trade and other receivables | 3,279 | (258) |
| |
Increase/(decrease) in trade and other payables | 3,206 | 2,162 |
| |
Cash generated from operations before adjusting items | 26,512 | 26,439 |
| |
Cash conversion is calculated as a percentage of cash generated by operations to adjusted EBITA as follows:
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Funds from operations before adjusting items: |
|
|
Adjusted EBITA (note 3) | 14,031 | 21,451 |
Share based payments (including social security costs) | 724 | 212 |
Amortisation of intangible assets - computer software | 2,080 | 1,477 |
Depreciation of right of use assets | 2,094 | - |
Depreciation of property, plant and equipment included in operating expenses | 1,105 | 1,359 |
(Profit)/loss on disposal of property, plant and equipment | (7) | 36 |
Operating cash flows before movement in working capital | 20,027 | 24,535 |
Net working capital movement | 6,485 | 1,904 |
Funds from operations before adjusting items | 26,512 | 26,439 |
Cash conversion | 189% | 123% |
| Year ended 30 June 2020 £'000 | Year ended 30 June 2019 £'000 |
Free cash flow: |
|
|
Operating cash flows before movement in working capital | 20,027 | 24,535 |
Proceeds on disposal of property, plant and equipment | 27 | 112 |
Net working capital movement | 6,485 | 1,904 |
Interest paid | (1,632) | (1,943) |
Payment of lease liabilities | (2,392) | - |
Tax paid | (4,377) | (3,943) |
Purchase of property, plant and equipment | (538) | (1,332) |
Purchase of intangible assets | (3,315) | (2,324) |
Free cash flow | 14,285 | 17,009 |
18. Transition to IFRS 16
On 1 July 2019 the Group adopted the new accounting standard IFRS 16 Leases.
The Group has adopted the modified retrospective approach to application, using transitional reliefs available. It has not restated comparatives and on transition the Group recognised a cumulative adjustment to the opening balance of retained earnings at 1 July 2019. The Group has also made use of the following transitional reliefs:
· exclusion of initial direct costs from the measurement of the right of use asset at the date of application; · exemption from transition of leases with a remaining term less than twelve months; · application of the discount rate at the date of transition, rather that the date of lease commencement, to calculate the value of the lease liability; · leases for low value assets have been excluded from transition; and · the Group will not reassess whether a contract is or contains a lease, and the definition of a lease under IAS 17 will continue to apply to leases entered into before 1 July 2019. |
At the 1 July 2019 transition date, adoption of IFRS 16 resulted in the Group recognising right of use assets of £11.0m and lease liabilities of £12.6m. There is a reduction of £1.6m to other payables in respect of accrued rent free amounts netted against the right of use asset. There is a £0.1m opening adjustment to retained earnings to reflect the difference between carrying values of right of use assets and lease liabilities at the transition date, and an associated deferred tax asset has also been recognised. There is also a £0.3m reclassification between property, plant and equipment and right of use assets, relating to an asset retirement obligation.
The weighted average incremental borrowing rate applied to the Group's lease liabilities on transition at 1 July 2019 was 2.7%.
Impact on the Consolidated Balance Sheet
The effect on the Consolidated Balance Sheet of the implementation of IFRS 16 Leases on 1 July 2019 is summarised below:
| Group | ||
| Reported 30 June 2019 (audited) | IFRS 16 adjustments 1 July 2019 | Adjusted 1 July 2019 (unaudited) |
| £'000 | £'000 | £'000 |
Non-current assets |
|
|
|
Property, plant and equipment | 5,967 | (273) | 5,694 |
Right of use assets | - | 11,043 | 11,043 |
Deferred tax assets | 555 | 34 | 589 |
Other non-current assets | 102,992 | - | 102,992 |
| 109,514 | 10,804 | 120,318 |
Current assets | 37,033 | - | 37,033 |
Total assets | 146,547 | 10,804 | 157,351 |
Current liabilities |
|
|
|
Trade and other payables | (57,168) | 1,616 | (55,552) |
Lease liabilities | - | (2,181) | (2,181) |
Other current liabilities | (1,862) | - | (1,862) |
| (59,030) | (565) | (59,595) |
Non-current liabilities |
|
|
|
Lease liabilities | - | (10,385) | (10,385) |
Other non-current liabilities | (44,649) | - | (44,649) |
Total liabilities | (103,679) | (10,950) | (114,629) |
Net assets | 42,868 | (146) | 42,722 |
|
|
|
|
Equity |
|
|
|
Share capital, share premium and treasury shares | 49,506 | - | 49,506 |
Other reserves | 4,127 | - | 4,127 |
Accumulated losses | (10,765) | (146) | (10,911) |
Total equity | 42,868 | (146) | 42,722 |
|
|
|
|
A reconciliation of the movement in the right of use asset in the year ended 30 June 2020 is included in note 13. Movements in the lease liability relating to the unwind of the discounted future lease payments is included in note 7. Amounts recognised through the consolidated income statement in respect of short term leases and low value leases are included in note 5. Payments of lease liabilities are disclosed in the cashflow.
Impact on the Consolidated Income Statement
For the year ended 30 June 2020 there was an income statement depreciation charge of £2.1m relating to right of use assets associated with IFRS 16 leases and an interest cost relating to the IFRS 16 lease liabilities of £0.3m.
Impact on the Consolidated Cash Flow Statement
Payments in respect of leases which were previously recognised within cash flows from operating activities are now recorded within cash flow from financing activities.
Reconciliation of operating lease commitments on transition
The following is a reconciliation of total operating lease commitments at 30 June 2019, as disclosed in the financial statements to 30 June 2019, to the lease liabilities recognised at 1 July 2019.
| £'000 |
Total operating lease commitments at 30 June 2019 | 17,379 |
Non lease components included in commitments | (2,907) |
Leases with remaining lease term less than twelve months | (702) |
Total undiscounted lease liabilities | 13,770 |
Discounted using incremental borrowing rate | (1,204) |
Total lease liabilities recognised under IFRS 16 at 1 July 2019 | 12,566 |
19. Events after the reporting period
Forward contracts
On 1 July 2020 the following forward contracts were entered in order to provide certainty in sterling terms of 80% of the Group's expected net US dollar income:
Currency | Amount (millions) | Maturity date | Foreign exchange rate |
US dollar | 1.5 | 31 July 2020 | 1.2398 |
US dollar | 1.0 | 30 October 2020 | 1.2414 |
US dollar | 1.0 | 18 December 2020 | 1.2417 |
US dollar | 1.0 | 29 January 2021 | 1.2424 |
US dollar | 1.0 | 26 February 2021 | 1.2426 |
US dollar | 2.0 | 30 April 2021 | 1.2431 |
US dollar | 1.5 | 28 May 2021 | 1.2433 |
Interest rate swap contracts
On 1 July 2020 the following interest rate swap contracts were entered into in order to offset part of the Group's variable interest payments and replace them with fixed payments:
· A $7.5m interest rate swap commencing on 1 July 2020 and ending on 1 October 2024, whereby the Group receives interest on $7.5m based on the USD LIBOR rate and pays interest on $7.5m at a fixed rate of 0.495%. · A £20.0m interest rate swap commencing on 1 July 2020 and ending on 1 October 2024, whereby the Group receives interest on £20m based on LIBOR rate and pays interest on £20m at a fixed rate of 0.395%. |
Included within both swaps is an embedded 0% LIBOR floor to align with the equivalent floor in the Group's revolving credit facility, ensuring the hedge remains effective if a negative LIBOR event were to arise.
Bank facility extension
To ensure the Group has sufficient facility headroom to deal with the most pessimistic trading scenarios the Board has agreed in principle with its lenders to access £15m of additional facility headroom through the Government's Coronavirus Large Business Interruption Scheme ('CLBILS') for twelve months from July 2020. Within finance costs the banking facility extension fees relate to the negotiations securing the loan.
END
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