WILMINGTON PLC Chairman's Statement
This is my first Chairman's Statement since taking over from Mark Asplin on 1 May 2018. Mark was a Director for 13 years and Chairman since 2011, and on behalf of the Board I would like to thank him for his significant contribution to the Group.
Strategy
I joined Wilmington at a challenging time for the Group but one which also offers significant opportunities. On the following pages of this announcement you will read about the progress the Group has made over the last year and how it is preparing to address the challenges it is facing. Specifically our prime goal is to achieve organic revenue and profit growth. It is no secret that the Group has found this hard over recent years but much work has already been done to reposition the business and to upgrade the infrastructure on which it operates.
Over the last four months I have been meeting as many people in the organisation as possible to learn about their businesses, to gain an understanding of the markets in which they operate and to discuss where the growth drivers lie. It is clear to me from these meetings that the Group comprises many businesses which provide highly valuable information and services to their customers. The challenge that we have is determining how best we can accelerate growth and identify where our capital should best be allocated. With this in mind I am working with the management team to review all parts of the business and our plans for growth.
Results and dividend
Overall financial performance was mixed, with strong cost control meaning we achieved good growth in adjusted profit despite revenue declining slightly on an organic basis. Overall profits have been impacted by one-off costs and by the non-cash impairment of the historical goodwill that we were carrying for the Law for Lawyers business, CLT. Cash generation was strong with net debt remaining unchanged year on year despite the significant investment in Group infrastructure and the purchase in February 2018 of Interactive Medica for £2.2m.
In light of this, and in recognition of the confidence it has in the future prospects of the Group, the Board is maintaining the previous progressive dividend policy that has been in place since 2013/14. The final dividend will be increased 4% to 4.8p (2017: 4.6p). Taken in conjunction with the increased interim dividend paid in April this takes the full year dividend to 8.8p, up 4% from the 8.5p paid in 2017. This was covered 2.3 times by adjusted earnings per share. It is the Board's intention to continue the progressive dividend policy whilst maintaining dividend cover of two times adjusted earnings per share.
Acquisitions and disposals
On 12 February 2018 Wilmington acquired the Interactive Medica group of companies ('IM') for initial consideration of €2.5m and further potential deferred consideration of up to €1.6m subject to IM achieving stretching annual revenue targets for the periods to 31 December 2019.
The addition of IM technology to our existing services not only enhances our existing healthcare product offerings in the UK, but will also increase our ability to access other European markets.
Shortly after the year end, on 18 July 2018, Wilmington sold its specialist credit reporting business ICP to its current management team for £3.0m. The transaction price will be paid over the next five years. The sale allows Wilmington to focus its resources on its core client communities and secure for shareholders a good return from historic investments. We wish our former colleagues at ICP well as they embark on the next phase of the development of their business.
Acquisitions have been an important part of the Wilmington growth story over recent years. In the immediate future, as explained above, our primary focus will be on deploying capital to achieve organic growth from our existing businesses. In time, we will continue to use acquisitions where we see clear opportunities which support that strategy.
People
We welcomed our new colleagues from IM into the Group in February. This took our headcount to around 1,000. As a digital information, education and networking business, we are reliant on the quality and professionalism of our people. On behalf of the Board I would like to thank them for their dedication and hard-work over the last twelve months and to wish them every success in the current financial year.
Board changes
In addition to my own appointment on 1 May 2018, the Board was pleased to welcome Richard Amos who joined as an Executive Director on 1 March 2018. Richard subsequently succeeded Anthony Foye as Chief Financial Officer on the latter's departure on 1 April 2018. The Board would like to record its gratitude to Anthony for his considerable contribution in the six years he was in post.
Current trading and outlook
In line with the guidance we issued for the current year in our trading update of 6 July, the Group is clearly focussed on improving revenue performance via organic growth. We continue to believe that many of the challenges we experienced in the last year were a result of the significant restructuring that was undertaken during the period. That restructuring is now behind us and at the same time the Group has made significant investments in IT platforms which provide a catalyst for growth.
For the year just started we anticipate achieving underlying revenue growth in each of our divisions albeit at relatively low levels. In total we retain the view, expressed in our trading update on 6 July that revenue growth will be in the low single digit percentage range. We continue to anticipate costs rising year on year to support that revenue growth and reflecting the non-repeatable nature of certain of last year's costs savings.
Overall the Board remains confident of achieving its expectations for the year just started and in the longer term prospects for the Group. Although representing a seasonally quiet period, the start of the year has reflected our expectations, with organic growth reported in Risk & Compliance and Professional. In Healthcare, although revenue is down reflecting the challenges from last year, sales in the UK in the first two months are flat year on year indicating the shift in momentum that we anticipate delivering over the course of the year.
Part of the strength of Wilmington lies in the stability provided by its breadth of businesses and business models. We operate in markets that have good long term growth characteristics and the divisions are well positioned to service those markets with strong brands, content and services. By focusing on the most attractive opportunities and by executing on our plans we believe we can restore the Group to delivering sustainable underlying revenue and profit growth which, in turn, will deliver significant value for shareholders.
Chief Executive Review
I am pleased to present my report on the year ended 30 June 2018. We have made significant progress over the course of the year with revenue and adjusted operating profit and earnings per share all increasing. We completed the move into our new London head office and upgraded our IT infrastructure, improving both its effectiveness and robustness. We made significant progress on the implementation of our digital platforms. We completed the integration of our UK healthcare assets, including those acquired with HSJ in 2017, into a single UK Healthcare business. And with Interactive Medica we acquired an additional healthcare software platform to strengthen our offering to pharmaceutical clients.
That was all achieved against a backdrop of some difficult trading conditions. With around 50% of Group revenue coming from the provision of information services, the implementation in Europe of the new General Data Protection Regulation ('GDPR') was an important challenge for us. We undertook significant work to prepare for it internally and also faced confusion and nervousness in our external markets as clients, particularly in the healthcare sector, got to grips with what it meant for their business and their ability to use data that we provide. Thankfully, following GDPR's launch on 25 May 2018, although the market is not completely back to historic levels, greater clarity is emerging on the practical implications of the new regulations, with industry best practice becoming established.
Recognising the market related challenges that the Ark business had in serving the legal support market over a number of years, and following an unsuccessful attempt to sell it, we closed the majority of that business at the start of last year. The remaining elements, which are networking events in the US and UK are now managed within the Healthcare division and we have restated our segmental reporting to reflect this.
Results summary
Against this backdrop Group revenue was up 1% to £122.1m (2017: £120.3m) and adjusted operating profit increased 5% to £24.6m (2017: £23.4m). The adjusted operating margin increased slightly to 20.1% (2017: 19.4%). Much of this growth came from acquisitions including the full year impact of the acquisition of HSJ in 2017. Adjusting for this and at constant currencies, on an 'organic' basis, revenue declined by 3% and adjusted operating profit by 2%. As highlighted in the review of operations below, much of the organic decline came in the Healthcare division, where difficult market conditions combined with the internal impact of significant restructuring activity resulted in declines in the UK healthcare businesses.
Despite the underlying decline in revenue, the impact on profit was mitigated by some robust cost reduction actions that were taken across the Group. This included reductions in discretionary spending, deferring of certain planned investments and restrictions on recruiting including the replacement of staff leaving the business. As explained in the Financial Review, certain of these actions were one-off in their nature and will not be replicable in the current financial year.
Strategy
Our strategy remains to provide information, education and networking products to our chosen communities. These are risk & compliance, healthcare and professional - lawyers, accountants and investment bankers. We have chosen these markets as we believe that they offer good sustainable growth opportunities and represent markets where we already have strong brands, products and content.
Over the last few years much of our growth has come from acquisitions as we have sought to broaden our product and geographic footprint. We see this work as largely complete and the focus of the Group is now on investing in the existing businesses to provide sustainable organic growth. That process is well underway, with last year seeing a number of key investments that, as set out below, position the Group well for future growth.
Acquisitions will remain a part of the strategy, albeit of a lower priority for the time being than in the past. Any acquisitions that we do undertake will be specifically to help accelerate the organic growth potential of existing assets. We would anticipate them being funded from internally generated cash or from our existing debt facilities, details of which are set out in the Financial Review.
Acquisitions
In the last year we concluded one relatively small acquisition, the purchase of Interactive Medica. This business was acquired to provide us with a software platform that can be used to deploy the various European information assets that we already provide to clients. It offers a cloud-based insight, CRM and key account management software solution. It provides pharmaceutical clients with the ability to collate, analyse and distribute multiple data sources to their sales force, including sources they have acquired from Wilmington Healthcare. It allows them to make much greater use of the information assets that they have within their organisations and enables us to become a more critical and better embedded supplier within their organisation. Already clients such as Bayer UK are seeing the benefit of the integrated nature of this offering and we plan to expand that to other top tier pharmaceutical clients over the next few years.
Vision 2020
Building on the work that we have done over the last three years in integrating the various businesses from across the Group, we have developed a new internal plan to take forward to 2020.
Vision 2020 recognises that personalisation of information is becoming key in the current environment as consumers become ever more bombarded by a plethora of data sources. The vision is that by 2020 Wilmington's chosen communities will benefit from personalised knowledge whenever and wherever they need it. It identifies six key work-streams to make that happen: customer engagement; new product development; information platforms; education platforms; culture and CSR; and communications. Over the next three years these work-streams will be our focus as an organisation to ensure that we develop along a common path. Ultimately we believe that they will allow us to develop unique and indispensable products and services for our chosen customers that will make us key partners to those communities, enabling us to build a sustainable and valuable business for shareholders.
Investments
During the year we made progress with a number of the investments that we had undertaken as a feature of Project Sixth Gear, the project to accelerate the integration of Wilmington. In total we spent £5.0m on capital expenditure in 2018 (2017: £2.9m). In addition £3.5m (2017: £1.8m) was expensed through the Income Statement in adjusting items as one-off costs ('Opex') associated with various restructuring and investment programmes, mainly related to the London office move and IT infrastructure upgrade. We have no plans for similar adjusting items in the current financial year.
New London head office (Capex £2.4m; Opex £3.1m)
We moved into our new London head office in Whitechapel in December. This office, which consolidates two previous locations is now home to around 30% of our global workforce. It is already providing significant benefits in terms of increased co-operation amongst now co-located teams and generating positive impacts on recruiting.
Associated with the office move, at the same time, we restructured our IT department and upgraded the IT infrastructure, outsourcing the provision of hosting and support globally to a third-party provider. This upgrade is taking place progressively and as at the end of August, some 90% of the Group's employees are now benefitting from the improved service.
These investments in infrastructure are not without cost. In total they add around £1.6m per annum to the cost base, of which around 50% was incurred in the last year. However, they were long over-due and without them our ability to operate as a modern digital business was seriously compromised. We are confident that they will deliver significant returns over the medium term.
New product development (Capex £1.0m)
£1.0m was spent on capital investment incurred for new product development. A significant part of this was invested in developing a new information product for the French healthcare market. This product, called APMi, is a French version of a product we acquired with HSJ in 2017. It provides participants in the French pharmaceutical market with information about key developments with local health services and hospitals. It was launched in July 2018 and the initial response from potential customers has been positive.
Other new product development largely revolved around supporting the roll out of Totara©, the group wide Learning Management System ('LMS') that we announced in the prior year. We had planned to spend £750k last year rolling this system out. In practice, due to the slower progress on revenue growth we deferred part of this spending, incurring around half of that last year, with the rest now planned for the current financial year. We have however achieved significant progress on the roll-out. There are now 130 courses live on Totara©, with FRA, UK Healthcare, Accountancy and CLT all live with Totara© deployments. Over the next financial year we expect to extend that to other businesses across the Group and also to expand the number and ranges of courses provided.
Providing blended online learning and face-to-face training remains a key element of our strategy. Although the use of online learning is undoubtedly increasing, its adoption is by no means ubiquitous. Many of our chosen communities continue to value face-to-face learning for its intensity and the networking opportunities that it provides. Being able to supplement focused face-to-face sessions with more flexible online learning resources provides best in class solutions and we will continue to invest in this as we develop our offerings.
Organisation
At the start of last year we welcomed Terry Sweeney into the organisation as the Divisional Director for Professional. Terry has a background in the development of online learning through a number of prior roles. Over the last twelve months I have worked with Terry to facilitate the integration of the Professional division from the seven discrete businesses from which it was created. That work has progressed well and the division now has much greater cohesion and consistency. This focus has led to better results in the past year. Going into this financial year, the main focus in Professional is the full integration of the Accountancy business which, whilst under a single management team, still has two separate organisations from its Mercia and SWAT heritage. Plans are well developed for these two organisations to fully integrate over the course of the next twelve months so that Accountancy clients in the UK are offered a single integrated service.
In my review last year, I explained our plan to invest significantly in new staff to drive growth opportunities. Unfortunately, this was not possible, as trading performance required us to take vigorous cost containment actions. We had planned to grow the headcount, mainly in the areas of content development and sales to support the growth plan, but in the event the full time equivalent headcount reduced by 24 to 849 at 30 June 2018 (30 June 2017: 856 plus 17 acquired with Interactive Medica). This was as a result of cost reduction actions taken in recognition of the in-year trading performance. As we go into the current year we anticipate recruiting around 30 new heads across the year to support our growth plans.
Review of operations
Note that variances described below as 'organic' are after adjusting for acquisitions and at constant currency rates.
Risk & Compliance
2018 2017 Absolute Organic
Variance Variance
£'m £'m % %
Revenue
Compliance 27.4 27.2 1% 2%
Risk 15.5 15.1 3% -2%
Total 42.9 42.3 1% 1%
Operating profit 12.9 12.3 5% 1%
Margin % 30% 29%
Business model
Our major compliance business, which was developed organically within Wilmington, is the International Compliance Association ('ICA'), an industry body that we created in 2002 and which offers professional development and support to compliance officers predominantly in the financial services sector. Revenue earned by the business is primarily training income that we receive for running development courses and associated examinations that allow the applicants to achieve their professional accreditation. We now offer 43 accredited qualifications, ranging from entry level 'affiliates' up to post graduate diplomas and masters degrees. These accreditations are awarded in association with the University of Manchester's Alliance Manchester Business School and we retain a panel of independent academic professionals who teach, set exams and carry out assessments. Additional revenue comes in the form of subscriptions paid by the professional members for their accreditation. These are either paid individually, or increasingly via corporate subscriptions maintained by their employers. In total, revenue from ICA and associated training accounts for around 55% of the total Compliance revenue.
Additional revenue in Compliance is earned through running face-to-face and online courses for in-house programmes for financial institutions and wealth managers. The material for these courses is developed by our own internal R&D team, and we own the associated intellectual property. Revenue is earned per course attendee. Further revenue is earned from subscription services including provision of detailed information on regulations in the UK pensions industry and 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. Services provided include in-depth regulatory information and market intelligence and analysis. In addition, the division provides networking events and training specifically focussed on the Spanish insurance market. Revenue is predominantly earned through subscriptions to the information and analysis services and from attendance fees and sponsorship at the networking events and training courses.
Market
The overall market for compliance remains strong, with increasing demand for regulation across the financial services sector. This is helping drive increased interest in related professional qualifications. The industry is however maturing which is changing how organisations manage their compliance needs. The creation of more internal teams at financial services institutions means that employee wide training is tending now to be conducted by in-house teams rather than being outsourced as was previously the case. For us, this is resulting in a shift in revenue away from the large multi attendee programmes that Wilmington has previously provided to more bespoke development and 'train the trainer' programmes. Aside from this, consolidation of the wealth management industry and the maturing of the defined benefit pension industry in the UK has meant that market conditions for the segments addressed by our Compliance business have been largely flat.
The principal feature of the risk market has been consolidation amongst the major insurance industry players which has resulted in some reduction in addressable market. Additionally, traditional insurers have been impacted by the entry into the market of new 'InsurTech' players who in many cases are seeking to disrupt the existing market. Offsetting this, the underlying demand for insurance products continues to grow, with newer threats such as cyber risk gaining increased attention. Overall this is helping to balance the market for the services we provide.
Trading performance
Against this backdrop, the overall Risk & Compliance division performed well, delivering 1% absolute and organic revenue growth.
Revenue in the Compliance businesses grew 2% organically. This growth came primarily from the ICA and related training that grew organically 5% despite the effect of declines in the major in-house programmes. The growth was driven in part by the success of the professional membership scheme that we introduced in the ICA in the prior year. Accredited paid memberships increased by around 50% to over 12,000 and the mix improved as an increasing number of participants progressed to higher level accreditations. Additionally the business benefited from a programme of geographic expansion, particularly in Asia Pacific, where for example, work with the Malaysian financial services regulator saw an encouraging uptake in local public and in-house training courses.
Other Compliance businesses were overall flat, with growth in Compliance Week offset by a decline in training for wealth managers. Revenue in pensions compliance was essentially flat. In recognition of the market challenges in the wealth management area we have restructured that business, with new management, a closer operational integration with the other compliance businesses and an ongoing refresh of course materials. This includes the development of more online learning which we believe will open up new markets in what is geographically a very diverse industry.
Our strategy with Compliance Week has been to build up its position at the heart of its community and hence reduce dependence on traditional publishing income. That has been successful over the last year with further revenue from lead generation services developed through its strong position in the industry. Additionally increased revenue came from associated events, including a very successful flagship annual conference held in May in Washington DC and the growing Compliance Week Europe event held in November each year. The appointment of a new editorial team just prior to the year end has been aimed at improving online content for its digital publication and with it the value proposition to subscribers to drive further growth.
The Risk businesses overall reported a 2% organic decline in revenue. This was in part driven by the credit referencing business, ICP which was affected by trading weakness in its Middle Eastern customer base resulting in a 7% organic decline. We subsequently sold this business shortly after the year end.
Axco, our insurance information business also had a challenging year, as consolidation in its customer base resulted in a 2% reduction in revenue at constant currency, despite 4% growth overall. Going forward we have a new management team running the business who are seeking to widen the product portfolio and enhance the value generated from the unique database of global information that the business owns.
Inese, our Spanish insurance industry expert, had a good year, recording 2% organic growth. Much of this came from the investment made in the prior year in opening an office in Barcelona where we have run increased numbers of training courses and events targeting the local market.
Divisional operating profit was up 5% in absolute terms to £12.9m (2017: £12.3m). On an organic basis the operating profit increase was 1% as the organic revenue growth fed through to margin. Operating margin was up slightly to 30% (2017: 29%) as the currency benefits and strong cost control offset inflation. In particular, a focus on higher margin products in Compliance Week has resulted in an improved mix that boosted underlying margins.
Healthcare
2018 2017* Absolute Organic
Variance Variance
£'m £'m % %
Revenue
European Healthcare 27.8 23.8 17% -8%
US Healthcare 8.9 10.7 -17% -12%
Other Information businesses 7.9 8.0 -1% -2%
Total 44.6 42.5 5% -8%
Operating profit 9.9 9.4 5% -7%
Margin % 22% 22%
* 2017 comparatives have been restated to include business lines previously managed within Professional
Business model
Wilmington's businesses which serve the healthcare community offer a range of products predominantly around the provision of market and customer intelligence. Wilmington's Healthcare division combines these information assets with others that provide similar services to a number of other communities including charities and not for profit organisations.
Wilmington's European Healthcare businesses operate predominantly in the UK and France, although with the recent acquisition of Interactive Medica, we now have the ability to serve a wider pan-European market. Services provided include the provision of deep insight information on the UK and French health sector markets that enable participants in those markets to better understand and connect with their customers. Additionally we provide market participants with online education in the workings of the UK healthcare industry and, following its acquisition in 2017, we publish the Health Service Journal ('HSJ') the leading online publication in the UK for Healthcare leaders. Associated to that we organise networking and training events including the flagship HSJ Awards. The majority of revenue in this area is earned through subscription services either for the provision of information or for access to regular publications and training courses. Additionally, revenue from certain information provided on a bespoke basis is recognised when delivered. Events are typically funded by supplier sponsorship although this is occasionally augmented by delegate charges.
The US Healthcare businesses predominantly represent the industry events that were acquired with FRA in July 2015. These serve the US healthcare and to a lesser extent the US financial services communities. The prime brand is the RISE series of events that address the Medicare and Medicaid markets, for which the flagship event is RISE Nashville which takes place in March each year. Revenue from these events is generated both through sponsorship and delegate sales.
The Other Information businesses represent a portfolio of legacy products including data suppression and charity information. They include services that are increasingly being used by organisations to help prevent identify fraud. Revenue is traditionally earned through subscription to the relevant data feed.
Markets
Generally, spend on healthcare globally is increasing due to well publicised demographic changes. There is increasing pressure on funding sources, either public or private which is resulting in significant industry-wide efficiency initiatives. These 'value based' healthcare initiatives rely on perceptive insight into the healthcare market to ensure that investment, treatments, drugs and marketing effort are all tightly focussed to be as effective and efficient as possible. The businesses that Wilmington owns in this area provide that insight and hence we believe are well positioned to deliver long term growth.
Over the last twelve months provision of these services has been impacted by the enactment of new European data protection regulations 'GDPR', which tighten regulation around the management and use of personal data. Ultimately this will be a good thing for our industry, as it will raise the standard required by companies providing such services and provide additional barriers to new entrants. However in this first year of adoption it has caused some market disruption, as purchasers and users of the data, our customers, defer plans as they seek to understand how the new regulations affect them and their programmes. We saw the impact of this in the first half of the year, and it continued into the second half and up to the launch of GDPR in May. Subsequently, the market is settling down as custom and practice are being recognised, but it continues to have a diminishing effect on year on year comparisons.
Trading performance
Overall revenue for the Healthcare division increased 5% to £44.6m (2017: £42.5m). This comparison is however affected by both currency movements and more significantly by the effect of the acquisitions of HSJ and Interactive Medica in January 2017 and February 2018 respectively. Adjusting for these factors, underlying revenue decreased on an organic basis by 8%. Both the UK and US healthcare businesses saw significant organic declines, with the Other Information businesses showing a 2% reduction reflecting a decline in some of its older legacy products offset by good growth from the newer identity fraud prevention products.
The European Healthcare businesses combined saw an 8% organic revenue reduction, with a more significant decline in the UK offsetting 4% growth in France. The UK decline was in part caused by market conditions as we felt the impact of the GDPR related delays noted above. However in addition to this, levels of business activity were affected by the actions that we took to integrate the various UK healthcare assets that existed within Wilmington into a single UK Healthcare business. Organisationally we restructured the sales organisation to move from a product focus to an account sales model. Operationally we integrated all of the entities and implemented a new CRM system. We transitioned the HSJ operations from the systems and processes of its previous owners onto new Wilmington infrastructure and we relocated significant numbers of staff to new offices, including as part of the London head office move.
This focus on operational integration impacted sales effectiveness which led to a greater than expected effect on growth plans. Combined with the market factors described above, this resulted in the reduction in UK revenue. Actions on the cost base were taken to mitigate the effect on profit including reductions in discretionary spending and hiring restrictions. As discussed in our trading update in July, this will have a consequential effect in terms of growth aspirations for the coming year.
Revenue in the US Healthcare businesses saw a 12% organic reduction although this reflected a deliberate plan. At the time of its acquisition, FRA, which makes up the majority of this business, was consistently adding more events to drive top-line growth. Whilst this was good for revenue, many of the events that were added were proving only marginally profitable. Having run them for a couple of years it became apparent to us that there was not the long-term appetite for many of these events amongst either sponsors or delegates and indeed a number were proving harder to sell to both customer bases. As a result we took the decision in the year to rationalise our portfolio and remove the cost that supported it. The number of events was reduced from 89 to 56 and this resulted in the significant reported reduction in revenue. However associated cost savings more than offset this such that the operating profit made by the business increased organically by around 30% and brought the margin back to in excess of 20%. Part of that increased margin was also a result of the success of the RISE franchise of events that are at the core of the business's ongoing programme. RISE now comprises six related events across the year, accounting for more than half of the business's revenue and operating profit. Building on the RISE franchise, we launched a RISE Institute, to develop further the community offering. All delegates to the RISE events are invited into the RISE Institute, which uses an online presence to offer industry updates and relevant online education hosted through the Totara© LMS platform. We aim to continue to develop the RISE community in future years.
Operating profit in the Healthcare division increased 5% in absolute terms to £9.9m (2017: £9.4m). On an underlying basis it reduced 7%, in line with revenue. The potential impact of the revenue reduction was mitigated by significant cost reduction actions as described above. Operating margin remained unchanged at 22%.
Professional
2018 2017* Absolute Organic
Variance Variance
£'m £'m % %
Revenue
Ongoing businesses 34.3 34.1 1% 1%
Ark business - closed 0.3 1.4
Total 34.6 35.5 -3% -2%
Operating profit 6.2 6.1 2% 2%
Margin % 18% 17%
* 2017 comparatives have been restated to exclude business lines now managed within Healthcare
Business models
The Professional division was created at the end of the prior year through the integration of the previous Legal and Finance divisions. It predominantly provides education and training for professionals employed in three target communities; accountancy firms, law firms and investment bankers. It runs face to face courses and provides online 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 training their clients for interaction with the legal system. It additionally provides technical support to accountancy firms which allows them to keep abreast of technical developments and changes in tax law as well as promoting the services they offer around those activities 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 subscription services for ongoing training support and other related activities, with the rest through one-off course attendance fees.
Markets
The markets within the areas of professional education that Wilmington serves are generally considered to offer the opportunity of low single digit medium term growth rates.
Over the last twelve months, accountancy markets were reasonably flat. The profession in the UK continues to grow, although consolidation amongst smaller firms had some impact in terms of the wider support services that Wilmington provides. Additionally the low level of new accounting standards in the UK and a relatively stable backdrop in terms of tax legislation resulted in some cyclical decline in terms of demand for training courses.
The markets for the legal community were mixed. The business continues to suffer from the removal of requirement for CPD hours for lawyers in England and Wales which came into full effect in October 2017. This impacted our Law for Lawyers products. In addition, as discussed in last year's Annual Report, at the start of the year, we decided to close the Ark business that had targeted the legal support markets in the UK and the US. The only elements of that business that we retained were certain industry events that the business ran alongside its training products. These, along with other US financial services events, are now being managed within the events businesses in the Healthcare division and the comparative figures have been adjusted to reflect this in both divisions.
The market for investment banking continues to be challenging. Banks and other financial institutions continue to increase the numbers of new recruits into the industry that need training. However balancing that, they continue to focus hard on cost control, resulting in strong competition in the training market. This was particularly apparent in the Asia Pacific region in the year.
Trading performance
Overall revenue for the Professional division was down 3% at £34.6m (2017: £35.5m). On an organic basis the reduction was 2%. All of this reduction can be attributed to the decision to close the Ark business. Adjusting for that, the underlying revenue performance across Professional would have been marginally positive, with growth in Accountancy offsetting a smaller decline in Investment Banking. After adjusting for the Ark closure, Legal was flat.
Despite relatively flat market conditions described above, Accountancy achieved steady growth. This came in part from the synergy benefits of the combination of the Mercia and SWAT businesses following the latter's acquisition in 2016.
The Legal businesses had a mixed year. Strong growth was achieved in the La Touche business that serves the Irish legal and compliance community as we continue to make good progress in that area as the local economy grows. Conversely, the Law for Lawyers business in England and Wales continues to be impacted by the changing CPD requirements. In recognition of that we are changing the focus of the business, reducing CPD related networking events and investing in online learning programmes that we believe offer a sustainable growth opportunity. These programmes will be launched in the current year utilising the Totara© LMS that we are rolling out across the Group. The UK Law for Non-Lawyers business, Bond Solon, also had a good year, particularly in the second half as it benefitted from courses for training witnesses at tribunals. It also developed a programme to train expert witnesses in the new GDPR requirements which proved highly popular.
Investment Banking, through the AMT business, suffered from difficult trading conditions in Asia Pacific. These were however partly offset by better performance in Europe and North America where the business showed a good level of recovery from the challenges of the previous year. The new management team that we have in Asia Pacific has made encouraging progress and we have seen improving trading performance in that region towards the end of the financial year.
Overall across the division, despite the revenue reduction, operating profit was healthier with an absolute and organic growth of 2% to £6.2m (2017: £6.1m). Operating margin was up slightly to 18% (2017: 17%). The improvement in operating profit represents a number of factors including cost savings in Accountancy where the combination of the Mercia and SWAT accountancy businesses allowed a more efficient use of resources such as training facilities. In addition, savings from closure of the loss-making Ark businesses offset the increased costs of the new divisional management.
Unallocated central overheads
Unallocated central overheads represent board costs, head office salaries as well as other centrally incurred costs not recharged to the businesses. These decreased by £0.1m to £3.8m (2017: £3.9m). The reduction related to lower bonus provisions offset by the higher office space costs incurred by the central team.
Financial review
Adjusting items, measures and adjusted results
Reference is made in this financial review 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, profit on disposal of property plant and equipment (to the extent it is material or significant in nature), impairment of goodwill and intangible assets and amortisation of intangible assets (excluding computer software).
2018 | 2017 | Absolute variance | Organic variance | ||
£'m | £'m | £'m | % | % | |
Revenue | 122.1 | 120.3 | 1.8 | 1% | -3% |
Adjusted EBITA | 24.6 | 23.4 | 1.2 | 5% | -3% |
Margin % | 20.1 | 19.4 | |||
Revenue
For the twelve months ended 30 June 2018 revenue increased by 1% (£1.8m) to £122.1m (2017: £120.3m) or 2% on a constant currency basis. The Group's major non-Sterling revenues are in US Dollars and Euros and on average over the period both these currencies weakened against Sterling. Reported revenue was also impacted by acquisitions, with £5.4m combined coming from the full year effect of the 2017 acquisition of HSJ and the four and a half months that we owned Interactive Medica. Adjusting for this and for the fluctuations in exchange rates, organic revenue declined 3% overall as explained in the Review of Operations above.
The Group's strategy is to increase our international footprint. However in the year, revenue from UK customers increased to £72.0m or 59% of total revenue (2017: £68.6m or 57%). The change primarily reflects the full year impact of HSJ which serves mainly UK based customers.
Operating expenses before adjusting items, amortisation and impairment
Adjusted operating expenses, i.e. before adjusting items, amortisation of intangible assets (excluding computer software) and impairment, were £97.5m (2017: £97.0m) up 1% or £0.6m. The analysis is however significantly affected by acquisitions and closures, which added a net £2.5m, with costs from acquisitions adding £3.9m to the costs, offset by a £1.4m decrease from the closure of Ark.
Within adjusted operating expenses, employee costs (salaries and bonuses, social security and pension costs and share based payments), were down £0.2m overall at £50.0m (2017: £50.2m), whilst non-employee costs increased £0.7m to £47.5m (2017: £46.8m).
After adjusting for acquisitions and closures, employee costs reduced by £1.9m during the year. The reduction included a decrease in bonuses of £1.2m and a £0.7m net decrease in salaries due to headcount reductions (including £0.3m related to the rationalisation of FRA) offset by inflationary increases for existing employees. The headcount reductions reflected planned departures as a result of a number of restructuring programmes including the outsourcing of the IT function. It also reflected the outcome of cost reduction actions that we undertook in the year to reflect the in-year revenue performance which included restrictions on new hires and delayed replacement of vacancies. Of the cost reductions, we anticipate that around half of the bonus reduction and a similar amount of the headcount reduction will not be repeatable in the current financial year.
The entire increase in non-employee costs of £0.7m can be attributed to the impact of acquisitions and closures. The rationalisation of FRA courses resulted in a net saving of non-employee costs of £1.7m with this offset by increases including £0.3m of GDPR compliance costs, £0.8m of operational costs (including IT costs) for the new London office incurred in the second half, and general inflation increases.
Adjusted operating profit ('Adjusted EBITA')
As a result of these changes in revenue and adjusted operating expenses, adjusted EBITA was up £1.2m (5%) to £24.6m (2017: £23.4m). Adjusted operating margin (adjusted EBITA expressed as a percentage of revenue) increased to 20.1% (2017: 19.4%).
Amortisation excluding computer software
Amortisation of intangible assets (excluding computer software) was £6.4m, compared to £6.0m in the previous year. The increase reflects the acquisition made in the period and a full year impact of the prior year acquisition of HSJ.
Impairment of goodwill and intangible assets
Following a review of the goodwill being carried in relation to the Law for Lawyers business, CLT, an impairment charge of £8.6m has been made in the year to impair its carrying value to nil. CLT was acquired in May 1999 and the review concluded that whilst the CLT business retains significant value, that value is no longer attributable to the goodwill from that time.
Adjusting items within operating expenses
Adjusting items within operating expenses were £4.6m (2017: £3.5m). 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 These items are mainly £3.1m (2017: £1.0m) associated with the move into the new London head office, including associated IT restructuring costs. They also include £0.7m of acquisition costs (2017: £1.6m) mainly related to the acquisition of Interactive Medica, a £0.3m increase in deferred consideration (2017: £0.1m) and £0.4m in respect of restructuring and rationalisation costs which have been identified as meeting the Group's criteria for adjusting items. In the period a further £1.1m (2017: £0.6m) of restructuring and rationalisation costs have been incurred which are considered to be in the ordinary course of business and have been included in adjusted operating expenses.
Operating profit ('EBITA')
After the various adjusting items detailed above, operating profit was £5.0m. This was down £12.8m from £17.8m in 2017. In addition to the reasons described above, the reduction was also due in part to the one-off gain on sale of a leasehold property in 2017 of £6.3m not being repeated in 2018.
Finance costs
Finance costs remained constant at £2.0m. The impact of an increase in interest rates affecting the portion of the loan not subject to an interest rate hedge was offset by a £10m reduction in the debt facility which resulted in lower non-utilisation fees.
Profit before taxation
After finance costs, profit before tax was £3.0m (2017: £15.8m). Adjusted profit before tax was up 6% to £22.6m (2017: £21.4m).
Taxation
The tax charge was £2.8m (2017: £3.0m). The tax charge was essentially flat year on year despite the significant fall in profit before tax as many of the items that resulted in the profit reduction are not deductible for tax purposes and hence impact the effective tax rate. The overall effective tax rate6 is 23.8% (2017: 16.4%). This rate increase is also due to the relatively low effective tax rate associated with the leasehold property disposal in 2017. These impacts have offset a natural reduction due to lower corporation tax rates in the UK and US. The underlying tax rate7 which ignores the tax effects of adjusting items decreased to 20.8% from 22.4% in 2017 due to the fall in UK and US tax rates. It is expected that this rate will decrease further in the near future as the impact of lower corporation tax rates in the US continues to benefit profit generated in that country.
Earnings per share
Adjusted basic earnings per share increased by 8% to 20.49p (2017: 19.05p), owing to the increase in adjusted profit before tax and a lower underlying tax rate on an essentially unchanged number of issued ordinary shares. Basic earnings per share was 0.25p compared to 14.72p in 2017 due to the fall in profit after tax.
Balance Sheet
Non-current assets
Goodwill decreased by £8.9m from £86.0m to £77.1m primarily due to the CLT impairment of £8.6m in the year that is described above.
Intangible assets decreased by £4.6m from £31.9m to £27.3m due to amortisation of £7.7m offset by £1.5m arising from the acquisition of Interactive Medica and other additions of computer software of £1.9m. These additions included £0.6m of internally generated assets and £0.4m associated with the investment in digital platforms, with the balance a mixture of off-the shelf software and upgrades to existing technology platforms.
Property, plant and equipment increased by £2.1m to £6.5m (2017: £4.4m) reflecting additions of £3.4m, of which £2.7m related to the fit out of the new London head office, offset by depreciation of £1.4m.
Trade and other receivables
Trade and other receivables were down £0.2m at £28.2m (2017: £28.4m). Acquisitions added £0.2m but this was offset by more efficient cash collection following the relocation of the Group's credit control function to Basildon in the prior financial year, and the consolidation of local credit control functions into this new location during the current financial year.
6The effective tax rate is calculated as the total tax charge divided by profit before tax after adding back impairment charges.
7The underlying tax rate is calculated as one minus the adjusted profit after tax divided by the adjusted profit before tax.
Trade and other payables
Total balances decreased from £52.3m to £51.1m. Within this subscriptions and deferred revenue decreased by £2.3m or 8% to £24.7m (2017: £27.0m). This was largely due to a £1.4m reduction in the Healthcare business, caused by the lower level of business activity combined with reductions due to the rationalisation at FRA and a change in the contracting model for certain digital data products. The closure of Ark resulted in a further £0.3m reduction, with invoicing timing differences in Axco accounting for the remainder. The remaining trade and other payables increased by £1.0m to £26.4m (2017: £25.4m) due to acquisitions and the timing of supplier payments.
Current tax liabilities
Current tax liabilities decreased from £1.9m to £0.7m reflecting the corporation tax owed on the sale of the leasehold property at the previous year end which was settled during the year.
Deferred consideration
The liability for deferred consideration in total was £0.1m up on the 2017 total liability to £2.6m. Movements during the year included an increase of £0.3m relating to the provisions for SWAT and Evantage offset by payments of £0.2m in the year in respect of Evantage.
Deferred consideration of up to €1,600,000 is potentially payable in relation to the acquisition of Interactive Medica over the next two years. This is subject to the continued employment of a key member of the management team and IM achieving a challenging revenue target over the two-year period ending 31 December 2018 and 31 December 2019. As this consideration is linked to employment any liability will be built up through the Income Statement in adjusting items in the period it relates to. At year end there is no liability recognised in relation to Interactive Medica.
Net debt and cashflow
Net debt, which includes cash and cash equivalents, bank loans (excluding capitalised loan arrangement fees) and bank overdrafts, was £39.6m (30 June 2017: £40.0m.). Cash conversion of 105% (2017: 114%) was offset by acquisition costs of £2.2m and by one-off cash outflows related to the new London head office of £2.4m of capex and £3.1m of adjusting items included in the income statement.
In support of the acquisition of HSJ the Group had increased its debt facility to £85.0m from £65.0m on 17 January 2017 under the accordion provision of the loan agreement. On 24 November 2017 this facility was reduced by £10.0m to £75.0m. Net debt at 30 June 2018 represented 53% of our debt and overdraft facility of £75m. The loan facility is repayable on 1 July 2020.
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 an asset of £0.1m and a liability of £0.4m at 30 June 2018 (2017: £0.7m liability).
On 2 July 2018 the Group entered into a number of foreign currency transactions to mitigate possible exchange rate fluctuations on its current year financial results. $13.0m USD were sold forward to mature during the 2018/19 financial year at an average rate of $1.33 and €3.0m EUR were sold forward at an average rate of €1.12 with similar maturities.
Share capital
During the year 166,099 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 2018 to 87,414,073 (2017: 87,247,974).
Dividend
A final dividend of 4.8p per share (2017: 4.6p) will be proposed at the AGM. If approved, it will be paid on 16 November 2018 to shareholders on the register as at 19 October 2018, with an associated ex-dividend date of 18 October 2018. This will give a full year dividend of 8.8p (2017: 8.5p) and dividend cover of 2.3 times (2017: 2.2 times).
Statement of directors' responsibilities
The statement of directors' responsibilities below has been prepared in connection with the Group's full annual report for the year ended 30 June 2018. 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 11 September 2018 and is signed on its behalf by
Richard Amos
Chief Financial Officer
Consolidated Income Statement for the year ended 30 June 2018
Notes | Year Ended 30 June 2018 £'000 | Year Ended 30 June 2017 £'000 | ||||
Continuing operations | ||||||
Revenue | 4 | 122,092 | 120,329 | |||
Operating expenses before amortisation of intangibles excluding computer software, impairment of goodwill and intangible assets and adjusting items | (97,532) | (96,977) | ||||
Amortisation of intangible assets excluding computer software | 5b | (6,432) | (6,028) | |||
Impairment of goodwill and intangible assets | 5b | (8,561) | (2,366) | |||
Adjusting items | 5b | (4,573) | (3,468) | |||
Operating expenses | 6 | (117,098) | (108,839) | |||
Other income - gain on sale of leasehold property | 5a | - | 6,333 | |||
Operating profit | 4,994 | 17,823 | ||||
Finance costs | 7 | (1,969) | (1,961) | |||
Profit before tax | 3,025 | 15,862 | ||||
Taxation | 8 | (2,763) | (2,988) | |||
Profit for the year | 262 | 12,874 | ||||
Attributable to: | ||||||
Owners of the parent | 215 | 12,836 | ||||
Non-controlling interests | 20 | 47 | 38 | |||
262 | 12,874 | |||||
Earnings per share attributable to the owners ofthe parent: | ||||||
Basic (p) | 10 | 0.25 | 14.72 | |||
Diluted (p) | 10 | 0.24 | 14.62 | |||
Adjusted earnings per share attributable to the owners of the parent: | ||||||
Basic (p) | 10 | 20.49 | 19.05 | |||
Diluted (p) | 10 | 20.34 | 18.91 | |||
Consolidated Statement of Comprehensive Income for the year ended 30 June 2018
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Profit for the year | 262 | 12,874 |
Other comprehensive income/(expense): | ||
Items that may be reclassified subsequently to the Income Statement | ||
Fair value movements on interest rate swaps, net of tax | 339 | 431 |
Currency translation differences | (896) | 939 |
Net investment hedges, net of tax | 177 | (395) |
Other comprehensive (expense)/income for the year, net of tax | (380) | 975 |
Total comprehensive (expense)/ income for the year | (118) | 13,849 |
Attributable to: | ||
- Owners of the parent | (165) | 13,811 |
- Non-controlling interests | 47 | 38 |
(118) | 13,849 |
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 2018
Group | |||
Notes | 2018 £'000 | 2017 £'000 | |
Non-current assets | |||
Goodwill | 12 | 77,103 | 86,028 |
Intangible assets | 13 | 27,305 | 31,911 |
Property, plant and equipment | 14 | 6,463 | 4,444 |
Deferred tax assets | 458 | 820 | |
Derivative financial instruments | 17 | 113 | - |
111,442 | 123,203 | ||
Current assets | |||
Trade and other receivables | 16 | 28,233 | 28,444 |
Cash and cash equivalents | 10,789 | 10,687 | |
39,022 | 39,131 | ||
Assets held for sale | 15 | 317 | - |
39,339 | 39,131 | ||
Total assets | 150,781 | 162,334 | |
Current liabilities | |||
Trade and other payables | 18 | (51,114) | (52,330) |
Current tax liabilities | (722) | (1,932) | |
Deferred consideration - cash settled | (1,320) | (177) | |
Borrowings | 19 | - | (925) |
(53,156) | (55,364) | ||
Non-current liabilities | |||
Borrowings | 19 | (50,380) | (49,353) |
Deferred consideration - cash settled | (1,286) | (2,305) | |
Derivative financial instruments | 17 | (356) | (662) |
Deferred tax liabilities | (3,087) | (4,585) | |
Provisions for future purchase of non-controlling interests | - | (100) | |
(55,109) | (57,005) | ||
Total liabilities | (108,265) | (112,369) | |
Net assets | 42,516 | 49,965 | |
Equity | |||
Share capital | 4,371 | 4,362 | |
Share premium | 45,225 | 45,225 | |
Treasury shares | (96) | (96) | |
Share based payments reserve | 1,108 | 898 | |
Translation reserve | 2,645 | 3,541 | |
(Accumulated losses)/retained earnings | (10,819) | (4,051) | |
Equity attributable to owners of the parent | 42,434 | 49,879 | |
Non-controlling interests | 20 | 82 | 86 |
Total equity | 42,516 | 49,965 | |
Statement of Changes in Equity for the year ended 30 June 2018
Share capital, share premium and treasury shares £'000 | Share based payments reserve £'000 | Translation reserve £'000 | (Accumulated losses)/ retained earnings £'000 | Total £'000 | Non-controlling interests (note 20) £'000 | Total equity £'000 | |
Group | |||||||
At 30 June 2016 | 49,478 | 886 | 2,602 | (10,116) | 42,850 | 153 | 43,003 |
Profit for the year | - | - | - | 12,836 | 12,836 | 38 | 12,874 |
Other comprehensive income for the year | - | - | 939 | 36 | 975 | - | 975 |
49,478 | 886 | 3,541 | 2,756 | 56,661 | 191 | 56,852 | |
Dividends | - | - | - | (7,150) | (7,150) | (105) | (7,255) |
Issue of share capital | 13 | (466) | - | 453 | - | - | - |
Share based payments | - | 478 | - | - | 478 | - | 478 |
Tax on share based payments | - | - | - | (110) | (110) | - | (110) |
At 30 June 2017 | 49,491 | 898 | 3,541 | (4,051) | 49,879 | 86 | 49,965 |
Profit for the year | - | - | - | 215 | 215 | 47 | 262 |
Other comprehensive (expense)/income for the year | - | - | (896) | 516 | (380) | - | (380) |
49,491 | 898 | 2,645 | (3,320) | 49,714 | 133 | 49,847 | |
Dividends | - | - | - | (7,514) | (7,514) | (62) | (7,576) |
Issue of share capital | 9 | (384) | - | 375 | - | - | - |
Share based payments | - | 594 | - | - | 594 | - | 594 |
Tax on share based payments | - | - | - | (15) | (15) | - | (15) |
Movements in non-controlling interest | - | - | - | (345) | (345) | 11 | (334) |
At 30 June 2018 | 49,500 | 1,108 | 2,645 | (10,819) | 42,434 | 82 | 42,516 |
Cash Flow Statement for the year ended 30 June 2018
Group | |||
Notes | Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Cash flows from operating activities | |||
Cash generated from/(used in) operations before adjusting items | 21 | 25,665 | 26,653 |
Cash flows for adjusting items - operating activities | (2,951) | (1,510) | |
Cash flows from share based payments | (50) | (87) | |
Cash generatedfrom/(used in) operations | 22,664 | 25,056 | |
Interest paid | (1,934) | (1,656) | |
Tax paid | (4,738) | (3,905) | |
Net cash generated from/(used in) operating activities | 15,992 | 19,495 | |
Cash flows from investing activities | |||
Purchase of businesses net of cash acquired | (1,595) | (19,005) | |
Deferred consideration paid | (205) | (1,295) | |
Purchase of non-controlling interests | (335) | - | |
Cash flows for adjusting items - investing activities | (1,118) | (1,327) | |
Purchase of property, plant and equipment | (3,089) | (1,300) | |
Cash flows from sale of leasehold property | - | 7,300 | |
Proceeds from disposal of property, plant and equipment | 55 | 43 | |
Purchase of intangible assets | (1,934) | (1,599) | |
Net cash (used in)/generated from investing activities | (8,221) | (17,183) | |
Cash flows from financing activities | |||
Dividends paid to owners of the parent | (7,514) | (7,150) | |
Dividends paid to non-controlling interests | (62) | (105) | |
Share issuance costs | (8) | (5) | |
Fees relating to new and extended loan facility | (22) | (146) | |
Decrease in bank loans | (8,012) | (25,593) | |
Increase in bank loans | 9,127 | 27,702 | |
Net cash used in financing activities | (6,491) | (5,297) | |
Net increase/(decrease) in cash and cash equivalents, net of bank overdrafts | 1,280 | (2,985) | |
Cash and cash equivalents, net of bank overdrafts at beginning of the year | 9,762 | 12,438 | |
Exchange (loss)/gain on cash and cash equivalents | (9) | 309 | |
Cash and cash equivalents, net of bank overdrafts at end of the year | 11,033 | 9,762 | |
Reconciliation of net debt
Cash and cash equivalents at beginning of the year | 10,687 | 14,642 |
Bank overdrafts at beginning of the year | (925) | (2,204) |
Bank loans at beginning of the year 19 | (49,781) | (47,126) |
Net debt at beginning of the year | (40,019) | (34,688) |
Net (decrease)/increase in cash and cash equivalents, net of bank overdrafts | 1,271 | (2,676) |
Net drawdown in bank loans | (1,115) | (2,109) |
Exchange gains/(loss) on bank loans | 231 | (546) |
Cash and cash equivalents at end of the year | 10,789 | 10,687 |
Bank overdrafts at end of the year | - | (925) |
Cash classified as held for sale 15 | 244 | - |
Bank loans at end of the year 19 | (50,665) | (49,781) |
Net debt at end of the year | (39,632) | (40,019) |
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 2018 on which an unqualified report has been made by the Company's auditors.
Financial statements for the year ended 30 June 2017 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 2018 statutory accounts will be delivered in due course.
Copies of the Annual Report and Financial Statements will be posted to shareholders shortly and 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 2018 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 2017 along with new standards and interpretations which became mandatory for the financial year
3. Measures of profit
(a) 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;
· impairment of goodwill and intangible assets;
· adjusting items (included in operating expenses);
· other income - gain on sale of leasehold property; and
· 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 2018 £'000 | Year ended 30 June 2017 £'000 | |
Profit before tax | 3,025 | 15,862 |
Amortisation of intangible assets excluding computer software | 6,432 | 6,028 |
Impairment of goodwill and intangibles | 8,561 | 2,366 |
Adjusting items (included in operating expenses) | 4,573 | 3,468 |
Other income - gain on sale of leasehold property | - | (6,333) |
Adjusted profit before tax | 22,591 | 21,391 |
Finance costs | 1,969 | 1,961 |
Adjusted operating profit ('Adjusted EBITA') | 24,560 | 23,352 |
Depreciation of property, plant and equipment included in operating expenses | 917 | 1,071 |
Amortisation of intangible assets - computer software | 1,302 | 1,165 |
Adjusted EBITA before depreciation ('Adjusted EBITDA') | 26,779 | 25,588 |
(b) Reconciliation to adjusted profit before tax
Adjusted results June 2018 £'000 | Adjusting items June 2018 £'000 | Statutory results June 2018 £'000 | Adjusted results June 2017 £'000 | Adjusting items June 2017 £'000 | Statutory results June 2017 £'000 | |
Revenue | 122,092 | - | 122,092 | 120,329 | - | 120,329 |
Operating expenses before share based payments, amortisation of intangible assets excluding computer software and impairment | (96,891) | (4,573) | (101,464) | (96,425) | (3,468) | (99,893) |
Share based payments | (641) | - | (641) | (552) | - | (552) |
Operating expenses before amortisation of intangible assets excluding computer software and impairment | (97,532) | (4,573) | (102,105) | (96,977) | (3,468) | (100,445) |
Amortisation of intangible assets excluding computer software | - | (6,432) | (6,432) | - | (6,028) | (6,028) |
Impairment of goodwill and intangible assets | - | (8,561) | (8,561) | - | (2,366) | (2,366) |
Gain on sale of leasehold property | - | - | - | - | 6,333 | 6,333 |
Operating profit | 24,560 | (19,566) | 4,994 | 23,352 | (5,529) | 17,823 |
Finance costs | (1,969) | - | (1,969) | (1,961) | - | (1,961) |
Profit before tax | 22,591 | (19,566) | 3,025 | 21,391 | (5,529) | 15,862 |
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 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.
The reported segmental revenue and contribution in the year ended 30 June 2017 have been restated to reflect a reallocation between the Professional and Healthcare divisions. This reallocation is in respect of events now managed by the Healthcare division that were previously reported in the Professional division.
a) Business segments
Revenue Year ended 30 June 2018 £'000 | Profit Year ended 30 June 2018 £'000 | Revenue Year ended 30 June 2017 Restated £'000 | Profit Year ended 30 June 2017 Restated £'000 | |
Risk & Compliance | 42,860 | 12,899 | 42,272 | 12,265 |
Healthcare | 44,681 | 9,899 | 42,523 | 9,425 |
Professional | 34,551 | 6,230 | 35,534 | 6,144 |
Group total | 122,092 | 29,028 | 120,329 | 27,834 |
Unallocated central overheads | - | (3,827) | - | (3,930) |
Share based payments | - | (641) | - | (552) |
122,092 | 24,560 | 120,329 | 23,352 | |
Amortisation of intangible assets excluding computer software | (6,432) | (6,028) | ||
Impairment of goodwill and intangibles | (8,561) | (2,366) | ||
Adjusting items (included in operating expenses) | (4,573) | (3,468) | ||
Other income - gain on sale of leasehold property | - | 6,333 | ||
Finance costs | (1,969) | (1,961) | ||
Profit before tax | 3,025 | 15,862 | ||
Taxation | (2,763) | (2,988) | ||
Profit for the financial year | 262 | 12,874 |
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 2018 £'000 | Year ended 30 June 2017 £'000 | |
UK | 72,034 | 68,588 |
Europe (excluding the UK) | 20,756 | 18,049 |
North America | 18,314 | 22,863 |
Rest of the World | 10,988 | 10,829 |
Total revenue | 122,092 | 120,329 |
5. Profit from continuing operations
a) Profit for the year from continuing operations is stated after charging/(crediting):
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Depreciation of property, plant and equipment - included in operating expenses | 917 | 1,071 |
Amortisation of intangible assets - computer software | 1,302 | 1,165 |
Profit on disposal of property, plant and equipment | (11) | (20) |
Rentals under operating leases | 2,942 | 1,568 |
Share based payments (including social security costs) | 641 | 552 |
Amortisation of intangible assets excluding computer software | 6,432 | 6,028 |
Impairment of goodwill and intangibles | 8,561 | 2,366 |
Adjusting items (included in operating expenses) | 4,573 | 3,468 |
Gain on sale of leasehold property | - | (6,333) |
Foreign exchange (gain)/loss (including forward currency contracts) | (229) | 50 |
Fees payable to the auditors for the audit of the Company and consolidated financial statements | 117 | 110 |
Fees payable to the auditors and their associates for other services: | ||
- The audit of the Company's subsidiaries pursuant to legislation | 183 | 173 |
- Audit related and other assurance services | 74 | 142 |
- Tax compliance services | 5 | 8 |
- Other services | - | 47 |
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 2018 £'000 | Year ended 30 June 2017 £'000 | |
Costs relating to successful and aborted acquisitions, disposals and integration | 721 | 1,569 |
Increase in liability for deferred consideration | 330 | 54 |
1,051 | 1,623 | |
Adjusting items relating to property portfolio review and IT infrastructure transformation | 3,090 | 1,027 |
Restructuring and rationalisation costs | 432 | 818 |
Other adjusting items (included in operating expenses) | 4,573 | 3,468 |
Amortisation of intangible assets excluding computer software | 6,432 | 6,028 |
Impairment of goodwill and intangible assets (note 12) | 8,561 | 2,366 |
Total adjusting items (classified in profit before tax) | 19,566 | 11,862 |
Successful and aborted acquisitions relate to the acquisition of Interactive Medica and other aborted acquisitions. The increase in the liability for deferred consideration relates to adjustments to deferred consideration in respect of SWAT Group Limited ('SWAT') and Evantage Consulting Limited.
Costs associated with property portfolio review and IT infrastructure transformation relate to a review of the London property portfolio; see note 5c for further details.
Restructuring and rationalisation costs include the remaining implementation costs of project Sixth Gear and one-off costs associated with the recruitment of new board members.
Onerous lease and related exit costs relate to the relocation of the Practice Track business from its Bristol office to existing premises occupied by businesses held in the Professional division.
c) Property portfolio review
During the year ended 30 June 2017 Wilmington performed a review of its London property portfolio, on the back of this it sold the leasehold interest in its Underwood Street London premises for a £7.3m cash consideration. This resulted in a gain on sale of £6.3m. At the same time as disposing of its leasehold interest, Wilmington entered into a new ten year market rate lease for a London head office premises near Aldgate. The Aldgate premises became the address of its registered office on 15 December 2017.
The items which have been charged to profit or loss during the year in relation to this review are as follows:
Operating expenses - adjusting items relating to the property portfolio review:
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Rent, rates and legal and professional fees relating to new Aldgate lease | 1,317 | 514 |
Relocation and fit out costs incurred on occupation of Aldgate premises | 315 | - |
Redundancy and implementation costs relating to IT infrastructure transformation | 1,026 | - |
Accelerated depreciation of property, plant and equipment on sale of Underwood Street leasehold property | 322 | 85 |
Accelerated depreciation of computer equipment relating to IT infrastructure transformation | 110 | - |
Cost to surrender Old Broad Street lease | - | 231 |
Onerous lease on property in Kent | - | 197 |
Total adjusting items relating to property portfolio review | 3,090 | 1,027 |
6. Operating expenses
Year ended 30 June 2018 | Year ended 30 June 2017 | |||||
Cost of sales £'000 | Administration £'000 | Total £'000 | Cost of sales £'000 | Administration £'000 | Total £'000 | |
Operating expenses before depreciation, amortisation and impairment | 90,845 | 4,468 | 95,313 | 90,906 | 3,835 | 94,741 |
Depreciation of property, plant and equipment | 917 | - | 917 | 976 | 95 | 1,071 |
Amortisation of intangible assets - computer software | 1,302 | - | 1,302 | 1,165 | - | 1,165 |
Operating expenses before amortisation of intangible assets excluding computer software and impairment | 93,064 | 4,468 | 97,532 | 93,047 | 3,930 | 96,977 |
Amortisation of intangible assets - databases | 1,933 | - | 1,933 | 1,897 | - | 1,897 |
Amortisation of intangible assets - customer relationships | 2,038 | - | 2,038 | 1,947 | - | 1,947 |
Amortisation of intangible assets - brands | 1,272 | - | 1,272 | 893 | - | 893 |
Amortisation of intangible assets - publishing rights and titles | 1,189 | - | 1,189 | 1,291 | - | 1,291 |
Goodwill and intangibles impairment charge (note 12) | - | 8,561 | 8,561 | 830 | 1,536 | 2,366 |
Other adjusting items (note 5) | - | 4,573 | 4,573 | - | 3,468 | 3,468 |
Operating expenses | 99,496 | 17,602 | 117,098 | 99,905 | 8,934 | 108,839 |
7. Finance costs
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Finance costs comprise: | ||
Interest payable on bank loans and overdrafts | 1,804 | 1,814 |
Amortisation of capitalised loan arrangement fees | 165 | 147 |
1,969 | 1,961 |
8. Taxation
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Current tax: | ||
UK corporation tax at current rates on UK profits for the year | 2,351 | 3,225 |
Adjustments in respect of previous years | 63 | 103 |
2,414 | 3,328 | |
Foreign tax | 1,114 | 1,067 |
Adjustment in respect of previous years | (41) | (43) |
Total current tax | 3,487 | 4,352 |
Deferred tax credit | (765) | (1,247) |
Effect on deferred tax of change in corporation tax rate | 41 | (117) |
Total deferred tax | (724) | (1,364) |
Taxation | 2,763 | 2,988 |
Factors affecting the tax charge for the year:
The effective tax rate is higher (2017: lower) than the average rate of corporation tax in the UK of 19.00% (2017: 19.75%). The differences are explained below:
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Profit before tax | 3,025 | 15,862 |
Profit before tax multiplied by the average rate of corporation tax in the year of 19.00% (2017: 19.75%) | 575 | 3,133 |
Tax effects of: | ||
Impairment of goodwill not deductible for tax purposes | 1,627 | 303 |
Foreign tax rate differences | 384 | 312 |
Adjustment in respect of previous years | 22 | 59 |
Reduced effective rate on gain on sale of leasehold property | - | (817) |
Other items not subject to tax | 114 | 115 |
Effect on deferred tax of change of corporation tax rate | 41 | (117) |
Taxation | 2,763 | 2,988 |
On 26 October 2015, the UK corporation tax rate was reduced from 20% to 19% from 1 April 2017 and a further change was announced on 23 November 2016 to reduce the rate from 19% to 17% from 1 April 2020. On 1 January 2018 the US corporate tax rate was reduced from 35% to 21%. These changes have been substantively enacted at the Balance Sheet date and are reflected in the financial statements. Deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal. Deferred tax balances at 30 June 2018 have been calculated using the above rates giving rise to a reduction in the net deferred tax liability of £41,000 (2017: £117,000).
The Company's profits for this accounting year are taxed at an effective rate of 23.8% (2017: 16.4%).
Included in other comprehensive income are a tax credit of £80,000 (2017: charge £106,000) and a tax charge of £42,000 (2017: credit £97,000) 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 £1,876,000 (2017: £1,757,000).
9. Dividends
Amounts recognised as distributions to owners of the parent in the year:
Year ended 30 June 2018 pence per share | Year ended 30 June 2017 pence per share | Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Final dividends recognised as distributions in the year | 4.6 | 4.3 | 4,019 | 3,749 |
Interim dividends recognised as distributions in the year | 4.0 | 3.9 | 3,495 | 3,401 |
Total dividends paid | 7,514 | 7,150 | ||
Final dividend proposed | 4.8 | 4.6 | 4,194 | 4,011 |
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;
· impairment of goodwill and intangible assets;
· adjusting items (included in operating expenses); and
· other income - gain on sale of leasehold property.
The calculation of the basic and diluted earnings per share is based on the following data:
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Earnings from continuing operations for the purpose of basic earnings per share | 215 | 12,836 |
Add/(remove): | ||
Amortisation of intangible assets excluding computer software | 6,432 | 6,028 |
Impairment of goodwill and intangibles | 8,561 | 2,366 |
Adjusting items (included in operating expenses) | 4,573 | 3,468 |
Other income - gain on sale of leasehold property | - | (6,333) |
Tax effect of adjustments above | (1,876) | (1,757) |
Adjusted earnings for the purposes of adjusted earnings per share | 17,905 | 16,608 |
Number | Number | |
Weighted average number of ordinary shares for the purposes of basic and adjusted earnings per share | 87,379,469 | 87,193,340 |
Effect of dilutive potential ordinary shares: | ||
Future exercise of share awards and options | 645,240 | 611,052 |
Weighted average number of ordinary shares for the purposes of diluted and adjusted diluted earnings per share | 88,024,709 | 87,804,393 |
Basic earnings per share | 0.25p | 14.72p |
Diluted earnings per share | 0.24p | 14.62p |
Adjusted basic earnings per share ('Adjusted Earnings Per Share') | 20.49p | 19.05p |
Adjusted diluted earnings per share | 20.34p | 18.91p |
11. Acquisitions and disposals
The below acquisitions have been financed out of the £75.0m multi-currency revolving credit facility.
a) Non-controlling interest acquired - July 2017
In July 2017 the Group purchased the remaining 20% shareholding in Central Law Training (Scotland) Limited for £335,000 making it a wholly owned subsidiary.
b) Acquisition - Interactive Medica S.L. group of companies - 12 February 2018
On 12 February 2018 Wilmington Insight Limited, 'the buyer' acquired the entire issued share capital of Interactive Medica S.L. group of companies ('IM'), a pan-European provider of cloud-based software solutions to Life Sciences companies, designed to support their commercial effectiveness specifically in key account management ('KAM'), multichannel marketing ('MCM') and analytics. Interactive Medica was acquired for an initial consideration of €2,822,986 (£2,486,387) with a subsequent adjustment for working capital of €282,082 (£248,448) payable to Wilmington Insight Limited.
Deferred consideration of up to €1,600,000 is potentially payable in cash subject to the continued employment of a key member of the management team and IM achieving a challenging revenue target over the two year period ended 31 December 2018 and 31 December 2019
Acquisition related costs of £497,302 have been expensed as an adjusting item in the income statement (see note 5b).
IM is a complimentary addition to the Wilmington Healthcare offering, providing robust technology that will strengthen their existing solutions, give greater competitive advantage through a single platform with enhanced data and insights.
Details of the fair value of the purchase consideration, the net assets acquired and goodwill for the acquisition are as follows:
£'000 | |
Purchase consideration: | |
Initial consideration | 2,486 |
Final working capital adjustment | (248) |
Total consideration | 2,238 |
The provisional fair values of assets and liabilities recognised as a result of this acquisition are as follows:
£'000 | |
Intangible assets - Customer relationships - Subscribers | 514 |
Intangible assets - Databases | 611 |
Intangible assets - Brand | 348 |
Intangible assets - Computer software | 55 |
Total intangible assets (see note 13) | 1,528 |
Property, plant and equipment | 12 |
Current tax asset | 11 |
Trade and other receivables (net of allowances) | 164 |
Cash and cash equivalents | 643 |
Trade and other payables | (281) |
Subscriptions and deferred revenue | (168) |
Deferred tax liabilities | (259) |
Net identifiable assets acquired | 1,650 |
Goodwill (see note 12) | 588 |
Net assets acquired | 2,238 |
The goodwill is attributable to the expected cost and revenue synergies that will be achieved by integrating the bespoke IM software, established client base, and the solid client relationships held by the experienced and stable workforce. These synergies will enable the Wilmington Healthcare businesses to enhance their existing product offerings in the UK as well as increase its ability to access other European markets
The estimated useful economic life of the intangibles is as follows:
Intangible assets - Customer relationships - Subscribers | 6 years |
Intangible assets - Databases | 5 years |
Intangible assets - Brand | 5 years |
Intangible assets - Computer software | 3 years |
The acquired business contributed revenues of £554,863 and a loss of £46,409 to the Group for the period from the date of acquisition to 30 June 2018, this equates to a four and a half months' revenue and contribution.
12. Goodwill
Cost | £'000 |
At 1 July 2016 | 93,387 |
Additions | 14,931 |
Reallocation | 1,281 |
Exchange translation differences | 589 |
At 30 June 2017 | 110,188 |
Additions | 588 |
Fair value adjustment | (762) |
Exchange translation differences | (190) |
At 30 June 2018 | 109,824 |
Accumulated impairment | |
At 30 June 2016 | 22,624 |
Impairment | 1,536 |
At 30 June 2017 | 24,160 |
Impairment | 8,561 |
At 30 June 2018 | 32,721 |
Net book amount | |
At 30 June 2018 | 77,103 |
At 30 June 2017 | 86,028 |
At 30 June 2016 | 70,763 |
The fair value adjustment relates to a change in the provisional value of the deferred tax liability arising on the acquisition of Health Services Journal in the year ended 30 June 2017.
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. Impairment reviews were performed by comparing the carrying value of goodwill with the recoverable amount of the cash-generating units ('CGU') to which goodwill has been allocated. Recoverable amounts for cash-generating units are the higher of fair value less costs of disposal, and value in use.
The value in use calculations use pre-tax cash flow projections based on financial budgets and forecasts approved by the Board covering a three year period. These pre-tax cash flows beyond the three year period are extrapolated using estimated long-term growth rates.
Key assumptions for the value in use calculations are those regarding discount rates, cash flow forecasts and long-term growth rates. Management has used a pre-tax discount rate of 12.3% (2017: 12.3%) across all CGUs in the UK except for the CLT CGU which had a pre-tax discount rate of 13.3% (2017: 13.3%) to reflect the greater market challenges and risks. A pre-tax discount rate of 13.5% (2016: 13.5%) has been used for Compliance Week and FRA that both operate in North America. These pre-tax discount rates reflect current market assessments for the time value of money and the risks associated with the CGUs as the Group manages its treasury function on a Group-wide basis.
The same discount rate has been used for all CGUs except CLT, Compliance Week and FRA as the Directors believe that the risks are the same for each other CGU. The long-term growth rates used are based on management's expectations of future changes in the markets for each CGU and are 2.0% (2016: 2.0%).
Management's impairment calculations based upon the above assumptions show ample headroom with the exception of CLT, Compliance Week and HSJ.
CGU | 30 June 2018 £'000 | 30 June 2017 £'000 | |
HSJ | 12,105 | 12,867 | |
Axco and Pendragon | 11,150 | 11,150 | |
CLT | - | 8,563 | |
ICT | 7,972 | 7,972 | |
Others | 45,876 | 45,476 | |
77,103 | 86,028 | ||
Impairment of CLT
CLT continues to be impacted by the removal of requirement for CPD hours for lawyers in England and Wales which came into full effect in October 2017. In recognition of these market conditions we are changing the focus of the business, reducing CPD related networking events and investing in on-line learning programmes that we believe offer a sustainable growth opportunity. Recognising these changes, which have occurred during the year, it was concluded that the future economic benefit in the business and hence the value that we still believe exists in CLT does not derive from the historic assets purchased in 1999 which the acquired goodwill was attributable to. On this basis the goodwill relating to CLT has been fully impaired resulting in a £8.6m non-cash impairment expense included in operating expenses as an adjusting item in the Income Statement.
Compliance week
For Compliance Week, the value in use exceeds the carrying value by 17% (2017: 27%). The reduction in headroom is largely as a result of changes in the assumptions of on-going investment requirements in the business. 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 17.0% in each of the next three years; or
- An increase in the pre-tax discount from 13.5% to 15.5%.
HSJ
Given the lower than expected performance of HSJ in the year, consideration was given as to whether this was an indication of a permanent diminution in value. This was despite the value in use calculation exceeding the carrying value by 50%. Having reviewed the matter, management have concluded that there is no indication of permanent diminution as there is acceptable headroom and the lower than expected performance was driven by specific in year circumstances that are temporary and expected to reverse. As such it has concluded that no impairment is required at this time.
Significant restructuring and integration has already been undertaken in the year to bring the UK Healthcare assets, including HSJ, into a single UK Healthcare business. As these integration activities are expected to complete in early FY19 we will be unable to identify the cash flows generated by HSJ independently from the other UK Healthcare businesses. On this basis going forward HSJ will be included in a single UK Healthcare CGU.
Management performed sensitivities and there were no reasonable possible changes in assumptions that could lead to an impairment.
13. Intangible assets
Group | ||||||
Computer software £'000 | Databases £'000 | Customer relationships £'000 | Brands £'000 | Publishing rights and titles £'000 | Total £'000 | |
Cost | ||||||
At 1 July 2016 | 8,202 | 16,116 | 18,023 | 10,715 | 29,919 | 82,975 |
Additions | 1,599 | - | - | - | - | 1,599 |
Acquisitions | 128 | - | 5,839 | 4,240 | - | 10,207 |
Reallocation | - | - | 391 | (1,672) | - | (1,281) |
Disposals | (15) | - | - | - | - | (15) |
Exchange translation differences | 32 | 27 | 102 | 58 | 370 | 589 |
At 30 June 2017 | 9,946 | 16,143 | 24,355 | 13,341 | 30,289 | 94,074 |
Additions | 1,934 | - | - | - | - | 1,934 |
Acquisitions | 583 | 611 | 514 | 348 | - | 2,056 |
Disposals | (2,161) | - | - | - | - | (2,161) |
Reclassification to held for sale | (111) | - | - | - | - | (111) |
Exchange translation differences | 2 | (13) | (67) | (56) | - | (134) |
At 30 June 2018 | 10,193 | 16,741 | 24,802 | 13,633 | 30,289 | 95,658 |
Accumulated amortisation | ||||||
At 1 July 2016 | 5,636 | 8,197 | 12,935 | 3,142 | 24,027 | 53,937 |
Charge for the year | 1,165 | 1,897 | 1,947 | 893 | 1,291 | 7,193 |
Acquisitions | 115 | - | - | - | - | 115 |
Impairment | 86 | - | - | - | 744 | 830 |
Disposals | (14) | - | - | - | - | (14) |
Exchange translation differences | 16 | 16 | 105 | 153 | (188) | 102 |
At 30 June 2017 | 7,004 | 10,110 | 14,987 | 4,188 | 25,874 | 62,163 |
Charge for the year | 1,302 | 1,933 | 2,038 | 1,272 | 1,189 | 7,734 |
Acquisitions | 528 | - | - | - | - | 528 |
Disposals | (2,161) | - | - | - | - | (2,161) |
Reclassification to held for sale | (53) | - | - | - | - | (53) |
Exchange translation differences | 22 | 5 | 71 | 36 | 8 | 142 |
At 30 June 2018 | 6,642 | 12,048 | 17,096 | 5,496 | 27,071 | 68,353 |
Net book amount | ||||||
At 30 June 2018 | 3,551 | 4,693 | 7,706 | 8,137 | 3,218 | 27,305 |
At 30 June 2017 | 2,942 | 6,033 | 9,368 | 9,153 | 4,415 | 31,911 |
At 30 June 2016 | 2,566 | 7,919 | 5,088 | 7,573 | 5,892 | 29,038 |
Included within computer software are assets under construction that have not yet been amortised with a net book amount of £223,000 (2017: £142,000).
14. Property, plant and equipmentGroup | |||||
Group | Land, freehold and leasehold buildings £'000 | Fixtures and fittings £'000 | Computer equipment £'000 | Motor vehicles £'000 | Total £'000 |
Cost | |||||
At 1 July 2016 | 5,950 | 4,117 | 4,032 | 487 | 14,586 |
Additions | - | 775 | 416 | 109 | 1,300 |
Acquisitions | - | 341 | 340 | 87 | 768 |
Disposals | (2,789) | (10) | (520) | (149) | (3,468) |
Exchange translation differences | - | 16 | 24 | - | 40 |
At 30 June 2017 | 3,161 | 5,239 | 4,292 | 534 | 13,226 |
Additions | 2,122 | 436 | 787 | 68 | 3,413 |
Acquisitions | - | 119 | 123 | - | 242 |
Disposals | - | (1,760) | (1,289) | (142) | (3,191) |
Reclassification to held for sale | - | - | (11) | - | (11) |
Exchange translation differences | - | (1) | (2) | - | (3) |
At 30 June 2018 | 5,283 | 4,033 | 3,900 | 460 | 13,676 |
Accumulated depreciation | |||||
At 1 July 2016 | 2,879 | 3,187 | 3,675 | 217 | 9,958 |
Charge for the year | 151 | 540 | 275 | 105 | 1,071 |
Disposals | (2,210) | (10) | (520) | (126) | (2,866) |
Acquisitions | - | 227 | 315 | 43 | 585 |
Exchange translation differences | - | 12 | 22 | - | 34 |
At 30 June 2017 | 820 | 3,956 | 3,767 | 239 | 8,782 |
Charge for the year | 142 | 649 | 468 | 90 | 1,349 |
Acquisitions | - | 116 | 114 | - | 230 |
Disposals | (3) | (1,760) | (1,289) | (95) | (3,147) |
Reclassification to held for sale | - | - | (2) | - | (2) |
Exchange translation differences | - | - | 1 | - | 1 |
At 30 June 2018 | 959 | 2,961 | 3,059 | 234 | 7,213 |
Net book amount | |||||
At 30 June 2018 | 4,324 | 1,072 | 841 | 226 | 6,463 |
At 30 June 2017 | 2,341 | 1,283 | 525 | 295 | 4,444 |
At 30 June 2016 | 3,071 | 930 | 357 | 270 | 4,628 |
Included in land, freehold and leasehold buildings is £970,000 (2017: £970,000) of non-depreciated land.
Included within additions to property plant and equipment is £2,371,000 of leasehold improvements, furniture and computer equipment relating to the London head office move to premises near Aldgate.Also included in additions to land, freehold and leasehold buildings is £324,000 relating to a provision for asset retirement costs in relation to the leasehold improvements on the London head office premises.
Depreciation of property plant and equipment includes £432,000 of accelerated depreciation on assets disposed of on the exit of the Underwood Street leasehold property in December 2017 and in relation to the IT infrastructure outsourcing. The decision to exit the leasehold property triggered a review, and subsequent reduction, of the useful economic lives of assets held at the property. On disposal, the net book value of these assets was £nil, and the portion of depreciation arising on the reduction in useful economic lives of these assets is shown within other adjusting items (included in operating expenses) within the Income Statement. The remaining £917,000 depreciation is included in operating expenses within the Income Statement.
15. Assets held for sale
30 June 2018 £'000 | 30 June 2017 £'000 | |
Intangible assets - computer software | 58 | -- |
Property, plant and equipment | 9 | -- |
Prepayments and accrued income | 6 | -- |
Cash and cash equivalents | 244 | -- |
Total assets held for sale | 317 | -- |
Assets presented as held for sale relate to International Company Profile, the credit reporting business held within the Risk & Compliance Division. On 18 July 2018 Wilmington Publishing and Information Limited (a wholly owned subsidiary of Wilmington plc) sold the trade and assets of International Company Profile, including its 100% shareholding in International Company Profile FZ LLC, the statutory entity incorporated in Dubai, to its management team. The £3.0m consideration in respect of the sale will be paid in instalments over the next five years.
16. Trade and other receivables
Group | ||
30 June 2018 £'000 | 30 June 2017 £'000 | |
Current | ||
Trade receivables | 22,869 | 23,207 |
Prepayments and other receivables | 5,364 | 5,237 |
Amounts due from subsidiaries | - | - |
28,233 | 28,444 | |
Amounts due from all subsidiaries are interest free, unsecured and repayable on demand.
17. Derivative financial investments
Group | ||
30 June 2018 £'000 | 30 June 2017 £'000 | |
Non-current assets | ||
Interest rate swaps - maturing in November 2020 | 113 | - |
Non-current liabilities | ||
Interest rate swaps - maturing in November 2020 | (356) | (662) |
18. Trade and other payables
Group | ||
30 June 2018 £'000 | 30 June 2017 £'000 | |
Trade and other payables | 26,368 | 25,357 |
Subscriptions and deferred revenue | 24,746 | 26,973 |
Amounts due to subsidiaries | - | - |
51,114 | 52,330 | |
Amounts due to subsidiaries are interest free, unsecured and repayable on demand.
19. Borrowings
Group | ||
Current liability | 30 June 2018 £'000 | 30 June 2017 £'000 |
Bank overdrafts | - | 925 |
- | 925 | |
Non-current liability | ||
Bank loans | 50,665 | 49,781 |
Capitalised loan arrangement fees | (285) | (428) |
Bank loans net of loan arrangement fees | 50,380 | 49,353 |
At 30 June 2018 the Group was in a net credit position in respect of its bank overdrafts. This position comprised of the net of gross overdraft balances of £9.0m (2017: £13.2m) and cash positions of £10.1m (2017: £12.3m) held at Barclays Bank PLC in certain UK companies included in the offsetting agreement.
The £143,000 decrease in capitalised loan arrangement fees reflects an amortisation charge of £165,000 (2017: £147,000) and additions of £22,000 (2017: nil).
20. Non-controlling interests
Net non- £'000 | |
At 30 June 2016 | 153 |
Profit for the year | 38 |
Dividends paid | (105) |
At 30 June 2017 | 86 |
Profit for the year | 47 |
Dividends paid | (62) |
Movements in non-controlling interest | 11 |
At 30 June 2018 | 82 |
Movements in non-controlling interests relate to the purchase of the remaining 20% shareholding in Central Law Training (Scotland) Limited for £335,000 in July 2017.
21. Cash generated from operations
Group | ||
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Profit from continuing operations before income tax | 3,025 | 15,862 |
Gain on sale of leasehold property | - | (6,333) |
Adjusting items - excluding depreciation of property plant and equipment | 4,141 | 3,468 |
Adjusting items - depreciation of property, plant and equipment | 432 | - |
Depreciation of property, plant and equipment included in operating expenses | 917 | 1,071 |
Amortisation of intangible assets | 7,734 | 7,193 |
Impairment of goodwill and intangible assets | 8,561 | 2,366 |
Profit on disposal of property, plant and equipment | (11) | (20) |
Share based payments (including social security costs) | 641 | 552 |
Finance costs | 1,969 | 1,961 |
Operating cash flows before movements in working capital | 27,409 | 26,120 |
Decrease/(increase) in trade and other receivables | 160 | (1,997) |
(Decrease)/increase in trade and other payables | (1,904) | 2,530 |
Cash generated from/(used in) operations before adjusting items | 25,665 | 26,653 |
Cash conversion is calculated as a percentage of cash generated by operations to Adjusted EBITA as follows:
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Funds from operations before adjusting items: | ||
Adjusted EBITA (note 3a) | 24,560 | 23,352 |
Share based payments (including social security costs) | 641 | 552 |
Amortisation of intangible assets - computer software | 1,302 | 1,165 |
Depreciation of property, plant and equipment included in operating expenses | 917 | 1,071 |
Profit on disposal of property, plant and equipment | (11) | (20) |
Operating cash flows before movement in working capital | 27,409 | 26,120 |
Net working capital movement | (1,744) | 533 |
Funds from operations before adjusting items | 25,665 | 26,653 |
Cash conversion | 105% | 114% |
Year ended 30 June 2018 £'000 | Year ended 30 June 2017 £'000 | |
Free cash flow: | ||
Operating cash flows before movement in working capital | 27,409 | 26,120 |
Proceeds on disposal of property, plant and equipment | 55 | 43 |
Net working capital movement | (1,744) | 533 |
Interest paid | (1,934) | (1,656) |
Tax paid | (4,738) | (3,905) |
Purchase of property, plant and equipment | (3,089) | (1,300) |
Purchase of intangible assets | (1,934) | (1,599) |
Free cash flow | 14,025 | 18,236 |
22. Events after the reporting period
Forward contracts
On 2 July 2018 the following forward contracts were entered into in order to provide certainty in sterling terms of 80% of the Group's expected net US dollar and Euro income:
· On 2 July 2018, the Group sold $3.0m to 19 October 2018 at a rate of 1.3192
· On 2 July 2018, the Group sold €1.0m to 16 November 2018 at a rate of 1.1242
· On 2 July 2018, the Group sold €1.0m to 18 January 2019 at a rate of 1.1222
· On 2 July 2018, the Group sold $5.0m to 15 March 2019 at a rate of 1.3292
· On 2 July 2018, the Group sold €1.0m to 18 April 2019 at a rate of 1.1190
· On 2 July 2018, the Group sold $5.0m to 17 May 2019 at a rate of 1.3336
Sale of International Company ProfileFZ LLC
On 18 July 2018 Wilmington Publishing and Information Limited (a wholly owned subsidiary of Wilmington plc) sold the trade and assets of its ICP credit reporting business, including the 100% shareholding in International Company Profile FZ LLC, the statutory entity incorporated in Dubai, to its management team. The £3.0m consideration (excluding £0.9m of potential early repayment discounts) in respect of the sale will be paid in instalments over the next five years.At 30 June 2018 all assets disposed of as part of the transaction have been reclassified to held for sale.
END
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Wilmington plc published this content on 12 September 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 12 September 2018 06:17:09 UTC
