TIDMUBI
RNS Number : 5905H
Ubisense Group PLC
17 March 2015
Ubisense Group plc - 17 March 2015
Audited results for the year ended 31 December 2014
Ubisense Group plc ("Ubisense" or the "Company") (LSE:UBI), a
market leader in enterprise location intelligence solutions,
announces its audited results for the year ended 31 December
2014
Strategic highlights
-- The Group won its largest ever contract in each of its two core Solutions markets:
o Automotive - Daimler has installed Ubisense's Smart Factory
product on its E-Class assembly line at Sindelfingen, Germany
o Utilities -Duke Energy in the US has deployed Ubisense's
myWorld to approx. a quarter of Duke's 20,000+ field operations
personnel
-- The Group also signed up major new customers in both market segments:
o Automotive - Tesla, Honda, Komatsu and CLAAS
o Utilities - Exelon, NiSource and Liberty Utilities
-- 2014 also saw a high number of extensions among existing
customers in both Smart Factory and myWorld, including VW, Daimler,
BMW, Toyota and John Deere in automotive and Central Hudson and
Cablevision in networks/utilities.
-- Geoplan acquisition performing well and producing new
Solutions revenue streams in Japan and South Korea.
Financial highlights
-- The Group's stated policy is to grow revenues and margins
from its Solutions businesses, resulting in Solutions contribution
growing faster than Services. In 2014 for the first time Solutions
revenues were greater than Services:
o Solutions revenues grew by 49.8% to GBP20.1m (2013: GBP13.4m),
of which GBP18.5 million, 42%, was organic.
o Services revenue grew by 10.3% to GBP15.0m (2013: GBP13.6m),
organic revenues fell by GBP2.7 million, 21%.
-- Recurring revenues grew by 27.3% as a result of the
increasing focus on Solutions and now represent 28.1% of total
revenues (2013: 26.5%). Within this total, the Solutions portion
increased by almost 70%.
-- Gross margin increased to 39.9% (2013: 34.2%).
-- Adjusted EBITDA* was GBP1.9m (2013: GBP1.1m). However, a much
higher amortisation charge of GBP3.7m following the Geoplan
acquisition plus various exceptional charges (GBP1.3m) and
non-recurring items (GBP1.1m) led to an operating loss of GBP4.6m
(2013: GBP1.6m).
-- GBP8.1 million bank facility to provide capacity to meet
future working capital requirements, with GBP6.9 million drawn.
* Measured as operating profit excluding depreciation,
amortisation, share-based payments charge and non-recurring costs
such as reorganisation costs and acquisition costs.
Chief Executive Richard Green, said: "2014 saw us break into
important new customers as well as increasing our repeat business
with existing customers to help them improve their business
processes. Our products and the way we combine it with in-depth
knowledge of customers' business requirements really is unique. We
are now beginning to monetise that uniqueness and we are very
confident about our prospects as a result".
ENDS
For further information: see next page
For further information contact
Ubisense Group plc +44 (0) 1223 535170
Richard Green, Chief Executive
Robert Parker, Chief Financial Officer
Numis Securities Limited +44 (0) 7260 1000
Simon Willis, James Lillywhite (Corporate Finance)
Rupert Krefting (Corporate Broking)
Montfort Communications +44 (0) 20 3514 0897
Nick Miles +44 (0) 7973 130669
About Ubisense
Ubisense (AIM: UBI), a global leader in Enterprise Location
Intelligence solutions, helps manufacturing, communications and
utility companies improve operational efficiency and boost
profitability. Ubisense location intelligence systems bring clarity
to complexity, enabling customers to revolutionise their
operational effectiveness in a measurable way. Founded in 2002,
Ubisense is headquartered in Cambridge, England, with offices in
North America, France, Germany, Japan, Korea, Philippines and
Singapore. For more information visit: www.ubisense.net.
Chairman's statement
Introduction
As we predicted last year, Ubisense has travelled fast towards
achieving its goal of becoming a global enterprise software and
solutions business. We have achieved this by turning our location
technology and experience into a vital component of the processes
and practices of some of the world's best known businesses.
In the Financial Review, you will see, in detail, how we have
been able to increase revenues in our chosen core Solutions
business, transitioning from the lower margin services element we
had experienced in earlier years.
The response we have received from new and existing customers -
as evidenced in the Chief Executive's Review - gives us great
confidence that this is a sustainable trajectory which can create
substantial value for shareholders.
I am immensely proud to have been associated with Ubisense since
its inception, and in this statement I will focus on the context of
our achievements in terms of the business and the technology that
continues to be applied at the very highest level. Our priority is
to ensure that we are market leader to our customers.
Why Customers Need Us
First it must be understood that, in driving enterprise location
intelligence into two solution areas, we were anxious to prove that
our ideas would have a genuine application in the commercial world.
The combined entity, formed from my earlier Cambridge Computer
Laboratory projects and Richard Green's unit (which had evolved
from Smallworld), spent its early years providing proof of concept
at a very high level. Having achieved this, it took us some years
to find scalable commercial opportunities and it was not until 2008
that BMW helped us identify a critical commercial application of
our IP which became known as the Smart Factory product.
That technology is now installed in 9 of the 15 major vehicle
manufacturers in the world.
Similarly, our myWorld location intelligence product only came
into being in 2012 by identifying a mission critical industry
challenge after years of experience in the US utilities markets.
Following significant new wins in the US in 2014 we also expect
substantial growth in this market.
Shareholders should be aware that we are serving two of the
largest markets in the world where the cost of "down-time" is
measured in hundreds of dollars per minute - vehicle manufacturing
and utility networks. These are not markets dependent on short term
trends or sudden new technology shocks. They are mature and require
immense attention to detail at every level to continue to further
drive down costs, to improve production or response times, to
establish better quality, to retain customers and to respond to
increasing health and safety regulation. Perhaps most importantly
we help ensure that our customer's management has better visibility
on their critical processes, so that mistakes are not repeated,
assets are more swiftly identified or recovered and lessons
learned, so that improvements can be made in assets, people and
process.
So while Ubisense's products and expertise is genuinely
differentiated and innovative, the demand for it is driven by that
most fundamental customer need - to do the job better. This gives
us great confidence that we are a business with a very long term
future.
However I do want to draw attention to our continued
preoccupation with providing the very best application of modern
technological thinking and innovation.
Continued Technological Advance will keep us ahead
During 2014 we participated in a number of very important and
exciting programmes:
-- Industry 4.0 - this German-government inspired initiative is
clearly key to any number of our automotive customers and the
experience we have gained has kept us as a prime proponent of the
skills and thinking needed to create advancement in this area.
Ubisense has been a long-standing partner with the FIR (Institute
for Industrial Management) at the RWTH Aachen University.
-- Manufacturing Technology Centre - We are also a partner at
the Manufacturing Technology Centre (MTC) in Coventry, UK alongside
major players such as Siemens and Rolls Royce, and have been
pleased to be amongst the first to demonstrate actual applications
to assist digital enablement in the manufacturing process.
-- The University of Sheffield Advanced Manufacturing Research
Centre (AMRC) - this newly formed UK Government backed initiative,
is developing the AMRC Factory 2050 initiative - the "factory of
the future". Ubisense won a tender in November 2014 for the supply
of a factory-wide system for tracking and monitoring. Once again we
are one of the few partners to have already developed installable
product into this new initiative.
All of the aforementioned is part of the broader market drive
towards an industrial 'internet of things', and the new impetus to
create products which gather information and help enable
intelligent production during their lifecycle. As you would expect,
Ubisense, despite our youth and size, is very much at the cutting
edge of this thinking.
Conclusion
In this Report you will see that we have made important
financial steps to help us achieve our business goals during 2015
and beyond. The company has transformed since IPO and is continuing
to evolve from a Cambridge tech company into a global enterprise
software business. But our technological and innovative expertise
remains constant and these, combined with the robustness of the
giant markets which we serve, give your Board great confidence for
the future.
Andy Hopper, CBE
Chairman
16 March 2015
Chief Executive's review
In last year's Annual Report, I wrote about the exceptional
progress we had made in developing our strategic and product focus
in order to enable us to improve how we approach our key markets -
vehicle manufacturing, utilities and communications. This year I am
very pleased to report that the strategy is bearing fruit. We have
reached a watershed in terms of contracts and customers won in our
target industries around the globe and I believe our company stands
on the threshold of significant gains in Solutions revenue, margin
growth and profitability, which will take us to a new level as a
business.
Highlights
In both of our key revenue streams - vehicle manufacturing (via
Smart Factory RTLS products) and networks asset management (via
myWorld geospatial products) we have this year won our two largest
and most important customer contracts in our company's history.
-- Existing customer Daimler has deployed Smart Factory to
support the production process of its flagship next generation
Mercedes E-class model in the assembly line at Sindelfingen,
Stuttgart. This significant new contract comes after our proven
installation on the S-class assembly line at the same factory and
shows precisely how our Solutions are capable of adaption and
adoption by existing customers to enhance their processes for
multi-line and multi-site use.
In other words we are capable of generating new sales from
existing customers at an ever increasing rate, as our skills and
understanding of their business and technical needs grows
apace.
-- In network asset management, we won a major new contract with
Duke Energy in North Carolina, one of the largest power utility
companies in North America, to install our myWorld product across
almost a quarter of their field operations personnel. The contract
followed the merger of Duke with Progress Energy and we competed
against the existing incumbent providers. Ubisense proved that it
has critical differentiators over vastly larger installed
competitors.
And while we cannot rest on our laurels, we would hope to
increase our installed base with companies like Duke Energy,
increasing the scale of what we can do for them from 25% of their
field operations workforce to 50% of their customer-facing and
field operations and beyond in the foreseeable future.
New customers
We were also pleased to be selected by a number of new household
name customers in our target markets.
In vehicle manufacturing we signed breakthrough Smart Factory
deals with automotive manufacturers Honda, and with Tesla, the
electric car manufacturer. We also were delighted to sign our first
deal with Komatsu and CLAAS, the heavy vehicle specialists.
Following on from the excellent work we are doing for John
Deere, we see further opportunities to develop in vehicle
manufacturing areas such as agricultural and construction,
diversifying from automotive to a wider range of applications and
business segments.
In network asset management we added Exelon, NiSource, Duke
Energy and Liberty Utilities as new myWorld customers. I should
remind shareholders that it was Duke Energy that was a significant
managed services customer for Ubisense where we had proven our
expertise as a partner. This enabled us to be considered, compete
and ultimately win our first myWorld installation at Duke Energy
against much larger, incumbent competitors.
Existing customers
2014 was also notable for solid growth of expanded installations
amongst our existing customer base in both vehicle manufacturing
and networks asset management and it is fitting that we review
progress in this regard. I have already stated that we are showing
strong business gains from new name customers in both business
areas. But an equally exciting opportunity is to build impact and
influence within our existing customer group.
As customers see how Ubisense is enabling them to handle
increasing complexity, while driving volume, quality and reduced
cost in one part of the manufacturing process or in one location,
they work with us to expand that success into other processes,
lines and plants. For example where we often begin in automotive
manufacturing on the final assembly line, it is now standard
practice for us to work on new Smart Factory installations in other
areas such as repair and rework, to help customers manage cost and
quality, while increasing throughput. Our expertise grows and thus
so does the scope of what we are able to achieve within our
existing customer base.
BMW, a cornerstone customer for Ubisense, has 9 major assembly
plants around the world and when we began our Smart Factory
installations with them in 2008, we were in 1. Today we are in 6
and are continuously proving that we can add value with each
expanded installation on a line, including the Mini in Oxford, as
well as plants in China.
And we are experiencing strong traction at VW, now featuring in
4 of their 100+ plants.
It seems to us that this is the ultimate expression of
confidence in our people, processes and products. Customers choose
to use us more and more, in multiple locations and across
ever-increasing application areas.
Whilst this trend is most pronounced in vehicle manufacturing, I
see the networks business replicating this success. As mentioned,
our network asset management product is some five years younger
than the vehicle manufacturing product in terms of customer
adoption. We believe each is capable of a great deal more.
Other progress and delivery
I am very pleased with the Geoplan acquisition we made last year
in Asia Pacific. Having integrated the business successfully we are
now seeing real prospects for geographical expansion across Asia
Pacific. We have begun our first installations at Hyundai and also
at Toyota and we are very positive about further developments in
the region, including further work for NYK in their automotive
logistics business.
We have also referenced over the years our continued work with
partners such as Atlas Copco and Daifuku, who have helped us
integrate into their own network of products and solutions in very
large businesses and geographical segments. I'm encouraged by
progress here too. Our new Smart Factory D4 technology will make it
far easier for our partners to deploy and adopt our products and
incorporate them more swiftly and economically into their own
solutions. I see this as a strong engine for growth in the medium
term, quite outside the impact it will have amongst existing
customers.
People
An enterprise software business of course relies on its people
and I must congratulate the team in adapting to our new strategy
and making it work. I would also like to thank some of our newer
senior team additions, in particular our CFO Robert Parker and our
new marketing and commercial team, led by Charles Watson. These new
arrivals are complementing our established technology skills and
together we are moving the business onto a more accomplished
corporate footing, which will clearly benefit shareholder
returns.
Outlook
We believe Ubisense's prospects have never looked better for
winning new customers and yet we also believe that there is quite
literally a world of opportunity for us to provide solutions and
value for our current customers. We are, as ever, very grateful for
the support of our shareholders and look forward to a rewarding
future.
Richard Green
Chief Executive Officer
16 March 2015
Financial review
Revenue
The Group is organised as a single Enterprise Location
Intelligence business unit, combining Vehicle Manufacturing and
Network Asset Management application areas. The Group's strategy is
outlined further in the Strategic Report. While we market, organise
and report a single offering, Ubisense has two distinct revenue
streams which are serviced by a common cost base:
-- Solutions revenues are those driven from the Ubisense product
suites (Smart Factory System and myWorld), technical expertise and
exclusive reseller arrangements. A solution sale will include a
mixture of application software (licences in perpetuity and
subscription based), installation and commissioning services,
hardware (for vehicle manufacturing) and maintenance and support.
Margins in any given period will vary depending upon the make-up
and phase of the given set of Solutions being delivered. The
Company sees this revenue stream as critical to driving the long
term growth and profitability of the business and there is a
strategic shift towards this higher margin revenue stream.
-- Services revenues are those not involving the Ubisense
product suites as defined above. These revenues are typically
multi-year managed services contracts, consultancy and training.
The Company generally has good visibility on future revenue from
Services and drives customer loyalty in addition to providing a
customer base into which it can sell its Solutions.
The majority of our revenues relate to a small number of large
deals, the timing of which is not solely within our control and
each can carry a significant impact on our results in any single
reporting period.
Total revenues grew 29.8% to GBP35.1 million (2013: GBP27.0
million). Of this GBP28.7 million was organic growth. Within total
revenues, the Solutions revenue grew by 49.8% to GBP20.1 million
(2013: GBP13.4 million), of which GBP18.5 million, 41% was organic.
Services revenue grew by 10.2% to GBP15.0 million (2013: GBP13.6
million). This was primarily due to Services revenues of GBP4.8
million from the Geoplan group, whilst the organic business in
Services fell by GBP2.7 million.
Recurring revenues grew by 27.3% to GBP9.8 million (2013: GBP7.2
million) or 28.1% of total revenues (2013: 26.5%), of which GBP4.2
million was maintenance and support which increased by 69.9% (2013:
GBP1.3 million), and represents 12.0% of total revenues (2013:
4.7%). This increase is as a result of the installed base of
products progressively increasing and it serves to stabilise
revenue trends as the business grows.
As a global business with activities focussed in Europe, North
America and Asia Pacific, the reported results are subject to
exchange rate volatility. During the period, sterling has
strengthened against the US Dollar, Euro and Japanese Yen;
currencies in which the Group derives a significant proportion of
its revenues. If currency exchange rates had remained constant in
2014 compared to 2013, the Board estimates that Group reported
revenues would have been GBP2.5 million higher at GBP37.6 million
and adjusted EBITDA GBP0.1m higher.
To mitigate currency effects, the Group's policy is to maintain
natural hedges where possible by matching foreign currency revenues
and expenditure. The Board regularly reviews the forecast currency
requirements and at this stage, does not consider external hedging
arrangements for profit and loss items to be appropriate for the
Group.
Orders
2014 saw a number of major new contract awards and extensions to
existing contracts resulting in new orders for the period of
GBP31.6 million (2013: GBP32.5 million), of which GBP21.0 million
related to Solutions (2013: GBP18.3 million). A number of major
Solutions deals closed in 2014 which included further expansion
into our automotive customers with Smart Factory systems. In
addition, our network Solutions business is continuing to grow with
myWorld and we secured contracts with some of the largest utilities
in the United States during the year.
The order book as at 31 December 2014 stood at GBP12.4 million
(2013: GBP17.9 million) - a 31% decrease from 2013. This reflects
the Group's strategy to focus on the Solutions business, which
provides shorter lead time between order and revenue generation
than Services, which in 2013 was significantly made up of
multi-year contracts at lower margin. Of the 2013 backlog, GBP14.4
million of revenue was recognised in 2014 and GBP3.5 million will
be recognised in 2015 and beyond. Of the 2014 backlog, GBP10.7
million will be recognised as revenue in 2015, with GBP1.7 million
forecast to be recognised in 2016 and beyond. The Group has
increasing visibility on revenues into 2015 as our penetration
within existing customers increases.
Gross margin
The gross margin increased from 34.2% in 2013 to 39.9% in 2014.
This was primarily as a result of an increase in Solutions revenue
in the revenue mix, which provides higher margins than Services
revenues.
Operating expenses
Operating expenses increased by GBP7.7 million (70%) to GBP18.6
million (2013: GBP10.9 million). The increase is due to the
inclusion of operating expenses from the Geoplan group of GBP2.7
million following its acquisition in December 2013 and GBP5.0
million of the increase was from the existing Group, which included
an increase in amortisation charges by GBP2.0 million to GBP3.7
million for the year and non-recurring items of GBP2.4 million.
Operating expenses includes marketing, product marketing, product
development, administration, depreciation & amortisation and
foreign exchange.
Gross expenditure on product development was GBP3.9 million
(2013: GBP4.0 million) reflecting constant investment in our
flagship Smart Factory and myWorld products. Capitalised product
development costs at GBP3.0 million (2013: GBP3 million)
represented 75% (2013: 76%) of gross development spend.
Amortisation of the capitalised development costs increased to
GBP2.6 million (2013: GBP1.2 million) as a result of significant
investment in product development in recent years.
The Group incurred non-recurring expenditure of GBP2.4 million
(2013: GBP0.8 million). GBP0.6 million related to strategic Asia
Pacific market entry costs relating to integration of the Geoplan
acquisition made in December 2013. The Group underwent an internal
re-organisation in the second half of the year which incurred
GBP0.5 million of related costs. Acquired intangible assets
relating to Services revenues were impaired by GBP1.3 million
during the year. This impairment is a result of the Group's
strategy of focussing on high margin Solutions revenues.
EBITDA and operating profit
Group Adjusted EBITDA for the period was GBP1.9 million (2013:
GBP1.1 million). To provide a better guide to underlying business
performance adjusted EBITDA excludes share-based payment charges
and non-recurring items along with depreciation, amortisation,
interest and tax from the measure of profit.
Both the operating loss of GBP4.6 million (2013: GBP1.6 million)
and loss before tax of GBP4.8 million (2013: GBP1.7 million)
includes amortisation charges of GBP3.7 million (2013: GBP1.6
million), depreciation charges of GBP0.4 million (2013: GBP0.3
million) and the non-recurring items noted above of GBP2.4 million
(2013: GBP0.8 million). Amortisation charges have increased
significantly due to the amortisation of acquired intangible assets
following the Geoplan acquisition in December 2013 and higher
amortisation on capitalised development costs reflecting the
increased investment in recent years.
Interest and tax
Net interest payable for the period was GBP0.2 million (2013:
GBP0.1 million) as a result of drawing down our HSBC bank and
Mizuho bank loans.
The Group has a net tax credit of GBP0.7 million (2013: GBP0.2
million expense) as a result of cash receivable of GBP0.5 million
under the UK R&D tax credit regime and GBP0.2 million of
non-cash deferred tax on capitalised development costs and acquired
intangible assets. Management's best estimate of the effective
current tax rate is nil due to the availability of prior years'
losses. The Group has substantial tax losses carried forward but
does not currently recognise a deferred tax asset in respect of
these losses.
EPS and dividend
Adjusted diluted loss per share was 3.5 pence (2013: 3.5 pence
loss). Reported basic and diluted loss per share was 16.7 pence
(2013: 8.9 pence). No dividend has been declared.
Balance sheet, cash and cash flow
The Group has a robust balance sheet with net assets at 31
December 2014 of GBP18.8 million (31 December 2013: GBP19.4
million). Due to the proximity to the year end of the Geoplan
acquisition in December 2013, the fair values of assets and
liabilities acquired were provisional at 31 December 2013 in line
with IFRS 3. The post-acquisition review of the net assets acquired
has been conducted in the current period and as a result, the
balance sheet at 31 December 2013 restated.
In April 2014, the business completed a share placing raising
gross proceeds of GBP4.2 million with the placement of 1,929,589
new ordinary share at a price of GBP2.20 per share from existing
and new shareholders. The net proceeds from the placing are being
used by the Group to support the growing Solutions business.
The Group has a three year working capital facility of GBP5.0
million agreed with HSBC in 2013. GBP4.0 million of this facility
was drawn as at 31 December 2014 (2013: GBP3.5 million). In June
2014, a 130 million Japanese Yen denominated loan (GBP0.8 million)
was agreed with Mizuho Bank and fully drawn down in H1 2014. The
facility was increased to 200 million Japanese Yen in H2 2014 and
170 million Japanese Yen was drawn at 31 December 2014 (2013:
GBPnil). This facility takes advantage of the low interest rates
available in Japan and acts as a natural hedge against the Group's
assets in Asia.
In October 2014, the Group agreed an additional GBP2.0 million
four-year term loan with HSBC to provide funds for future
acquisitions. This facility was drawn in full at the year end
(2013: GBPnil).
Cash and cash equivalents held in the balance sheet at 31
December 2014 was GBP3.7 million (31 December 2013: GBP4.0
million). The movement in the cash position during the year is
summarised below:
2014
GBPm
------------------------------------------------- ------
Loss before tax (4.8)
Depreciation and amortisation charges 5.3
Other non-cash expenses 0.3
-------------------------------------------------- ------
Operating cash inflow before working capital
movement 0.8
Working capital outflows (3.5)
================================================== ======
Operating cash flows before capital expenditure (2.7)
Capital expenditure on product development
and property, plant & equipment (4.4)
Deferred and contingent consideration paid
in respect of Geoplan group acquisition (0.5)
Interest and tax paid (0.1)
-------------------------------------------------- ------
Cash outflow from trading activities (7.7)
-------------------------------------------------- ------
With the bank loan outstanding of GBP6.9 million, net debt at 31
December 2014 was GBP3.2 million (31 December 2013: GBP0.5 million
net funds). The movement in the net debt position is summarised
below:
2014
GBPm
------------------------------------------ ------
Net funds at 1 January 2014 0.5
Cash outflow from trading activities (7.7)
Share placing to institutional investors 4.0
=========================================== ======
Net debt at 31 December 2014 (3.2)
------------------------------------------- ------
Capital structure
The issued share capital at 31 December 2014 was 25,062,842
(December 2013: 23,079,146) ordinary shares of GBP0.02 each. The
increase of 1,983,696 shares relates to 1,929,589 shares issued in
the April 2014 placing and 54,107 share option exercises by
employees. 447,500 share options were granted to employees on 23
May 2014 at an exercise price of GBP2.25, being the share price at
the time. 192,500 options vest after 3 years, depending on
continued service during the vesting period. 255,000 options also
have certain performance criteria attached in order to vest.The
total number of unexercised share options at 31 December 2014 was
2,343,271.
Robert Parker
Chief Financial Officer
16 March 2015
Strategic report
Strategy and business model
Ubisense is a global leader in Enterprise Location Intelligence
solutions for Manufacturing, Communication and Utility companies.
We enable some of the world's largest businesses to improve
operational effectiveness, significantly increasing their
profitability.
We help unlock previously inaccessible intelligence and insight
to empower our customers to realise dramatic benefits in diverse
application areas including vehicle manufacturing, network
operations, field operations and asset management. Ubisense
Enterprise Location Intelligence Solutions are used by a number of
blue chip customers across the world, such as Toyota, VW, GM,
Hyundai, Honda, PSA, BMW and Daimler.
Ubisense is headquartered in Cambridge, UK, with offices in the
USA; Canada; Germany; France; Japan; South Korea; and
Singapore.
The enterprise acceptance of our Solutions has been accelerated
by several factors such as the consumerisation of maps led by
Google, the proliferation of smart devices, the growth in cloud
technologies and the modern device to device networking referred to
as Internet of Things. Ubisense's software products and services
capability benefit from these trends, enabling enterprises across
the high value manufacturing, utility and telecommunications
sectors to deliver significant improvements in quality, efficiency
and cost savings. This also opens up new, adjacent markets for
Ubisense.
The Group acquired the Geoplan group of companies in December
2013 to accelerate market penetration into the Asia Pacific region.
With the business reorganisation conducted in 2014, the strategy of
the Group is to:
-- Continue to transition to a products-led business, supported by Services capability
-- Drive a change in the revenue mix to deliver more, high
margin software with associated recurring revenues
-- Develop next-generation applications that deliver ROI to customers
-- Focus direct business on Vehicle Manufacturing and Network
Asset Management enterprises including Telecommunication and
Utility
-- Drive step and repeat business in Automotive manufacturing across new site locations
-- Focus on our key target markets of North America, Europe and Asia Pacific
-- Streamline and align operations, providing a rewarding work
environment to attract and retain talented staff
Business review and future developments
Business development
An increase in our gross margin by 5.7 percentage points from
34.2% to 39.9%, adds validity to our strategy to focus on our
Enterprise Location Intelligence Solutions, and the investment we
have made in our next generation platforms and sales and marketing
infrastructure.
The Group's products are becoming generally accepted across its
chosen industries and Ubisense is increasingly able to penetrate
deeper into its customer base by installing additional applications
on each site, and is confident this trend will continue. With the
acquisition of the Geoplan group in Asia, we believe that our
geographical footprint is complete at present.
The Group continues to invest in product development with
activities focusing on two product lines; Smart Factory in the
vehicle manufacturing industry and myWorld in the utilities and
communications industries. It is the Board's strategy to
investigate and explore complementary acquisition targets from time
to time. In this regard, the Board would seek to acquire businesses
which enable the Company to expand its product portfolio and its
geographic footprint in order to increase its offering to its
customers and expand demand for the Group's Solutions.
Partnerships
While our direct sales channel is gaining strong customer
traction, our solution partners are also contributing to the strong
revenues in the year. The Group continues to develop relationships
with partners such as Atlas Copco and Daifuku and is optimistic
about the opportunities to expand market presence these
relationships provide. The Group is also setting the foundation for
developing a reseller channel to extend geographic footprint in
2016 and beyond.
Key performance indicators
The primary financial key performance indicator for the Group,
which are reported monthly, are as follows;
-- Adjusted EBITDA
Adjusted EBITDA excludes amortisation, depreciation,
non-recurring items and share based payments and is reported as it
reflects the performance of the Group. Adjusted EBITDA for the year
was GBP1.9 million (2013: GBP1.1 million).
-- Revenue mix
The revenue mix of Solutions and Services is reported as the
gross margin on each stream is different. Solutions revenues, which
attract a higher margin that Services revenues, accounted for 57%
of total revenues (2013: 50%).
-- Cash and working capital
The Group closely monitors the cash balances and working capital
movements. The closing cash balance for the Group was GBP3.7
million (2013: GBP4.0 million) and net debt was GBP3.2 million
(2013: GBP0.5 million net funds). The movement in the cash position
is explained in detail in the Financial Review.
-- Order backlog
Order backlog provides the Group visibility over future
revenues. At 31 December 2014, the order backlog was GBP12.4
million (2013: GBP17.9 million). This decrease reflects the Group's
strategy to focus on Solutions revenues, which attract shorter lead
times between order and revenue generation that Services.
Non-financial key performance indicators for the Group
include:
-- Quantity and quality of lead generation, pipeline and
conversions to deals in the sales pipeline.
-- Project duration, including installation service days.
-- Our reaction and solution times to customer requests.
Having regularly reviewed the KPIs in respect of changes within
periods and changes between reporting periods the Directors believe
that the Group has made steady progress against the KPIs,
especially revenue mix and adjusted EBITDA.
Financial instruments
Information on both the Group's financial risk management
objectives and the Group's policies on exposure to relevant risks
in respect of financial instruments are set out in note 26 of the
consolidated financial statements.
Principal risks and uncertainties
The Group faces competitive and strategic risks that are
inherent in a rapidly growing emerging market. The Board and the
Executive Management Team review strategy and risks to the business
regularly. Where possible, processes are in place to monitor and
mitigate the identified risks.
The key business risks affecting the Group are set out
below:
Technological risks
The Group operates in an industry where competitive advantage is
heavily dependent on technology. It is possible that technological
development may reduce the importance of the Group's function in
the market or render the patents on which it relies redundant. For
instance, the Group's Enterprise location systems rely on
ultra-wideband radio signals to operate. There is no guarantee that
technological advances will not render systems based on
ultra-wideband radio obsolete. The Group's existing reference
designs may become obsolete or may be superseded by new
technologies or changes in customer requirements. The technology
used in the Group's products is still evolving, is highly complex
and may change rapidly.
In order to mitigate this risk, Ubisense invests in a range of
research and development activities to maintain its competitive
advantage and participates in industry and research forums in order
to keep abreast of technological advances.
Growth management and acquisitions
The Directors believe that further expansion, either organic or
via acquisition, will be required in the future to capitalise on
the anticipated increase in demand for the Group's solutions. The
Group's future success will depend, in part, on its ability to
manage this anticipated expansion. Such expansion is expected to
place demands on management, support functions, accounting, sales
and marketing and other resources. If the Group is unable to manage
its expansion effectively, its business and financial results could
suffer. In order to mitigate this risk, the Group undertakes
extensive due diligence on acquisition targets and uses dedicated
project teams to integrate acquisitions into the Group.
Staff recruitment and retention
The contribution made by Ubisense's highly skilled and
experienced staff is vital to the Group's success. As the Group
grows, it is important to recruit and retain staff.
The Group has in place appropriate incentive structures to
attract and retain the calibre of employees necessary to ensure the
efficient development and management of the Group.
Reliance on third parties, including manufacturers
The Group relies on third party equipment manufacturers in the
completion of its products and, therefore, does not always have
complete control over the equipment and materials it requires to
comply with its obligations under customer contracts. To the extent
that the Group cannot acquire equipment or materials according to
its plans and budgets, its ability to complete its work for its
customers within the timetable laid down by the contract or at a
profit may be impaired. If a manufacturer is unable to deliver the
products for any reason, the Group may be required to purchase such
equipment or materials from another source at a higher price. The
resulting additional costs may be substantial and the Group may be
in breach of its contracts with customers, which may result in a
financial loss on a particular contract or a loss of business. In
addition, any resulting failure to fulfil contracts with customers
and other business partners may have an adverse effect on the
Group's future profitability and reputation. One key supplier
supplies more than 75% per cent of the hardware required annually
by the Group.
In order to mitigate this risk, the Group closely manages and
reviews its relationship with key suppliers on a regular basis.
Dependence on key customers
The Group is dependent on a number of key contracts and customer
relationships for its current and future growth and development.
Ubisense has strong customer relationships with considerable repeat
business from a number of large international organisations. In the
financial year to 31 December 2014 the Group's ten largest
customers accounted for 47% of the Group's revenue (2013: 60%), of
which one customer accounted for in excess of 10% (2013: 10%). The
loss of a major customer could result in a decrease in Group
revenues, margins and profitability.
In order to mitigate this risk, the Group has extensive sales
and account management processes and procedures and is continuing
to diversify its customer base.
Contracts
Some of the Group's commercial contracts include terms where
revenues and/or invoicing are related to customer acceptance. Other
contracts contain terms whereby the timing of cash collections is
contingent on the customer re-selling our products to end
users.
The Group's exposure under such contracts is reviewed regularly
by the Executive Management Team and the main Board.
Credit
The main credit risk is attributable to trade receivables owed
by customers. As the majority of the Group's customers are very
large, blue chip utilities, telecoms and manufacturing companies,
the risk of non-payment tends to be less of a traditional credit
nature and more related to customer satisfaction.
Credit exposure by customer is reviewed regularly by the
Executive Management Team and the main Board with provision made
for doubtful receivables when there are circumstance which, based
on experience, are evidence of a likely reduction in the
recoverability of the receivable.
Bank covenants
The Group has bank loan facilities of GBP7.0 million with HSBC
Bank plc to provide future working capital capacity and for
acquisitions. The loans are repayable in 2016 (GBP5.0 million) and
2017 (GBP2.0 million) and the outstanding balance at 31 December
2014 was GBP6.0 million.
The Group is required to meet certain financial criteria agreed
as covenants for the bank loans. The financial measures are
regularly reviewed against covenant requirements to ensure the
Group's obligations can be met. All covenants tests during the year
were met and all tests for the forthcoming twelve months are
forecast to be met based on our annual operating plan and our
latest rolling forecast.
Research and development (R&D)
The Group continues to invest in R&D, spending GBP3.9
million in its R&D programmes in the year (2013: GBP4.0
million) of which GBP3.0 million (2013: GBP3.0 million) was
capitalised. In the opinion of the directors, these investments
will maintain and generate significant revenues in future
years.
Intellectual property
The Group owns intellectual property both in its software tools
and the products derived from them. The Directors consider such
properties to be of significant value to the business.
Employee involvement
The Group aims to attract, retain and motivate the best staff
regardless of gender, race, religion, sexual orientation, age or
disability. To that end it is committed to offering equal
employment opportunities.
The Group provides its employees systematically with information
on matters of concern to them and regularly consults its staff, or
their representatives, for views on matters affecting them.
The Group encourages employee involvement in the Group's
performance by granting share options and Group performance related
variable compensation, and ensures that employees are fully aware
of financial and economic factors affecting the performance of the
Group.
Employee policies
The Group is committed to following the applicable employment
laws in each territory in which it operates.
The Group is committed to ensuring that disabled persons,
whether registered or not, have equal opportunities when applying
for vacancies, with due regard to their aptitudes and abilities. In
addition to complying with legislative requirements, procedures
ensure that disabled employees are fairly treated and that their
training and career development needs are carefully managed. For
those employees becoming disabled during the course of their
employment, every effort is made, whether through retraining or
redeployment, to provide an opportunity for them to remain with the
Group.
Health and safety environment
The Group is committed to maintaining a safe and healthy working
environment for all staff. To that end it provides appropriate
training and supervision and complies with all applicable
regulatory requirements.
The Group seeks wherever possible to minimise its impact on the
environment for the benefit of its staff and the public at large.
The Group is committed to complying with environmental regulations
in particular WEEE and encourages and supports staff in waste
recycling within its offices.
Approved by the Board of Directors
And signed on behalf of the Board
Robert Parker
Chief Financial Officer
16 March 2015
Ubisense Group plc
Registered number: 05589712
Board of Directors
Professor Andrew Hopper CBE
Non-Executive Chairman
Andy is one of the foremost leaders in the technology industry
having co-founded twelve successful companies, including Acorn
Computers Limited acquired by Olivetti; Virata, Inc. listed on
NASDAQ; Adaptive Broadband Limited, acquired by California
Microwave, Inc., Cambridge Broadband Limited, Level 5 Networks
Limited and RealVNC Limited. Andy is Professor of Computer
Technology at the University of Cambridge and is currently Head of
the University of Cambridge Computer Laboratory and a member of the
University's Council. Andy has worked on location systems for over
20 years. He was elected as a Fellow of the Royal Society in 2006
and the Royal Academy of Engineering in 1996. Andy was made a CBE
in 2007 for services to the computer industry.
Richard Green
Chief Executive Officer
Richard initially trained as a mechanical engineer and has over
twenty-five years of experience in the software industry. Having
established Smallworld as one of the leading geographic information
system companies serving utility and telecoms companies in Europe
and the US, the company subsequently listed on NASDAQ in 1996 and
was acquired by GE in 2000 for $214 million. Richard was Ernst
& Young UK's Science and Technology Entrepreneur of the Year in
2010. Richard is a Fellow of the Institute of Mechanical Engineers
and sits on the Institute of Mechanical Engineers Manufacturing
Industries Board.
He is also Entrepreneur in Residence at Judge Business School,
Cambridge and a Fellow of the Royal Society of Arts.
Robert Parker
Chief Financial Officer
Robert is a Chartered Accountant with more than 25 years
experience in senior finance roles across multiple sectors. Most
recently Robert was CFO of the Optitune Group, a Finnish cleantech
company. Robert has held senior positions with Sumitomo Electric
Europe Ltd, Eircom UK, National Grid, and Immedia.
Peter Harverson
Non-Executive Director
Peter has held a number of senior international sales and
marketing roles in the IT industry. These included Regional
Director, Intel Corporation and Vice President Europe, Cadence
Design Systems. In 1995 he joined Sun Microsystems where he was
responsible for the development of the company's European Corporate
Accounts programme. Subsequently he became Director of Services
Sales - EMEA with a charter to develop new areas of business,
including professional services. Peter retired from Sun
Microsystems in December 2005. Most recently he was Non- Executive
Chairman of Aspex Semiconductors Limited, sold to Ericsson AB in
July 2012. Currently, Peter is a non-executive director of Brady
plc, CRFS Limited, and Chairman of eoSemi Limited. Peter is also an
adviser to Cambridge IP Limited.
Ian Kershaw
Non-Executive Director
Ian has over 28 years experience in the automotive,
manufacturing and power industries. He is responsible for Ricardo's
strategic consulting activities in Northern Europe and is also a
Board member of Surface Generation, a developer of advanced
manufacturing systems for high performance materials. Ian has held
management positions with Caterpillar, Rolls-Royce Motor Cars and
Arthur D. Little.
Dr Robert Sansom
Non-Executive Director
An active angel investor and mentor to start-ups, Robert is
founder of the Cambridge Angels, a group of seasoned technology and
bio-technology entrepreneurs who invest in and mentor technology
start-ups in the Cambridge area. Previously, Robert was co-founder,
CTO and Director of FORE Systems, Inc, a leading provider of
networking equipment. FORE was listed on NASDAQ in 1994 and
subsequently acquired by Marconi for $4.5 billion in 1999.
Additionally, Robert served as the Chief Technology Officer at
Marconi in 1999. Robert is a member of the board of directors of
Cambridge Communications Systems Limited, CRFS Limited,
Featurespace Ltd and Netronome Systems, Inc. He was elected as a
Fellow of the Royal Academy of Engineering in 2010.
Paul Taylor
Non-Executive Director
Paul is a Fellow of the Association of Chartered Certified
Accountants. Paul joined AVEVA Group Plc in 1989 and was heavily
involved in the flotation process and was responsible for UK
accounting and for the development of AVEVA's overseas subsidiaries
including adherence to group standards. Between 1998 and 2001, Paul
was also UK Director of Human Resources and was appointed to the
position of Finance Director and Company Secretary of AVEVA Group
plc on 1 March 2001. Before joining AVEVA, Paul trained within the
accountancy profession before moving to Philips Telecommunications
(UK) where he was responsible for the management accounts of its
Public Sectors division. Paul was a recipient of the FTSE250
Finance Director of the Year award and is also a Non-Executive
Director of Anite plc, Escher Group Holdings plc, Digital Barriers
plc and KBC Advanced Technologies plc.
Directors' report
The Directors present their annual report on the affairs of the
Group together with the audited financial statements for the year
to 31 December 2014.
Incorporation and constitution
Ubisense Group plc is domiciled in England and incorporated in
England and Wales under Company Number 05589712. Ubisense Group
plc's Articles of Association are available on the Group's website
at www.ubisense.net.
Capital structure
The Company has one class of ordinary share of two pence each
which carries no right to fixed income. Each share carries the
right to one vote at general meetings of the Company.
Details of the share capital of the Company, including shares
issued during the year, can be found in note 20 of the consolidated
financial statements.
Substantial shareholdings
On 16 March 2015, the Company had been notified of the following
significant interests in its ordinary share capital:
Total holding % of issued
Number share capital
-------------------------------- ----------------------- ---------------
Robert Sansom 2,493,676 9.95%
Richard Green* 1,734,906 6.92%
NFU Mutual Investment Managers 1,417,046 5.65%
FIL Investments International 1,261,280 5.03%
Unicorn Asset Management 1,205,978 4.81%
Ubisense Employee Share Plan 1,141,113 4.55%
Threadneedle Investments 1,000,453 3.99%
Charles Stanley 974,354 3.89%
City Financial 800,000 3.19%
-------------------------------- ----------------------- ---------------
* Includes 115,617 (2013: 115,617) shares held by the RT Green
Children's Trust of which Richard Green is a trustee.
Directors
The Directors serving at 31 December 2014 were as follows:
Richard Green
Peter Harverson
Prof Andrew Hopper
Ian Kershaw
Robert Parker
Robert Sansom
Paul Taylor
Board Changes
In February 2014, after ten years at Ubisense, Gordon Campbell,
Chief Financial Officer, notified the Board of his intention to
step down from his role. Gordon Campbell has made a significant
contribution to the growth and development of the Group, including
listing on AIM, and this will continue in a new role leading the
post-acquisition integration.
On 10 February 2014, Robert Parker was appointed as CFO of
Ubisense Group plc. Robert Parker joins Ubisense from Optitune plc
where he had been CFO since 2012. Robert Parker brings extensive
experience in both the strategic development and operational
management of high growth, multicultural businesses. He has a
proven track record of driving organic growth, executing M&A
and raising finance in both the private and public markets.
On 27 May 2014, J Keith Lomas and Richard Newell notified the
Board of their intentions to resign as Non-Executive Directors
after five and seven years of service respectively. Ian Kershaw,
Managing Director of Ricardo Strategic Consulting, joined the Board
on 27 May 2014 as a Non-Executive Director.
Directors' interests - shares
Directors' interests in the ordinary shares of Ubisense Group
plc at 31 December 2014 were as follows:
2014 2013
Number Number
----------------- ---------- ----------
Richard Green* 1,734,906 1,734,906
Peter Harverson 65,161 65,161
Andrew Hopper 225,000 225,000
Robert Sansom 2,493,676 2,493,676
----------------- ---------- ----------
Total 4,518,743 4,518,743
----------------- ---------- ----------
* Includes 115,617 (2013: 115,617) shares held by the RT Green
Children's Trust of which Richard Green is a trustee.
There has been no change in the interests set out above between
31 December 2014 and 16 March 2015.
Paul Taylor, Robert Parker and Ian Kershaw hold no shares as at
31 December 2013 (or their appointment date if later), 31 December
2014 nor 16 March 2015.
Directors' remuneration, share options and loans
Details of directors' remuneration, share options and loans are
provided in note 7 of the financial statements.
Directors' indemnity arrangements
The Group has made qualifying third party indemnity provisions
for the benefit of its Directors which were made during the year
and remain in force at the date of this report.
The Group has purchased and maintained throughout the year
Directors' & Officers' liability insurance in respect of itself
and its Directors.
Corporate governance
The company's statement on corporate governance can be found in
the Corporate Governance report. The Corporate Governance report
forms part of the Directors' report and is incorporated into it by
cross-reference.
Post balance sheet events
There are no significant post balance sheet events.
Dividends
The Directors do not recommend payment of a dividend for the
year (2013: GBPnil).
Auditor
A resolution to re-appoint Grant Thornton UK LLP as the Group's
auditor will be proposed at the forthcoming Annual General Meeting.
In accordance with normal practice, the Directors will be
authorised to determine the Auditor's remuneration.
Approved by the Board of Directors
And signed on behalf of the Board
Robert Parker
Chief Financial Officer
16 March 2015
Ubisense Group plc
Registered number: 05589712
Corporate governance report
Although not required to do so by the AIM Listing Rules, the
Directors have chosen to provide selected corporate governance
disclosures with this report, which they consider to be valuable to
the reader.
The Directors believe that effective corporate governance,
appropriate to the Group considering its size and stage of
development, will assist in the delivery of corporate strategy, the
generation of shareholder value and the safeguarding of
shareholders' long-term interests. We do not comply with the UK
Corporate Governance Code September 2014 ("the code"). However, the
Directors are committed, wherever it is reasonably practicable, to
ensure that the Group is managed in accordance with the principles
set out in the Code.
Composition of the Board
The Board comprises the non-executive Chairman, four
non-executive directors and two executive directors. Biographical
details of all members of the Board are set out above.
Since the flotation of the Company in 2011, no equity-based
incentives have been granted to Non-executive Directors and there
are no such plans for any such grants in the future. At the end of
the year, the Chairman and two of the four Non-Executive Directors
had shares and share options in Ubisense Group Plc.
The holding of shares and share options by non-executive
directors could, amongst other things, be relevant in determining
whether a Non-executive Director is independent. Therefore, after
detailed consideration, the Board has determined that Paul Taylor
and Ian Kershaw are the only independent Non-Executive Directors
within the meaning of the Code.
The roles of Chairman and Chief Executive Officer are vested in
separate individuals, each with clear allocation of accountability
and responsibility. The Chairman has prime responsibility for
running the Board and the Chief Executive Officer has executive
responsibilities for the Group's strategic development, operations
and results. The structure of the Board and the integrity of each
Director ensures that there is no one individual or group
dominating the decision making process.
The role of the Board
The Board holds full meetings at least ten times per year, with
attendance required in person whenever possible. The principal
matters that it considers are as follows:
-- reviewing operating and financial performance;
-- ensuring that appropriate management development and succession plans are in place;
-- determining corporate strategy, including consideration and
approval of the Company's annual strategy review;
-- establishing dividend policy;
-- approving and accepting all new committed funding facilities;
-- approving and accepting major changes in the capital structure of the Company;
-- reviewing and approving formal treasury policies relating to
funding, liquidity, transactional foreign exchange and interest
rate risk management;
-- reviewing the health and safety and environmental performance of the Company;
-- approving corporate acquisitions, mergers, divestments, joint
ventures and major capital expenditure; and
-- receiving, reviewing and approving recommendations by the
designated committee on matters related to audit, nominations and
remuneration.
The Board is supplied with information in a timely manner and in
a form and of a quality appropriate to enable it to discharge its
duties. The Board has a policy to set out which matters are
reserved for the decision of the Board and those to which the
Executive Directors need not refer for approval. This policy also
requires that all recommendations and decisions by a Board
Committee are approved or ratified by the Board.
Summary of Board meeting attendance in 2014
The Board is expected to meet regularly on a formal basis at
least ten times a year. 14 Board meetings were held in 2014.
Attendance at the meetings was as follows:
Total meetings
attended
================= ===============
Gordon Campbell 1 (2)
Richard Green 14 (14)
Peter Harverson 12 (14)
Andrew Hopper 14 (14)
Ian Kershaw 5 (6)
J Keith Lomas 7 (8)
Richard Newell 5 (8)
Robert Parker 11 (12)
Robert Sansom 12 (14)
Paul Taylor 14 (14)
===================== ===============
Figures in brackets denote the maximum number of meetings that
could have been attended.
Board Committees
The Board has established three Committees: the Audit Committee,
the Nomination Committee and the Remuneration Committee.
Summary of Committee membership
The Committee membership as at 31 December 2014, and at 16 March
2015, is as follows;
Audit Nomination Remuneration
Committee Committee Committee
================ =========== =========== =============
Richard Green - Observer -
Peter Harverson - Yes Chair
Andrew Hopper Observer Yes Observer
Ian Kershaw Yes - -
Robert Parker Observer - Observer
Robert Sansom - Chair Yes
Paul Taylor Chair Observer Yes
================ =========== =========== =============
Summary of Committee meeting attendance
Audit Nomination Remuneration
Committee Committee Committee
================= =========== =========== =============
Richard Green - 1 (1) 1 (3)
Peter Harverson - 1 (1) 3 (3)
Andrew Hopper 1 (3) 1 (1) 2 (3)
Ian Kershaw 3 (3) - -
J Keith Lomas 1 (1) 1 (1) 1 (1)
Richard Newell - 1 (1) -
Robert Parker 3 (3) - 2 (3)
Robert Sansom 3 (3) 1 (1) 3 (3)
Paul Taylor - 1 (1) 3 (3)
=================== =========== =========== =============
Figures in brackets denote the maximum number of meetings that
could have been attended
The role of each Committee is described in more detail
below:
Audit Committee
The Audit Committee has responsibility for the following
matters:
-- Financial reporting
o Review of all financial reports released to the market and
shareholders.
o Review of significant reporting issues and key judgements.
o Review of accounting policies selected and their
application.
-- External audit
o Recommending appointment, re-appointment or removal of the
external auditors.
o Overseeing the Group's relationship with the external
auditors, including assessing their independence.
o Agreeing the annual audit plan and reviewing the finding and
effectiveness of the audit.
-- Whistleblowing
o Review of the Group's whistleblowing policies and
procedures.
As part of its procedures, the Committee discusses the interim
and annual financial statements with the external auditors. When
appropriate, non-Committee members are invited to attend. During
the period under review, the Committee has met three times on a
formal basis excluding meetings of the Chairman with external
advisers. The Committee is expected to meet formally four times a
year.
Nomination Committee
The Nomination Committee has responsibility for the following
matters:
-- Reviewing the size and composition of the Board to ensure
that an appropriate mix of skills, knowledge and experience is
achieved.
-- Succession planning for the Board and other key management roles.
-- Identifying and recommending to the Board candidates to fill Board vacancies.
-- Ensuring non-executive directors are able to make the
necessary time commitments to fulfil their role.
-- Ensuring non-executive directors receive letters of
appointment, detailing their responsibilities.
-- Making recommendations to the Board about the appointment,
removal or continuation in office of any director.
During the period under review, the Committee has met once on a
formal basis. The Committee is expected to meet formally twice a
year.
Remuneration Committee
The Remuneration Committee has responsibility for the following
matters;
-- Agreeing the framework for the Group's remuneration policy
for Directors and key management personnel, including determining
individual remuneration policies for executive directors.
-- Approving the design and targets for short and long term incentive plans.
-- Determining the policy and scope of pension arrangements.
-- Ensuring contractual terms and payments made on termination
are fair to both the individual and the Group.
-- Agreeing the policy for authorising expense claims by the Chair and Chief Executive.
The Group has a formal and transparent procedure for developing
policy on Directors' remuneration. No Director is involved in
deciding his own remuneration.
The Committee aims to set levels of remuneration for executive
directors that are sufficient to attract, retain and motivate
directors of the quality required, without paying more than
necessary, and that are appropriate for the size and complexity of
the Group. It aims to see that a significant proportion of each
executive director's remuneration package is
performance-related.
During the period under review, the Committee has met three
times on a formal basis. The Committee is expected to meet formally
twice a year.
Internal control
The Board of Directors has overall responsibility for the
Group's system of internal control and for reviewing its
effectiveness. The risk managing process and systems of internal
control are designed to manage rather than eliminate the risk of
failure to achieve the Company's objectives. It should be
recognised that such systems can only provide reasonable but not
absolute assurance against material misstatement or loss. The
directors acknowledge their responsibilities for the Group's system
of internal control and for reviewing its effectiveness. The
principal features of the system of internal financial controls
are:
-- Budgetary control over all operations, measuring performance
against pre-determined targets on at least a monthly basis.
-- Regular forecasting and reviews covering trading performance,
assets, liabilities, cash flows and bank covenants.
-- Delegated limits of authority covering key financial
commitments including capital expenditure and recruitment.
-- Identification and management of key business risks.
The board continually reviews the effectiveness of other
internal controls, including financial, operational, compliance
controls and risk management.
Directors' responsibilities statement
The directors are responsible for preparing the Directors'
report, the Strategic report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the consolidated financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and have elected to prepare the
parent company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable laws). Under company law the
directors must not approve the financial statements unless they
give a true and fair view of the state of affairs and profit or
loss of the Company and Group for that period. In preparing these
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the consolidated
financial statements;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the Company financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Disclosure of information to auditor
Each of the persons who are Directors at the time when this
Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit
information of which the Company's auditor are unaware; and
-- that Director has taken all the steps that ought to have been
taken as a Director in order to be aware of any relevant audit
information and to establish that the Company's auditors are aware
of that information.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Consolidated income statement
For the year ended 31 December 2014
2014 2013
Notes GBP'000 GBP'000
------------------------------------------------- ------- ---------- ----------
Revenue 5 35,051 27,002
Cost of revenues (21,053) (17,761)
================================================= ======= ========== ==========
Gross profit 13,998 9,241
Operating expenses (18,579) (10,867)
================================================= ======= ========== ==========
Operating loss (4,581) (1,626)
Analysed as:
Gross profit 13,998 9,241
Other operating expenses (12,094) (8,100)
------------------------------------------------- ------- ---------- ----------
Adjusted EBITDA 1,904 1,141
Depreciation 13 (359) (266)
Amortisation of acquired intangible
assets 12 (751) (313)
Amortisation of other intangible
assets 12 (2,937) (1,332)
Share-based payments charge 21.2 (75) (92)
Non-recurring items 9.2 (2,363) (764)
------------------------------------------------- ------- ---------- ----------
Operating loss (4,581) (1,626)
Finance income 8 14 10
Finance costs 8 (211) (103)
------------------------------------------------- ------- ---------- ----------
Loss before tax 9 (4,778) (1,719)
Income tax 10.1 736 (219)
------------------------------------------------- ------- ---------- ----------
Loss for the year (4,042) (1,938)
------------------------------------------------- ------- ---------- ----------
Loss attributable to:
* Equity shareholders of the Company (4,085) (1,968)
* Non-controlling interest 43 30
------------------------------------------------- ------- ---------- ----------
(4,042) (1,938)
------------------------------------------------- ------- ---------- ----------
Loss per share attributable to the equity shareholders
of the parent (pence)
---------------------------------------------------------- ---------- ----------
Basic 11 (16.7p) (8.9p)
Diluted 11 (16.7p) (8.9p)
------------------------------------------------- ------- ---------- ----------
Notes 1 - 26 are an integral part of these consolidated
financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2014
2014 2013
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Loss for the year (4,042) (1,938)
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss
Exchange difference on retranslation
of net assets and results of overseas
subsidiaries (531) (203)
--------------------------------------------------
Total comprehensive loss for the
year (4,573) (2,141)
------------------------------------------------- --------- ---------
Attributable to:
* Equity shareholders of the Company (4,549) (2,141)
(24) -
* Non-controlling interest
------------------------------------------------- --------- ---------
Total comprehensive loss for the
year (4,573) (2,141)
------------------------------------------------- --------- ---------
Notes 1 - 26 are an integral part of these consolidated
financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2014
Attributable to equity shareholders
of the parent company
=======================================================
Share Non-controlling
based interest
Share Share payment Translation Retained Sub- GBP'000
capital premium reserve reserve earnings total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================== =============== ======== ======== ============ ========= ========== ================ ========
Balance at 1
January
2013 438 22,251 654 (48) (4,374) 18,921 - 18,921
=================== =============== ======== ======== ============ ========= ========== ================ ========
Loss for the year - - - - (1,968) (1,968) 30 (1,938)
Exchange
difference
on retranslation
of
net assets and
results
of overseas
subsidiaries - - - (173) - (173) (30) (203)
=================== =============== ======== ======== ============ ========= ========== ================ ========
Total
comprehensive
loss for the year - - - (173) (1,968) (2,141) - (2,141)
Reserve credit for
equity-settled
share-based
payment - - 92 - - 92 - 92
Non-controlling
interest
in new subsidiary - - - - - - 554 554
Issue of new share
capital 23 - - - - 23 - 23
Premium on new
share
capital - 1,799 - - - 1,799 - 1,799
Transactions with
owners 23 1,799 92 - - 1,914 554 2,468
=================== =============== ======== ======== ============ ========= ========== ================ ========
Balance at 31
December
2013 (restated) 461 24,050 746 (221) (6,342) 18,694 554 19,248
=================== =============== ======== ======== ============ ========= ========== ================ ========
Loss for the year - - - - (4,085) (4,085) 43 (4,042)
Exchange
difference
on retranslation
of
net assets and
results
of overseas
subsidiaries - - - (464) - (464) (67) (531)
=================== =============== ======== ======== ============ ========= ========== ================ ========
Total
comprehensive
loss for the year - - - (464) (4,085) (4,549) (24) (4,573)
Reserve credit for
equity-settled
share-based
payment - - 75 - - 75 - 75
Issue of new share
capital 40 - - - - 40 - 40
Premium on new
share
capital - 4,230 - - - 4,230 - 4,230
Share issue costs - (229) - - - (229) - (229)
Transactions with
owners 40 4,001 75 - - 4,116 - 4,116
=================== =============== ======== ======== ============ ========= ========== ================ ========
Balance at 31
December
2014 501 28,051 821 (685) (10,427) 18,261 530 18,791
=================== =============== ======== ======== ============ ========= ========== ================ ========
Notes 1 - 26 are an integral part of these consolidated
financial statements.
Consolidated statement of financial position
For the year ended 31 December 2014
2013
2014 Restated
Notes GBP'000 GBP'000
--------------------------------- ------ --------- ----------
Assets
Non-current assets
Intangible assets 12 14,363 16,247
Property, plant and equipment 13 1,112 628
Total non-current assets 15,475 16,875
================================= ====== ========= ==========
Current assets
Inventories 14 2,881 2,587
Trade and other receivables 15 15,541 11,547
Cash and cash equivalents 16 3,697 3,964
================================= ====== ========= ==========
Total current assets 22,119 18,098
================================= ====== ========= ==========
Total assets 37,594 34,973
================================= ====== ========= ==========
Liabilities
Current liabilities
Trade and other payables 17 (9,816) (10,023)
Bank loans 18 (927) -
Total current liabilities (10,743) (10,023)
================================= ====== ========= ==========
Non-current liabilities
Deferred income tax liabilities 10 (1,336) (1,773)
Trade and other payables (120) -
Bank loans 18 (6,000) (3,500)
Other payables 19 (604) (429)
================================= ====== ========= ==========
Total non-current liabilities (8,060) (5,702)
================================= ====== ========= ==========
Total liabilities (18,803) (15,725)
================================= ====== ========= ==========
Net assets 18,791 19,248
================================= ====== ========= ==========
For the year ended 31 December 2014
.
2013
2014 Restated
Notes GBP'000 GBP'000
------------------------------------- ------ --------- ----------
Equity attributable to owners of
the parent company
Ordinary share capital 20 501 461
Share premium 20 28,051 24,050
Share based payment reserve 821 746
Translation reserves (685) (221)
Retained earnings (10,427) (6,342)
===================================== ====== ========= ==========
Equity attributable to shareholders
of the Company 18,261 18,694
===================================== ====== ========= ==========
Non-controlling interests 530 554
===================================== ====== ========= ==========
Total equity 18,791 19,248
===================================== ====== ========= ==========
Notes 1 - 26 are an integral part of these consolidated
financial statements.
The financial statements were approved by the Board of Directors
on 16 March 2015 and signed on its behalf by:
Richard Green, Chief Executive Officer Robert Parker, Chief
Financial Officer
Ubisense Group plc
Registered Number: 05589712
Consolidated statement of cash flows
For the year ended 31 December 2014
2014 2013
Notes GBP'000 GBP'000
-------------------------------------- ------ --------- ---------
Loss before tax (4,778) (1,719)
Adjustments for:
9,
Depreciation 13 359 266
9,
Amortisation and impairment 12 4,956 1,645
Loss on the disposal of property, 22 -
plant and equipment 9
Share-based payments charge 21.2 75 92
Finance income 8 (14) (10)
Finance costs 8 211 103
Operating cash flows before
working capital movement 831 377
Change in inventories (293) (639)
Change in receivables (3,661) 242
Change in payables 447 (727)
-------------------------------------- ------ --------- ---------
Cash used in operations before
tax (2,676) (747)
-------------------------------------- ------ --------- ---------
Net income taxes received/(paid) 47 (7)
-------------------------------------- ------ --------- ---------
Net cash flows from operating
activities (2,629) (754)
3)
-------------------------------------- ------ --------- ---------
Cash flows from investing activities
Acquisition of subsidiaries,
net of cash acquired 24 (509) 1,846
Purchases of property, plant
and equipment (885) (140)
Proceeds on disposal of property, 1 -
plant and equipment
Expenditure on intangible assets (3,500) (3,085)
Interest received 14 10
-------------------------------------- ------ --------- ---------
Net cash flows from investing
activities (4,879) (1,369)
-------------------------------------- ------ --------- ---------
Cash flows from financing activities
Proceeds of borrowings 3,427 3,500
Interest paid (151) (92)
Proceeds from the issue of
ordinary share capital 4,041 111
-------------------------------------- ------ --------- ---------
Net cash flows from financing
activities 7,317 3,519
Net (decrease)/increase in
cash and cash equivalents (191) 1,396
Cash and cash equivalents at
start of period 3,964 2,716
Exchange differences on cash and
cash equivalents
7 (76) (148)
============================================== ========= =========
Cash and cash equivalents at
end of period 16 3,697 3,964
====================================== ====== ========= =========
Notes 1 - 26 are an integral part of these consolidated
financial statements.
Notes to the Consolidated financial statements
1 General information
Ubisense Group plc ("the Company") and its subsidiaries
(together, "the Group") deliver mission-critical location-based
smart technology which enables companies to optimise their business
processes.
The Company is a public limited company which is listed on the
Alternative Investment Market ("AIM") of the London Stock Exchange
(UBI) and is incorporated and domiciled in the United Kingdom. The
value of Ubisense Group plc shares, as quoted on the London Stock
Exchange plc at 31 December 2014, was 120.0 pence per share (31
December 2013: 246.0 pence).
The Company was incorporated as Ubisense Trading Limited on 11
October 2005 and changed its name to Ubisense Group plc on 31 May
2011 ahead of its initial public offering and listing on AIM on 22
June 2011. The address of its registered office is St. Andrew's
House, St. Andrew's Road, Chesterton, Cambridge, CB4 1DL.
The Group has its main operations in the UK, US, Canada,
Germany, France, Japan, South Korea, Singapore and the Philippines
and sells mainly in North America, Europe and Asia. The Group
legally consists of twelve companies headed by Ubisense Group plc
(UK). A full list of subsidiaries is given in note 23 of the
financial statements.
These consolidated financial statements have been approved for
issue by the Board of Directors on 16 March 2015.
2 New accounting standards
For the purposes of the preparation of these consolidated
financial statements, the Group has applied all standards and
interpretations that are effective for accounting periods beginning
on or after 1 January 2014.
During 2014, the Group has applied several new revised and
amended standards and interpretations which became effective in the
year: IFRS 10 'Consolidated financial statements, IAS 32 'Financial
instrument: Presentation' (amended), IAS 36 'Impairment on assets'
(amended) and IAS 39 'Financial instruments: recognition and
measurement' (amended). Their adoption has not had a material
impact on the disclosures and amounts reported. Otherwise the
accounting policies used are the same as set out in detail in the
Report and Accounts 2013 and have been applied consistently to all
periods presented in these financial statements. No new standards,
amendments or interpretations to existing standards that have been
published and that are mandatory for the Group's accounting periods
beginning on or after 1 January 2015, or later periods, have been
adopted early. The Directors do not consider that the adoption of
these standards and interpretations would have a material impact on
the Group's financial statements.
Standards and interpretations not yet applied by the Group
The following new Standards and Interpretations, which are yet
to become mandatory, have not been applied in the Group's financial
statements.
-- Amendment to IAS 19 'Employee benefits' (effective date
financial year commencing on/after 1 July 2014)
-- Amendment to IAS 16 'Property, plant and equipment'
(effective date financial year commencing on/after 1 January
2016)
-- Amendment to IAS 38 'Intangible assets' (effective date
financial year commencing on/after 1 January 2016)
-- Annual improvements 2012 and 2013 (effective date financial
year commencing on/after 1 July 2014)
-- Annual improvements 2014 (effective date financial year commencing on/after 1 January 2016)
-- IFRS 15 'Revenue from contracts with customers' (effective
date financial year commencing on/after 1 January 2017)
-- IFRS 9 'Financial Instruments' (effective date financial year
commencing on/after 1 January 2018)
All standards and interpretations are not expected to have any
significant impact on the financial statements when applied.
3 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated.
Basis of preparation
The consolidated financial statements of Ubisense Group plc have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union (IFRSs as
adopted by the EU) and the Companies Act 2006 applicable to
companies reporting under IFRS. The consolidated financial
statements have been prepared under the historical cost convention.
The consolidated financial statements are presented in Sterling and
all values are rounded to the nearest thousand pounds (GBP'000)
except when otherwise indicated.
The preparation of these financial statements in conformity with
IFRS requires the Directors to make certain critical accounting
estimates and judgements that affect the amounts reported in the
financial statements and accompanying notes. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements, are disclosed in note 4.
Going concern basis
The Group meets it day-to-day working capital requirements
through its bank facilities. The Group had cash of GBP3.7 million
at the balance sheet date along with GBP1.2 million undrawn on its
bank facilities as well as an order book equivalent to 35% of
annual revenue. In this context, the Group's forecasts and
projections, taking account of reasonably possible changes in
trading performance, support the conclusion that there is a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future, a period of not less than twelve months from the date of
this report. The Group, therefore, continues to adopt the going
concern basis in preparing its financial statements.
Consolidation
The Group financial statements include the results, financial
position and cash flows of the Company and all of its subsidiary
undertakings. Subsidiary undertakings are those entities controlled
directly or indirectly by the Company. Control arises when the
Company has the power to govern the financial and operating
policies of an entity, uses this power to affect the returns from
that entity and has exposure to variable returns from its
investment in the entity.
Co-terminous financial statements of the subsidiaries are
prepared for the same reporting year as the Company, using
consistent accounting policies. Businesses acquired or disposed
during the year are accounted for using acquisition method
principles from, or up to, the date control passed. Intra-group
transactions and balances are eliminated on consolidation. All
subsidiaries use uniform accounting policies for like transactions
and other events and similar circumstances.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those
interests at the date of the original business combination and the
non-controlling interest's share of changes in equity since the
date of combination.
Foreign currencies
(a) Functional and presentation currency
The functional currency of each Group entity is the currency of
the primary economic environment in which each entity operates. The
consolidated financial statements are presented in Sterling, which
is the Company's functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency of each Group entity using the exchange rates prevailing
at the dates of transactions. Monetary assets and liabilities
denominated in foreign currencies are translated at rates ruling at
the period end date. Such exchange differences are included in the
income statement within "operating expenses". Non-monetary items
that are measured in terms of historical cost in a foreign currency
are translated using the exchange rates as at the dates of the
initial transactions.
(c) Consolidation
For the purpose of presenting consolidated financial statements,
the results and financial position of all the Group entities (none
of which have the currency of a hyperinflationary economy) that
have a functional currency other than Sterling are translated into
Sterling as follows:
-- assets and liabilities for each statement of financial
position are translated at the exchange rate at the period end
date;
-- income and expenses for each income statement are translated
at the exchange rate ruling at the time of each period the
transaction occurred; and
-- all resulting exchange differences are recognised in other comprehensive income.
Segment reporting
IFRS 8 requires a "management approach" under which information
in the financial statements is presented on the same basis as that
used for internal management reporting purposes.
The Group is organised on a global basis as a single Enterprise
Location Intelligence business. This is the basis of the Group's
external market offering and internal organisational and management
structure and is the primary way in which the Chief Executive
Officer, who is the Chief Operating Decision Maker, receives
financial information to assess Group performance. As a result, the
Group has therefore determined that it has only one reportable
segment as defined by IFRS 8.
The internal management accounting information is prepared on an
IFRS basis but has a non-GAAP "Adjusted EBITDA" as the primary
measure of profit and this is reported on the face of the income
statement.
In addition, the Board and Management Team consider the business
to have two revenue streams with different characteristics,
Solutions and Services, which are generated from the same asset and
cost base.
Revenue recognition
Revenue represents amounts derived from the provision of goods
and services which fall within the Group's ordinary activities,
exclusive of value added tax and other similar sales taxes. Revenue
is measured by reference to the fair value of consideration
received or receivable.
Revenues on product sales are recognised at the time that units
are shipped, except for shipments under arrangements involving
significant acceptance requirements. Under such arrangements,
revenue is recognised when the Group has substantially met all its
performance obligations.
Revenue earned from sales under licence agreements is recognised
when the software is made available. When the sale includes a
period of support and maintenance, a proportion of the revenue is
deferred and recognised straight line over the period of support.
For licence rental fees, amounts are recognised over the period of
the contract, commencing from when the software is available for
use.
Services and training revenue from time and materials contracts
is recognised in the period that the services and training are
provided on the basis of time worked at agreed contractual rates
and as direct expenses are incurred.
Revenue from fixed price, long-term customer specific contracts,
including customisation and modification, is recognised on the
stage of completion of each assignment at the period end date
compared to the total estimated service to be provided over the
entire contract where the outcome can be estimated reliably. If a
contract outcome cannot be estimated reliably, revenues are
recognised equal to costs incurred, to the extent that costs are
expected to be recovered. An expected loss on a contract is
recognised immediately in the income statement.
Where bundled sales including a combination of some or all of
the above are made, the revenue attributable to the deal is
apportioned across the constituents of the bundle, and then
recognised according to the policies stated above.
Employee benefits
(a) Retirement benefits
The Group operates various defined contribution pension
arrangements for its employees.
For defined contribution pension arrangements, the amount
charged to the income statement represents the contributions
payable in the period. Differences between contributions payable in
the period and contributions actually paid are shown as either
accruals or prepayments in the statement of financial position.
(b) Share-based payments
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value at the date of grant using the Black-Scholes pricing model.
The fair value is expensed on a straight-line basis over the
vesting period, together with a corresponding increase in equity in
the share based payment reserve, based on the Group's estimate of
the number of shares that will eventually vest.
(c) Termination benefits
Termination benefits are recognised as an expense when the Group
is demonstrably committed, without realistic possibility of
withdrawal, to a formal detailed plan to either terminate
employment before the normal retirement date, or to provide
termination benefits as a result of an offer made to encourage
voluntary redundancy. Termination benefits for voluntary
redundancies are recognised as an expense if the Group has made an
offer of voluntary redundancy, it is probable the offer will be
accepted, and the number of acceptances can be estimated reliably.
If benefits are payable more than twelve months after the reporting
date, then they are discounted to their present value.
Operating lease income and expense
(a) Rental expense
Operating lease rentals are charged as operating expenses to the
income statement in equal annual amounts over the lease term.
Assets leased under operating leases are not recorded in the
statement of financial position because the lessor retains a
significant portion of the risks and rewards of ownership.
(b) Lease incentives
The benefit of lease incentives such as rent-free periods or
up-front cash payments are spread equally on a straight-line basis
over the lease term.
Non-recurring items
Non-recurring items are disclosed separately in the financial
statements where it is necessary to do so to provide further
understanding of the financial performance of the Group. They are
material one off items of income or expense that have been shown
separately due to the significance of their nature or amount and do
not reflect the on-going cost base or revenue-generating ability of
the Group.
Interest income and expense
Interest income and expense is included in the income statement
on a time basis, using the effective interest method by reference
to the principal outstanding.
Tax
The tax charge or credit comprises current tax payable and
deferred tax:
(a) Current tax
The current tax charge represents an estimate of the amounts
payable or receivable to or from tax authorities in respect of the
Group's taxable profits and is based on an interpretation of
existing tax laws. Taxable profit differs from profit before tax as
reported in the income statement because it excludes certain items
of income and expense that are taxable or deductible in other years
or are never taxable or deductible. Taxation received is recognised
only when it is probable that the Group is entitled to the
asset.
(b) Deferred tax
Deferred income taxes are calculated using the liability method
on temporary differences. This involves the comparison of the
carrying amounts of assets and liabilities in the consolidated
financial statements with their respective tax bases. In addition,
tax losses available to be carried forward as well as other income
tax credits to the Group are assessed for recognition as deferred
tax assets. However, deferred tax is not provided on the initial
recognition of goodwill, nor on the initial recognition of an asset
or liability, unless the related transaction is a business
combination or affects tax or accounting profit.
Deferred tax liabilities are always provided in full. Deferred
tax assets are recognised to the extent that it is probable that
the underlying deductible temporary differences will be able to be
offset against future taxable income. Deferred tax assets and
liabilities are calculated, without discounting, at tax rates that
are expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the reporting
date. Deferred tax is recognised as a component of tax expense in
the income statement, except where it relates to items charged or
credited directly to other comprehensive income or equity when it
is recognised in other comprehensive income or equity.
Business combinations
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their provisional fair values
at the acquisition date. Fair values are reassessed during the
measurement period and updated if required. The Group recognises
any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised
amounts of the acquiree's identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the
acquisition date fair value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is
deemed to be an asset or liability is recognised in accordance with
IAS 39 either in profit or loss or as a change to other
comprehensive income. Contingent consideration that is classified
as equity is not remeasured and its subsequent settlement is
accounted for within equity.
Goodwill
Goodwill is initially measured as the excess of the aggregate of
the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the
net assets of the subsidiary acquired, the difference is recognised
in profit or loss.
Goodwill arising on an acquisition of a business is the
difference between the fair value of the consideration paid and the
net fair value of the assets and liabilities acquired. Goodwill is
carried at cost less accumulated impairment losses.
Research and development
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
Development activities involve a plan or design for the
production of new or substantially improved products and processes.
Development expenditure is only capitalised if all of the following
conditions are met:
-- completion of the intangible asset is technically feasible so
that it will be available for use or sale;
-- the Group intends to complete the intangible asset and use or sell it;
-- the Group has the ability to use or sell the intangible asset;
-- the intangible asset will generate probable future economic
benefits. Among other things, this requires that there is a market
for the output from the intangible asset or for the intangible
asset itself, or, if it is to be used internally, the asset will be
used in generating such benefits;
-- there are adequate technical, financial and other resources
to complete the development and to use or sell the intangible
asset; and
-- the expenditure attributable to the intangible asset during
its development can be measured reliably.
Internally-generated intangible assets, consisting mainly of
direct labour costs, are amortised on a straight-line basis over
their useful economic lives. Amortisation is shown within
administrative expenses in the income statement. The estimated
useful lives of current development projects are three years. Upon
completion the assets are subject to impairment testing.
Where no internally-generated intangible asset can be
recognised, development expenditure is recognised as an expense in
the period in which it is incurred.
Other intangible assets
Intangible assets that are purchased separately, such as
software licences that do not form an integral part of related
hardware, are capitalised at cost and amortised on a straight-line
basis over their useful economic life which is typically 3
years.
Acquired intangible assets
Intangible assets acquired through a business combination are
initially measured at fair value and amortised on a straight line
basis over their useful economic lives. Amortisation is shown
within operating expenses in the income statement. The useful
economic lives of the intangible assets recognised on acquisition
are as follows:
-- Software products recognised on acquisition: 3 years
-- Customer relationships recognised on acquisition: 5 - 10 years
-- Order backlog: based on contract life recognised on acquisition, typically less than 1 year
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is charged to the income statement so as to write off
the cost or valuation less estimated residual values over their
expected useful lives on a straight-line basis overthe following
periods:
-- Fixtures and fittings: 3 to 8 years, or period of the lease if shorter
-- Computer equipment: 3 years
-- Demonstration equipment: 1 year
Residual values and useful economic lives are assessed annually.
The gain or loss on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in operating
expenses.
Impairment of non-financial assets
Assets that have an indefinite useful life - for example,
goodwill or intangible assets not ready to use - are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable.
An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less
costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that suffered an
impairment are reviewed for possible reversal of the impairment at
each reporting date.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is based on the cost of purchase on a first in, first
out basis. Net realisable value is based on estimated selling price
less additional cost to completion and disposal. Provision is made
for obsolete, slow moving or defective items where appropriate and
are recognised as an expense in the period in which the write-down
or loss occurs.
Trade receivables
Trade receivables are amounts due from customers for products
sold or services performed in the ordinary course of business. If
collection is expected in one year or less, they are classified as
current assets. If not, they are presented as non-current
assets.
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
Cash and cash equivalents
In the Consolidated statement of cash flows, cash and cash
equivalents includes cash in hand, deposits held at call with banks
and other short-term highly liquid investments with original
maturities of three months or less.
Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
income statement over the period of the borrowings using the
effective interest method.
Fees paid on the establishment of debt facilities are recognised
as transaction costs of the debt to the extent that it is probable
that some or all of the facility will be drawn-down. In this case,
the fee is deferred until the draw-down occurs. To the extent there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee is capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to
which it relates.
All borrowing costs are recognised in the income statement in
the period they are incurred.
Share capital and share premium
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds. The
nominal value of shares issued is classified as share capital and
the amounts paid over the nominal value in respect of share issues,
net of related costs, is classified as share premium.
Share-based payment reserve
The share-based payment reserve relates to a cumulative charge
made in respect of share options granted by the Company to the
Group's employees under its employee share option plans.
Translation reserve
Exchange differences relating to the translation of the results
and net assets of the Group's foreign operations from their
functional currencies to the Group's presentation currency of
Sterling are recognised directly in other comprehensive income and
accumulated in the translation reserve.
4 Critical accounting judgements and key sources of estimation and uncertainty
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are addressed below.
Impairment of goodwill and intangible assets
The Group tests goodwill for impairment annually in accordance
with the accounting policy stated in note 3. This requires an
estimation of the value in use of the cash-generating units to
which the goodwill is allocated. Estimating the value in use
requires the Group to make an estimate of the expected future cash
flows from the cash-generating unit and also to choose a suitable
discount rate in order to calculate the present value of those cash
flows. The Group uses pre-tax discount rates of 11.5% for this
purpose. The carrying amount of goodwill at 31 December 2014 is
GBP8.2 million, following an impairment of GBP1.2 million. Further
consideration of the impairment of goodwill is included in note
12.
Capitalisation of development costs
The point at which development costs meet the criteria for
capitalisation is critically dependent on management's judgement of
the point at which technical and commercial feasibility is
demonstrable. The carrying amount of capitalised development costs
at 31 December 2014 is GBP4.2 million.
Revenue recognition
Significant management judgement is applied in determining the
allocation and timing of the recognition of revenue on fixed price,
long-term customer specific contracts. In this process management
takes into account milestones, hardware supplied, actual work
performed and further obligations and costs expected to complete
the work. The carrying value of amounts recoverable on contracts at
31 December 2014 is GBP4.1 million.
Inventories
The provision for obsolete, slow-moving or defective inventory
is based on management's estimation of the commercial life of
inventory lines and is applied on a prudent basis. In assessing
this, management takes into consideration the sales history of
products and the length of time that they have been available for
resale.
Deferred tax
A deferred tax asset is recognised where the Group considers it
probable that future tax profits will be available against which
the tax credit will be utilised in the future. This specifically
applies to tax losses and to outstanding vested share options at
the statement of financial position date. In estimating the amount
of the deferred tax asset that should be recognised, the Directors
make judgements based on current budgets and forecasts about the
amount of future taxable profits and the timings of when these will
be realised. No deferred tax asset is currently recognised.
Valuation of separately identifiable intangible assets
As detailed in note 3, separately identifiable intangible assets
are identified and amortised over defined periods. The Directors
use an acknowledged valuation approach but this is reliant upon
certain judgements which they determine are reasonable by reference
to companies in similar industries.
Contingent consideration
The Group initially estimates the amounts payable under
'earn-out' plans to the former shareholders of acquired companies
based on the business model produced at the time of acquisition.
Earn-out clauses within acquisition agreements typically contain
provisions for amounts payable to the former shareholders based on
future financial performance. In order to calculate the expected
future payments, the acquisition business model contains estimates
of the future financial performance for the acquired business.
The post-acquisition performance and expected future performance
of acquired companies is reviewed throughout the year. Any
adjustments required to contingent consideration arising from a
significant departure of financial performance from the original
acquisition plan are made as required and recognised through the
profit and loss.
The Directors do not consider that there are any other critical
accounting judgements or key sources of estimation uncertainty.
5 Segment information
IFRS 8 requires a "management approach" under which information
in the financial statements is presented on the same basis as that
used for internal management reporting purposes. As announced in
September 2013, the Group is now organised on a global basis as a
single Enterprise Location Intelligence business. This is the basis
of the Group's external market offering and internal organisational
and management structure and is the primary way in which the Chief
Executive Officer, who is the Chief Operating Decision Maker,
receives financial information to assess Group performance. As a
result, the Group has therefore determined that it has only one
reportable segment as defined by IFRS 8.
The internal management accounting information is prepared on an
IFRS basis but has a non-GAAP "Adjusted EBITDA" as the primary
measure of profit and this is reported on the face of the income
statement.
In addition, the Board and Management Team consider the business
to have two revenue streams with different characteristics,
Solutions and Services, which are generated from the same asset and
cost base.
5.1 Revenue by nature
2014 2013
GBP'000 GBP'000
================ ========= =========
Solutions 20,067 13,375
Services 14,984 13,627
Total revenues 35,051 27,002
=================== ========= =========
The Board and Management Team also review the revenues on a
geographical basis, based around the regions where the Group has
its significant subsidiaries or markets.
5.2 Geographical areas
The Group's revenue from external customers and information
about its non-current assets (excluding goodwill and deferred tax)
by geography is detailed below:
Revenue Non-current assets
-------------- -------------------------- --------------------------
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------ ------------ ------------ ------------
UK 743 539 4,563 4,239
Europe 12,743 12,478 446 294
Americas 14,223 11,988 769 477
Asia Pacific 7,342 1,997 1,473 2,464
============== ============ ============ ============ ============
35,051 27,002 7,251 7,474
============== ============ ============ ============ ============
Revenues from external customers in the Group's domicile, the
UK, as well as its major markets, Europe, Americas and Asia
Pacific, have been identified on the basis of the customer's
geographical location. Non-current assets are allocated based on
their physical location.
5.3 Information about major customers
During 2014, revenues of GBP4.4 million (2013: GBP6.0 million)
were derived from one European customer. There were no other
customers in 2014 or 2013 who contributed in excess 10% of
revenue.
6 Employee information
6.1 Employee numbers
The average monthly number of people, including Executive
Directors, employed by the Group during the year was:
Actual number of
people as at 31 Average monthly
December number of people
------------------------ ------------------------ ------------------------
2014 2013 2014 2013
By activity Number Number Number Number
------------------------ ----------- ----------- ----------- -----------
Technical consultants 134 130 135 97
Sales & marketing 46 40 45 34
Research & development 33 40 32 35
Administration 37 29 38 20
======================== =========== =========== =========== ===========
250 239 250 186
======================== =========== =========== =========== ===========
2014 2013 2014 2013
By geography Number Number Number Number
------------------------ ----------- ----------- ----------- -----------
United Kingdom 61 53 63 51
Europe 69 54 63 56
Americas 79 72 80 71
Asia Pacific 41 60 44 8
======================== =========== =========== =========== ===========
250 239 250 186
======================== =========== =========== =========== ===========
6.2 Employee benefits
2014 2013
Notes GBP'000 GBP'000
--------------------------------------- ------ --------- ---------
Wages and salaries 15,905 13,152
Social security costs 1,512 1,346
Contributions to defined contribution
pension arrangements 784 626
Share-based payments 21.2 75 92
========================================= ====== ========= =========
Total aggregate employee benefits 18,276 15,216
========================================= ====== ========= =========
Included in the wages and salaries figure above are termination
benefits of GBP458,000 (2013: GBPnil) which are presented as
non-recurring costs in the income statement - see note 9.2. The
employment terminations in 2014 are expected to provide annualised
cost savings of GBP3,360,000 in 2015.
6.3 Key management compensation
Key management includes Directors (Executive and non-executive)
and members of the Executive Management Team. During the year,
there was an average number of 10 key management personnel (2013:
12) and 11 personnel at 31 December 2014 (2013: 11). The
compensation paid or payable to key management for employee
services is shown below:
2014 2013
GBP'000 GBP'000
=============================================== ========= =========
Short-term employee benefits
Wages and salaries 973 998
Social security costs 95 151
Other benefits 19 28
1,087 1,177
----------------------------------------------- --------- ---------
Post employment benefits
Contributions to defined contribution pension
arrangements 47 49
Share-based payments
Equity-settled share-based payments 25 37
Total key management compensation 1,159 1,263
----------------------------------------------- --------- ---------
7 Directors' remuneration and interests
7.1 Directors' remuneration
Employer's
contributions
to defined
contribution
Basic Performance Benefits pension Total Total
salary payments in kind Subtotal arrangements 2014 2013
Director GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================== ========= ============ ========= ========= =============== ========== =========
Robert Parker* 134 49 3 186 14 200 -
Gordon Campbell* 11 - - 11 2 13 169
Richard Green* 166 102 3 271 18 289 267
Peter Harverson 20 - - 20 - 20 15
Andrew Hopper 28 - - 28 - 28 25
J Keith Lomas 6 - - 6 - 6 15
Richard Newell 6 - - 6 - 6 15
Robert Sansom** - - - - - - -
Paul Taylor 20 - - 20 - 20 15
Ian Kershaw 12 - 12 - 12 -
Total 403 151 6 560 34 594 521
------------------ --------- ------------ --------- --------- --------------- ---------- ---------
* The directors are remunerated through the Company's flexible
benefits scheme under which they can elect to switch basic salary
into pension contributions and other benefits. The basic salary
entitlement in the year was: Richard Green GBP175,000, Robert
Parker GBP133,654, Gordon Campbell GBP12,440.
** Robert Sansom has waived his entitlement to annual
remuneration in the year of GBP20,000 (2013: GBP15,000 waived)
7.2 Directors' interests - share options
Ceased
to be
Awards a Awards Awards
Outstanding Director Granted Exercised Lapsed outstanding exercisable
at 1 during during during during at 31 at 31
Award Exercise January the the the the December December
date Vests Expires Price 2014 year year year year 2014 2014
Director Years Years Year GBP Number Number Number Number Number Number Number
=========== ======= ========= ========= ========= ============ ========== ======== ========== ======= ============ ============
Gordon
Campbell 2010 2011-13 2020 0.140 120,500 (120,500) - - - - -
2011 2012-14 2021 1.050 32,500 (32,500) - - - - -
2012 2013-15 2022 2.125 40,000 (40,000) - - - - -
2013 2014-16 2023 2.055 40,000 (40,000) - - - - -
233,000 (233,000) - - - - -
======================================= ========= ============ ========== ======== ========== ======= ============ ============
Richard
Green 2011 2012-14 2021 1.050 100,000 - - - - 100,000 100,000
2012 2013-15 2022 2.125 60,000 - - - - 60,000 40,000
2013 2014-16 2023 2.055 60,000 - - - - 60,000 20,000
2014 2015-17 2024 2.250 - - 75,000 - - 75,000 -
======= ========= ===================== ========= ============ ========== ======== ========== ======= ============ ============
220,000 - 75,000 - - 295,000 160,000
======================================= ========= ============ ========== ======== ========== ======= ============ ============
Robert
Parker 2014 2015-17 2024 2.250 - - 60,000 - - 60,000 -
Peter
Harverson 2010 2011-13 2020 0.140 91,333 - - - - 91,333 91,333
Andrew
Hopper 2010 2011-13 2020 0.140 20,278 - - - - 20,278 20,278
Richard
Newell 2010 2011-13 2020 0.140 1,056 (1,056) - - - - -
=========== ======= ========= ========= ========= ============ ========== ======== ========== ======= ============ ============
Total 565,667 (234,056) 135,000 - - 466,611 271,611
========================================== ========= ============ ========== ======== ========== ======= ============ ============
The 2014 grants vest subject to meeting performance criteria set
out in the long-term incentive plan ("LTIP"). No other Directors
have been granted share options in the Company or other Group
entities. None of the terms and conditions of the share options
were varied during the year. All options were granted in respect of
qualifying services.
Ian Kershaw, Robert Sansom and Paul Taylor do not have any share
options as at 31 December 2014. There have been no options granted
to or exercised by Directors between 31 December 2014 and 16 March
2015.
The market price of the Company's shares at the end of the
financial year was GBP1.20. The range of market prices during the
year was between GBP1.20 and GBP2.75.
Directors' gains on share options
Gain Gain
on on
exercise exercise
2014 2013
GBP'000 GBP'000
Richard Green - 155
--------------- ------------------- ----------
7.3 Directors' interests - shares
Directors' interests in the ordinary shares of Ubisense Group
plc, at 31 December 2014 and 31 December 2013, were as follows:
2014 2013
Number Number
================= ========================= =================
Gordon Campbell - 87,987
Richard Green* 1,734,906 1,734,906
Peter Harverson 65,161 65,161
Andrew Hopper 225,000 225,000
J Keith Lomas - 47,712
Richard Newell - 643,354
Robert Sansom 2,493,676 2,493,676
4,518,743 5,297,796
----------------- ------------------------- -----------------
* Includes 115,617 (2013: 115,617) shares held by the RT Green
Children's Trust of which Richard Green is a trustee.
Gordon Campbell, J Keith Lomas and Richard Newell ceased to be
Directors during the year and therefore no interest in shares is
disclosed at 31 December 2014, although these individuals still
retain an interest in the ordinary shares of Ubisense Group
Plc.
There has been no change in the interests set out above between
31 December 2014 and 16 March 2015.
Paul Taylor, Robert Parker and Ian Kershaw hold no shares as at
31 December 2013 (or their appointment date if later), 31 December
2014 nor 16 March 2015.
8 Finance income and costs
2014 2013
GBP'000 GBP'000
=========================== ========= ============
Interest income from cash
and cash equivalents 14 10
============================== ========= ============
Finance income 14 10
============================== ========= ============
Interest payable - bank (197) (103)
Interest payable - other (14)
============================== ========= ============
Finance costs (211) (103)
============================== ========= ============
Net finance costs (197) (93)
============================== ========= ============
9 Loss before tax: analysis of expenses by nature
9.1 Expenses by nature
The following items have been charged/(credited) to the income
statement in arriving at loss before tax:
2014 2013
Notes GBP'000 GBP'000
--------------------------------------- ------ --------- ---------
Amortisation of acquired intangible
assets 12 751 313
Amortisation and impairment of other
intangible assets 12 2,937 1,332
Depreciation of owned property, plant
and equipment 13 359 266
Loss on disposal of property, 22 -
plant and equipment
Operating lease rental charges
- land and buildings 715 445
Operating lease rental charges
- other 167 135
Inventory recognised as an
expense 2,884 1,057
Research and development costs
expensed 766 946
Net foreign currency gains (180) (153)
Non-recurring items 9.2 2,363 764
Auditors' remuneration 9.3 254 216
========================================= ====== ========= =========
9.2 Non-recurring items
2014 2013
GBP'000 GBP'000
----------------------------------- --------- ---------
Strategic Asia Pacific market
entry costs 603 650
Acquisition costs 34 114
Reorganisation costs 458 -
Impairment of acquired intangible 1,268 -
assets
===================================== ========= =========
Total non-recurring items 2,363 764
===================================== ========= =========
During 2014, the Group incurred non-recurring items of GBP2.4
million of which GBP0.6 million (2013: GBP0.7 million) relating to
strategic Asia Pacific market entry. In addition, the Group
incurred acquisition costs, mainly comprising professional fees, in
connection with a potential future acquisition (2013: professional
fees in connect with an acquisition that did not proceed).
During 2014, the Group incurred reorganisation costs totalling
GBP458,000 comprising mainly redundancy costs in order to align the
employee base with the future strategy of the Group.
The impairment of acquired intangible assets relates to the
write off of goodwill and customer relationships acquired with
Realworld OO Systems Limited in 2011. More details are included in
note 12.
9.3 Auditors' remuneration
During the year the Group (including its overseas subsidiaries)
obtained the following services from the Company's auditor and its
associates:
2014 2013
GBP'000 GBP'000
--------------------------------------- --------- ---------
Fees payable to the Group's
auditor for the audit of:
Parent Company and consolidated
financial statements 27 16
Financial statements of subsidiaries,
pursuant to legislation 100 91
========================================= ========= =========
Total audit fees 127 107
========================================= ========= =========
Fees payable to the Group's auditor
for other services:
Tax services 74 26
Corporate Finance services 53 75
Other services - 8
========================================== ========= =========
Total non-audit fees 127 109
========================================== ========= =========
Total auditors' remuneration 254 216
========================================== ========= =========
The auditor of Ubisense Group plc is Grant Thornton UK LLP.
During the year, the auditor was used for due diligence work as
this was considered most beneficial to the Group due to the
auditor's established knowledge and experience of the Group's
activities. The auditor's independence and objectivity was
safeguarded through the use of separate engagement teams. No
services were provided pursuant to contingent fee arrangements.
10 Income tax
10.1 Income tax recognised in the income statement
2014 2013
GBP'000 GBP'000
-------------------------------------- --------- ---------
Current tax
UK corporation tax - 2
Foreign tax 239 36
Research and development tax credits
- prior years (537) (177)
======================================= ========= =========
Total current tax credit (298) (139)
========================================= ========= =========
Deferred tax
Origination and reversal of
temporary differences (438) 358
========================================= ========= =========
Total deferred tax (credit)
/ expense (438) 358
========================================= ========= =========
Total income tax (credit) /
expense (736) 219
========================================= ========= =========
The tax credit differs from the standard rate of corporation tax
in the UK for the year of 21.5% (2013: 23%) for the following
reasons:
2014 2013
GBP'000 GBP'000
=============================================== ========= =========
Loss before tax (4,778) (1,719)
================================================== ========= =========
Loss before tax multiplied by the standard
rate of corporation tax in the UK of 21.5%
(2013: 23%) (1,027) (395)
Tax effects of:
Expenses not deductible for
tax purposes 137 219
Accrued contingent consideration released not 7 -
subject to tax
Utilisation of previously unrecognised
tax losses 77 (96)
Tax losses for which no deferred tax asset
was recognised 734 708
Tax unprovided in prior years - 38
Research and development tax
credits - prior years (537) (188)
Difference on tax treatment
of share options 17 74
Re-measurement of deferred 120 -
tax - change of tax rate
Differential on overseas tax
rates (31) (149)
Other temporary differences (233) 8
================================================== ========= =========
Total income tax (credit) /
expense (736) 219
================================================== ========= =========
10.2 Factors that may affect future tax charges
The Group has tax losses of GBP9.3 million (2013: GBP8.9
million) that are available for offset against future taxable
profits of those subsidiary companies in which the tax losses
arose. Deferred tax assets have not been recognised in respect of
these losses as they may not be used to offset taxable profits
elsewhere in the Group, and they have arisen in subsidiaries whose
future taxable profits are uncertain. No deferred tax has been
recognised on the unremitted earnings of overseas subsidiaries,
because the earnings are continually reinvested by the Group and no
tax is expected to be payable on them in the foreseeable
future.
On 3 July 2012, the UK Government substantially enacted
reductions to the UK corporation tax rates. Effective from 1 April
2014, the UK corporation tax rate reduced to from 23% to 21% and
effective from 1 April 2015, the rate will reduce further to 20%.
As a result, the deferred tax balances have been re-measured.
10.3 Deferred tax
The movement in deferred tax in the Consolidated statement of
financial position during the year is as follows:
Deferred income Deferred income
tax assets tax liabilities
---------------------------------------- ---------------------------- ---------------------------
2013
2014 2013 2014 Restated
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ------------- ------------- ------------ -------------
At 1 January - - (1,773) (653)
Arising on acquisition of subsidiaries - - - (761)
Deferred tax credited to the
income statement - - 1,085 57
Deferred tax charged to the
income statement - - (648) (416)
======================================== ============= ============= ============ =============
At 31 December - - (1,336) (1,773)
======================================== ============= ============= ============ =============
The components of deferred tax included in the Consolidated
statement of financial position are as follows:
2013
2014 Restated
GBP'000 GBP'000
======================================= ========= ==========
Development costs capitalised (448) (901)
Intangible assets recognised on
acquisition of subsidiaries (888) (872)
Total deferred income tax liabilities (1,336) (1,773)
========================================== ========= ==========
Deferred tax assets have not been recognised in respect of the
following items because it is not probable that future taxable
profits will be available against which the Group can utilise the
benefits:
2014 2013
GBP'000 GBP'000
======================================== ========= =========
Tax losses carried forward 2,546 2,537
Equity-settled share options temporary
differences 201 452
Total unrecognised deferred
tax assets 2,747 2,989
=========================================== ========= =========
11 Earnings per share (EPS)
Basic and diluted earnings
per share 2014 2013
---------------------------------------------- -------- --------
Earnings
Earnings for the purposes of basic
and diluted EPS being net loss attributable
to equity holders of the parent company
(GBP'000) (4,085) (1,968)
================================================ ======== ========
Number of shares
Weighted average number of ordinary shares
for the purposes of basic EPS ('000) 24,541 21,984
Effect of dilutive potential
ordinary shares:
* Share options ('000) 969 1,034
Weighted average number of ordinary shares
for the purposes of diluted EPS ('000) 25,510 23,018
================================================= ======== ========
Basic EPS (pence) (16.7) (8.9)
================================================= ======== ========
Diluted EPS (pence) (16.7) (8.9)
================================================= ======== ========
Basic earnings per share is calculated by dividing profit for
the period attributable to ordinary shareholders of the Company by
the weighted average number of ordinary shares outstanding during
the period. For diluted earnings per share, the weighted average
number of shares is adjusted to allow for the effects of all
dilutive share options and warrants outstanding at the end of the
year. Options have no dilutive effect in loss-making years, and
hence the diluted loss per share for the year is the same as the
basic loss per share.
The Group also presents an adjusted diluted earnings per share
figure which excludes amortisation on acquired intangible assets,
share-based payments charge and non-recurring items such as
acquisition, integration or reorganisation costs and impairment of
assets from the measurement of profit for the period.
Adjusted diluted earnings per
share Notes 2014 2013
------------------------------------------- ------ -------- --------
Earnings for the purposes of diluted
EPS being net loss attributable to
equity holders of the parent company
(GBP'000) (4,085) (1,968)
Adjustments:
Reversal of amortisation on acquired
intangible assets (GBP'000) 9, 12 751 313
Reversal of share-based payments charge
(GBP'000) 21.2 75 92
Reversal of non-recurring items (GBP'000) 9.2 2,363 764
--------------------------------------------- ------ -------- --------
Net adjustments (GBP'000) 3,189 1,169
--------------------------------------------- ------ -------- --------
Adjusted earnings (GBP'000) (896) (799)
--------------------------------------------- ------ -------- --------
Adjusted diluted EPS (pence) (3.5) (3.5)
--------------------------------------------- ------ -------- --------
The adjusted EPS information is considered to provide a fairer
representation of the Group's trading performance.
12 Other intangible assets
Acquired
customer Acquired Capitalised
relationships software product
Goodwill and order products development Total
Restated backlog Restated costs Software Restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ========== =============== ========== ============= ========= ==========
Cost
At 1 January 2013 7,418 449 529 4,424 299 13,119
Effects of movement - - - - - -
in exchange rates
Acquisition of Geoplan 2,201 1,593 408 - 173 4,375
Additions - - - 3,037 161 3,198
At 31 December 2013 9,619 2,042 937 7,461 633 20,692
========================== ========== =============== ========== ============= ========= ==========
Exchange difference (203) (205) (52) - (38) (498)
Additions - - - 2,956 544 3,500
At 31 December 2014 9,416 1,837 885 10,417 1,139 23,694
========================== ========== =============== ========== ============= ========= ==========
Accumulated amortisation
At 1 January 2013 - (148) (221) (2,314) (117) (2,800)
Charge for the year - (120) (193) (1,227) (105) (1,645)
========================== ========== =============== ========== ============= ========= ==========
At 31 December 2013 - (268) (414) (3,541) (222) (4,445)
========================== ========== =============== ========== ============= ========= ==========
Effects of movement
in exchange rates - 36 11 (1) 24 70
Charge for the year - (497) (254) (2,568) (289) (3,608)
Impairment for the year (1,192) (76) - (80) - (1,348)
========================== ========== =============== ========== ============= ========= ==========
At 31 December 2014 (1,192) (805) (657) (6,190) (487) (9,331)
========================== ========== =============== ========== ============= ========= ==========
Net book amount
========================== ========== =============== ========== ============= ========= ==========
At 31 December 2014 8,224 1,032 228 4,227 652 14,363
========================== ========== =============== ========== ============= ========= ==========
At 31 December 2013 9,619 1,774 523 3,920 411 16,247
========================== ========== =============== ========== ============= ========= ==========
The acquired software products, customer relationships and order
backlog assets arose on the acquisition in 2013 of the Geoplan
group of companies and in 2011 of Integrated Mapping Solutions,
Inc. (now merged into Ubisense Inc.) and Realworld OO Systems
Limited (now re-named Geospatial Systems Limited). Capitalised
development assets relate to expenditure that can be applied to a
plan or design for the production of new or substantially improved
products and processes. The software assets represent assets
purchased from third parties.
The restatement of 2013 goodwill and acquired software products
relates to the provisional fair value of assets acquired with the
Geoplan group. Further details are included in note 24.
During the year, an impairment expense of GBP1,192,000 was
recognised in respect of goodwill and GBP76,000 in respect of
acquired customer relationships. This impairment expense related to
goodwill and unamortised customer relationships relating to the
acquisition of Realworld OO Systems Limited in 2011, which have
been written down to GBPnil carrying value at 31 December 2014.
This impairment arose as a result of the Group strategy focussing
on higher margin Solutions revenue streams and exiting from
specific lower margin business areas.
In assessing whether intangible assets have been impaired, the
carrying amount of the cash-generating unit (CGU) or groups of CGUs
(including goodwill) is compared with the recoverable amount of the
CGU or groups of CGUs. The recoverable amount is the higher of fair
value less costs to sell and value in use. In the absence of
readily available information about the fair value of a
cash-generating unit, the recoverable amount is deemed to be the
value in use for the purposes of performing an impairment test of
goodwill, unless this would lead to an impairment loss. If goodwill
would be impaired using value in use as the recoverable amount, a
fair value less costs to sell assessment would be performed as this
may lead to a higher recoverable amount. The Group calculates the
value in use using a discounted cash flow model. The future cash
flows are adjusted for risks specific to the cash-generating unit
and are discounted using a pre-tax discount rate. The discount rate
is derived from the Group's post-tax weighted average cost of
capital and is adjusted where applicable to take into account any
specific risks. A discount rate of
11.5% has been used for impairment calculations performed in
2014 (2013: 10.0% and 14.5%). The recoverable amounts of all CGUs
have been determined from value-in-use calculations based on 3 - 5
year forecasts projected from the 2014 annual operating plan
approved by the Board for each CGU with an assumed terminal growth
rate of nil (2013: 0 - 3%) and no improvement in relative operating
margin after the forecast period. The Board has considered
reasonable possible sensitivities in key assumptions on which the
value-in-use calculations are based. If the discount factor
increased to 35%, this would not cause the carrying value to exceed
estimated recoverable amount.
There was no further impairment intangible assets as the
estimated recoverable amount exceeded the carrying value for all
CGUs.
13 Property, plant and equipment
Fixtures Computer
and fittings equipment Total
GBP'000 GBP'000 GBP'000
========================== ========== ======== ============== =========== =========
Cost
At 1 January 2013 543 517 1,060
Effect of movements
in exchange rates (42) 4 (38)
Additions 52 88 140
Acquisition of subsidiary 136 - 136
Disposals - (2) (2)
============================== =============== ============== =========== =========
At 31 December 2013 689 607 1,296
============================== =============== ============== =========== =========
Effect of movements
in exchange rates (23) (26) (49)
Additions 556 402 958
Disposals (331) (96) (427)
============================== =============== ============== =========== =========
At 31 December 2014 891 887 1,778
============================== =============== ============== =========== =========
Accumulated depreciation
At 1 January 2013 (199) (240) (439)
Effect of movements
in exchange rates 32 3 35
Charge for the year (88) (178) (266)
Disposals - 2 2
============================== =============== ============== =========== =========
At 31 December 2013 (255) (413) (668)
============================== =============== ============== =========== =========
Effect of movements
in exchange rates 17 13 30
Charge for the year (139) (220) (359)
Disposals 239 92 331
At 31 December 2014 (138) (528) (666)
============================== =============== ============== =========== =========
Net book amount
At 31 December 2014 753 359 1,112
============================== =============== ============== =========== =========
At 31 December 2013 434 194 628
============================== =============== ============== =========== =========
14 Inventories
2013
2014 Restated
GBP'000 GBP'000
------------------- --------- ----------
Raw materials 1,088 811
Finished goods 1,793 1,777
---------------------- --------- ----------
Total inventories 2,881 2,588
---------------------- --------- ----------
There are no impairment provisions against inventory included in
the above amounts (2013: GBPnil). The Group's inventories are
comprised of products which are not generally subject to rapid
obsolescence on account of technological, deterioration in
condition or market trends.
15 Trade and other receivables
2014 2013
Notes GBP'000 GBP'000
----------------------------------- ------ --------- ---------
Trade receivables, gross 8,961 7,072
Allowances for doubtful debts 15.1 (68) (141)
===================================== ====== ========= =========
Trade receivables, net 15.2 8,893 6,931
Amounts recoverable on contracts 4,134 3,347
Other receivables 211 285
Prepayments and accrued income 1,255 645
Corporation tax recoverable 521 177
VAT and taxation receivable 527 162
===================================== ====== ========= =========
Total trade and other receivables 15,541 11,547
===================================== ====== ========= =========
All amounts disclosed are short term. The carrying value of
trade receivables is considered a reasonable approximation of fair
value.
Due to having a blue chip customer base and effective credit
control procedures, the Group is not significantly exposed to the
risk of bad debt. The following disclosures are in respect of trade
receivables that are either impaired or past due. The individually
impaired receivables mainly relate to customers who are in
unexpectedly difficult economic situations. Any impairment is
assessed on a customer-by-customer basis following a detailed
review of the particular circumstances. To the extent they have not
been specifically provided against, the trade receivables are
considered to be of sound credit rating.
15.1 Movement in allowance for doubtful debts
2014 2013
GBP'000 GBP'000
--------------------------------- --------- ---------
At 1 January (141) (80)
Amounts recovered in the year 33 2
Amounts written off in the year 41 -
Allowance made (1) (63)
At 31 December (68) (141)
==================================== ========= =========
15.2 Ageing of past due but not impaired receivables
2014 2013
GBP'000 GBP'000
------------------------------- --------- ---------
Neither past due nor impaired 5,492 5,114
Past due but not impaired:
0 to 90 days overdue 2,494 1,500
More than 90 days overdue 907 317
Total 8,893 6,931
================================== ========= =========
16 Cash and cash equivalents
2014 2013
GBP'000 GBP'000
--------------------------- --------- ---------
Cash at bank and in hand 3,697 3,848
Short-term bank deposits - 116
============================== ========= =========
Cash and cash equivalents 3,697 3,964
============================== ========= =========
The carrying amount approximates to fair value because of the
short-term maturity of these instruments, being no greater than
three months.
Cash at bank earns interest at floating rates based on daily
bank overnight deposit rates. Short-term cash deposits earn
interest at fixed rates for the term of the deposit.
The composition of cash and cash equivalents
by currency is as follows: 2014 2013
By currency GBP'000 GBP'000
--------------------------------------------------- --------- ---------
British Pound (GBP) 904 489
Euro (EUR) 1,361 496
US Dollar (USD) 1,169 739
Japanese Yen (JPY) 122 1,718
South Korean Won (KRW) 36 352
Canadian Dollar (CAD) 103 11
Philippine Peso (PHP) 2 -
Turkish Lira (TRY) - 159
Cash and cash equivalents 3,697 3,964
=================================================== ========= =========
17 Trade and other payables
2014 2013
Notes GBP'000 GBP'000
------------------------------------ ------ --------- ---------
Payments received on account 2,137 2,765
Trade payables 4,021 3,570
Trade accruals 2,020 1,748
Current tax liability 51 41
Other taxation and social security 822 667
Other payables 765 705
Other liabilities - deferred
consideration 24.2 - 172
Other liabilities - contingent
consideration 24.2 - 355
====================================== ====== ========= =========
Total trade and other payables 9,816 10,023
====================================== ====== ========= =========
All amounts disclosed are short term. The carrying value of
trade payables is considered a reasonable approximation of fair
value.
18 Bank loans
In August 2013, the Group agreed a new three year bank loan
facility of up to GBP5.0 million to provide additional future
working capital capacity and is repayable in full in August 2016.
Interest is payable at LIBOR plus 3% and the facility is secured on
the fixed and floating assets of the Group. The facility is subject
to certain operating performance and net worth covenants of the
business. As at 31 December 2014, and as at 16 March 2015, GBP4.0
million (31 December 2013: GBP3.5 million) is outstanding and is
repayable by Ubisense Limited to HSBC Bank plc.
In June 2014, the Group agreed a new one year bank loan of 130
million Japanese Yen. The facility was increased to 200 million
Japanese Yen in October 2014. The loan is unsecured and interest is
payable at 0.99%. At 31 December 2014, and as at 16 March 2015, 170
million Japanese Yen (2013: nil) is outstanding and repayable by
Geoplan Company Limited to Mizuho Bank.
In August 2014, the Group agreed a new additional 4 year bank
loan facility of GBP2.0 million to provide funds for acquisitions
and is repayable in quarterly instalments. Interest is payable at
Bank of England base rate plus 3% and the facility is secured on
the fixed and floating assets of the Group. The facility is subject
to certain operating and net worth covenants of the business. As at
31 December 2014, GBP2.0 million (31 December 2013: GBPnil) was
outstanding and at 16 March 2015 GBP1.9 million was outstanding.
The loan is repayable by Ubisense Limited to HSBC Bank plc.
All covenants tests during the year were met and all tests for
the forthcoming twelve months are forecast to be met based on our
annual operating plan and our latest rolling forecast.
19 Other payables
2014 2013
Notes GBP'000 GBP'000
-------------------------- ------ --------- ---------
Contingent consideration 24.2 414 429
Property provisions 179 -
Rent deposit repayable 11 -
-------------------------- ------ --------- ---------
604 429
-------------------------- ------ --------- ---------
In September 2014, Ubisense Limited entered a new 10 year lease
on the Group's headquarter offices. The property provision is a
dilapidation provision to restore the office to its original state.
It is included in fixtures and fittings within Property, Plant and
Equipment and is being depreciated over the lease term.
20 Share capital and premium
Number of Share Share
ordinary shares capital premium Total
of GBP0.02 each GBP'000 GBP'000 GBP'000
--------------- ---------------------------------- -------------------- ------------------- -----------------------------
Balance at 1
January 2013 21,919,744 438 22,251 22,689
--------------- ---------------------------------- -------------------- ------------------- -----------------------------
Issued under
share-based
payment plans 399,593 8 103 111
Issued on
acquisition
of subsidiary 759,809 15 1,696 1,711
=============== ================================== ==================== =================== =============================
Change in year 1,159,402 23 1,799 1,822
--------------- ---------------------------------- -------------------- ------------------- -----------------------------
Balance at 31
December
2013 23,079,146 461 24,050 24,511
--------------- ---------------------------------- -------------------- ------------------- -----------------------------
Issued under
share-based
payment plans 54,107 1 23 24
Issued on
placing to
institutional
shareholders 1,929,589 39 3,978 4,017
Change in year 1,983,696 40 4,001 4041
--------------- ---------------------------------- -------------------- ------------------- -----------------------------
Balance at 31
December
2014 25,062,842 501 28,051 28,552
--------------- ---------------------------------- -------------------- ------------------- -----------------------------
The Company has one class of ordinary shares which carry no
right to fixed income.
During the period, the Company issued 1,983,696 shares,
increasing the total number of shares in issue from 23,079,146 to
25,062,842 as follows:
-- 1,929,589 shares at GBP2.20 per share for a total gross
consideration of GBP4,246,000 with share issue costs of GBP229,000
written off against the share premium account.; and
-- 54,107 shares as a result of options exercised with a
weighted average exercise price of GBP0.45 per share for total cash
consideration of GBP24,334.
21 Share-based payments: options
21.1 Equity-settled share-based payment arrangements
The Group operates a number of plans to award options over
shares in the Company to the best performing employees of the Group
around the world.
Options are generally granted at an exercise price equal to the
market price of the shares under option at the date of the grant.
The options generally vest evenly over three years on the
anniversary from the date of the grant or entirely on the third
anniversary from the date of grant, depending on continuing service
during the vesting period. The contractual life of the options is
ten years from the date of grant after which they expire if
unexercised.
21.2 Analysis of amounts recognised in the financial
statements
a) Analysis of amounts recognised in the Consolidated income statement
2014 2013
GBP'000 GBP'000
---------------------------------------------- ========= ---------
Total share-based payments charge recognised
in operating profit 75 92
============================================== ========= =========
b) Analysis of amounts recognised in the Consolidated statement
of changes in equity in the year
2014 2013
GBP'000 GBP'000
-------------------------------------------- ========= ---------
Net share-based payments credit recognised
in equity 75 92
============================================ ========= =========
c) Cumulative amounts included within equity in the Consolidated
statement of financial position
2014 2013
GBP'000 GBP'000
=========================================== ========= =========
Cumulative reserve credit for share-based
payments 821 746
============================================ ========= =========
21.3 Reconciliation of movements in equity-settled share-based
payment arrangements in the year
Awards
Awards Awards exercisable
outstanding Granted Exercised Forfeited outstanding at
at during during during at 31
Award Exercise 1 January the the the 31 December December
date Vests Expires price 2014 year year year 2014 2014
Arrangement Year Years Year GBP Number Number Number Number Number Number
============= ======= ========= ========= ========= ============ ======== ========== ========== ============ ============
Options 2007 2008-10 2017 0.900 300 - - - 300 300
2008 2009-11 2018 0.900 650 - - - 650 650
2009 2010-12 2019 0.900 3,750 - - - 3,750 3,750
2010 2011-13 2020 0.140 883,144 - (35,690) - 847,454 847,454
2011 2012-14 2021 1.050 408,450 - (18,417) (3,916) 386,117 386,117
2011 2012-14 2021 1.975 11,386 - - (11,386) - -
2012 2013-15 2022 2.125 344,000 - - (28,000) 316,000 210,667
2013 2014-16 2023 2.055 371,500 - - (20,000) 351,500 117,167
2014 2015-17 2024 2.250 - 447,500 - (10,000) 437,500 -
======= ========= ======================= ========= ============ ======== ========== ========== ============ ============
Total 2,023,180 447,500 (54,107) (73,302) 2,343,271 1,556,105
============================================ ========= ============ ======== ========== ========== ============ ============
Weighted average exercise
price (GBP) 1.025 2.250 0.450 2.042 1.240 0.777
======================================================= ============ ======== ========== ========== ============ ============
In May 2014, 447,500 share options were granted to employees
with an exercise price of GBP2.25 per share, being the market value
at the date of exercise. The weighted average share price at the
date of exercise for options exercised during the year was GBP1.921
(2013: GBP2.1053).
21.4 Principal assumptions
The fair value of share-based payments grants has been valued
using the Black-Scholes option-pricing model. Expected volatility
was determined based on the historic volatility of comparable
companies. The expected life is the expected period from grant to
exercise based on management's best estimate of the effects of
non-transferability, exercise restrictions and behavioural
considerations. The risk-free rate of return is an average yield on
the zero-coupon UK Government Bond in issue at the date of grant
with a similar life to the option or warrant.
The following assumptions were used in the model for options
granted during the years ended 31 December 2014 and 31 December
2013.
Instrument Option Option
========================== ============ =================
Number granted 447,500 421,500
Grant date 23 May 2014 19 April
2013
Share price at grant
date (GBP) 2.250 2.055
Exercise price (GBP) 2.250 2.055
Fair value per option
(GBP) 0.60 0.30
Expected life (years) 3.0 3.0
Expected volatility
(%) 34 20
Risk-free interest
rate (%) 1.83 0.79
Expected dividends - -
expressed as a dividend
yield (%)
=========================== ============ =================
22 Operating lease commitments
Leases as lessee
At 31 December 2014, the Group has lease agreements in respect
of property and equipment for which payments extend over a number
of years. The Group enters into these arrangements as these are a
cost-efficient way of obtaining the short-term benefits of these
assets. The Group lease rental charge is disclosed in note 9.1.
There are no other material off-balance sheet arrangements.
The Group's future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
Land and buildings Other
--------------------- --------------------
2014 2013 2014 2013
Lease ending GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- --------- --------- ---------
No later than one year 785 433 121 111
Later than one year and no
later than five years 2,441 1,409 85 117
Later than five years 3,043 550 - -
Total 6,269 2,392 206 228
============================ ========== ========= ========= =========
The above table reflects the committed cash payments under
operating leases, rather than the expected charge to the income
statement in the relevant periods. The effect on the income
statement will differ to the above figures due to the amortisation
of rent-free and discounted rent periods included in property
leases signed in 2012 and 2014. The expected charge in 2015 for
operating leases is expected to be GBP84,000 higher than the
committed cash payments shown above.
The Group has guaranteed rent bonds issued by its banks on its
behalf totalling GBP134,000 as at 31 December 2014 (2013:
GBP122,000). These are not expected to result in any material
financial loss.
23 Principal subsidiaries
Proportion Proportion
of ordinary of ordinary
shares shares held
held by non-controlling
Country by group interests
Subsidiary of incorporation Principal activity (%) (%)
============================ =================== ====================== ============= ====================
Ubisense Limited UK Location solutions 100 -
Ubisense GmbH Germany Location solutions 100 -
Ubisense SAS France Location solutions 100 -
Ubisense Inc. US Location solutions 100 -
Ubisense Solutions Inc. Canada Location solutions 100 -
Geospatial Systems Limited UK Location solutions 100 -
Ubisense Inc. Japan Intermediate holding 100 -
company
Geoplan Company Limited* Japan Location solutions 77 23
Binary Star Developments Japan Non-trading 100 -
K.K.*
Ubisense Company Limited* South Location solutions 100 -
Korea
Geoplan Philippines, Philippines Location solutions 100 -
Inc.*
============================ =================== ====================== ============= ====================
All subsidiaries are directly held by Ubisense Group plc except
those denoted* which are held by intermediate holding
companies.
All subsidiaries prepare local statutory accounts up to 31
December each year except for Geospatial Systems Limited which
prepares accounts up to 31 March and Binary Star Developments K.K.
to 31 January. For subsidiaries which have a different financial
year-end to the Group, additional co-terminous accounts are
prepared reflecting the same financial reporting as the Group for
the purposes of consolidation.
24 Business combinations
24.1 Subsidiaries acquired
Proportion
of equity
Country of Principal Date of interest
Subsidiary incorporation activity acquisition acquired
Location 3 December
Ubisense Inc Japan solutions 2013 100%
-------------- ---------------- ------------ -------------- -----------
The Ubisense Inc (formerly named Geoplan Interworks K.K.) group
of companies ("Geoplan") was acquired to enhance the Group's
geographic reach into the Asian market. The Geoplan group is
headquartered in Japan and its markets across the region will be
developed from there.
24.2 Consideration transferred
Total
GBP'000
Cash consideration paid 635
Consideration satisfied by issue
of Ubisense shares 1,711
Deferred consideration 178
Contingent cash consideration arrangement 816
-------------------------------------------- ---------
Consideration transferred 3,340
-------------------------------------------- ---------
Consideration was satisfied by issue of Ubisense shares
comprised 759,809 new ordinary shares of nominal value of GBP0.02
in Ubisense at a price of 225.25 pence per ordinary share, being
the average of the volume weighted mid-market closing price on each
of the preceding five business days.
The deferred consideration was paid in full in January 2014.
Under the contingent cash consideration arrangement, the Group
is required to pay additional amounts to the vendors of Geoplan
based on the achievement of two separate performance milestones
that may arise between 2014 and 2017 with a combined undiscounted
range of outcomes between nil and 149 million Japanese Yen (GBPnil
to GBP892,000).
At acquisition, the fair value of the contingent consideration
was 136 million Japanese Yen (GBP816,000) being management's best
estimate of the probability-adjusted estimated discounted future
cashflows. The discount rate used is 3.5%, based on the Group's
estimated incremental borrowing rate for unsecured liabilities at
the reporting date, and therefore reflects the Group's credit
position. The fair value amount recognised for this arrangement is
revised based on the most recent management estimates and, as the
liability is denominated in Japanese Yen, it is subject to the
impact of exchange rates.
At 31 Effect Paid Fair At 31
December of exchange in the Unwinding value December
2013 rates period of discount adjustment 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ---------- ------------- --------- ------------- ------------ ----------
Contingent consideration
- non-current 429 (29) - 14 - 414
Contingent consideration
- current 355 7 (330) - (32) -
Total contingent consideration 784 (22) (330) 14 (32) 414
================================ ========== ============= ========= ============= ============ ==========
Deferred consideration 172 7 (179) - - -
================================ ========== ============= ========= ============= ============ ==========
Total 956 (15) (509) 14 (32) 414
================================ ========== ============= ========= ============= ============ ==========
Acquisition related costs amounting to GBP464,000 have been
excluded from the consideration transferred and have been
recognised as an expense within the "operating expenses" line item
in the consolidated income statement in 2013.
24.3 Assets acquired and liabilities recognised at the date of
acquisition
As at 31 December 2013, the fair values of acquired assets,
liabilities and goodwill for Geoplan were determined on a
provisional basis due to the proximity of the acquisition to the
year end. The post-acquisition review of the fair value of the net
assets acquired was completed in the current period. The following
amendments have been retrospectively applied to net assets acquired
and liabilities recognised at the date of acquisition.
At 31 At 31
December Fair value December
2013 adjustment 2013 Restated
GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Acquired software products 626 (218) 408
Acquired customer relationships and
order backlog 1,593 - 1,593
Other intangible assets 173 - 173
Property, plant and equipment 132 - 132
Total non-current assets 2,524 (218) 2,306
--------------------------------------- ---------- ------------ ---------------
Current assets
Inventories 1,605 (518) 1,087
Trade and other receivables 1,080 - 1,080
Cash and cash equivalents 2,481 - 2,481
Total current assets 5,166 (518) 4,648
--------------------------------------- ---------- ------------ ---------------
Liabilities
Current liabilities
Trade and other payables (4,500) - (4,500)
Total current liabilities (4,500) - (4,500)
--------------------------------------- ---------- ------------ ---------------
Non-current liabilities
Deferred income tax liabilities (843) 83 (760)
--------------------------------------- ---------- ------------ ---------------
Total non-current liabilities (843) 83 (760)
--------------------------------------- ---------- ------------ ---------------
Non-controlling interest (704) 150 (554)
--------------------------------------- ---------- ------------ ---------------
Fair value of identifiable net assets
acquired 1,643 (503) 1,140
--------------------------------------- ---------- ------------ ---------------
24.4 Goodwill arising on acquisitions
Total
GBP'000
Fair value of consideration transferred 3,340
Less: fair value of identifiable
net assets acquired (1,140)
------------------------------------------ ---------
Goodwill arising on acquisitions 2,200
Effect of movement of exchange
rates (203)
------------------------------------------ ---------
Goodwill at 31 December 2014 1,997
------------------------------------------ ---------
Goodwill arose on the acquisition of Geoplan in respect of the
benefits of a highly knowledgeable workforce, expected operational
synergies, revenue growth and future market development. These
benefits are not recognised separately from goodwill because they
do not meet the recognition criteria for identifiable intangible
assets.
Goodwill is not expected to be deductible for tax purposes.
24.5 Impact of acquisitions on the results of the Group
Geoplan contributed GBP109,000 to the consolidated profit from 3
December 2013 to 31 December 2013. If Geoplan had been acquired on
1 January 2013, revenue of the Group for 2013 would have been
GBP31,649,000, adjusted EBITDA would have been GBP870,000 and the
loss before tax would have been GBP1,903,000.
24.6 Post period disposal
The Group is in progress of selling Geoplan Philippines Inc.
under a management buy-out. This proposed transaction will not have
a material impact on the Group or on the results for 2015.
25 Related party transactions
Other than compensation of key management personnel disclosed in
note 6.3 there are no transactions with other related parties. Full
details of Directors' remuneration are given in note 7.
There were no other transactions with Directors of the
Company.
26 Financial risk management
26.1 Risk management objectives and policies
The Group is exposed to various risks in relation to financial
instruments. The Group's financial assets and liabilities by
category are summarised below. The main types of risks are market
risk (including foreign currency risk and interest rate risk),
credit risk and liquidity risk.
The Group's risk management is coordinated at its headquarters,
in close cooperation with the Board of Directors, and focuses on
actively securing the Group's short to medium-term cash flows. The
Group does not actively engage in the trading of financial assets
for speculative purposes. The most significant financial risks to
which the Group is exposed are described below.
26.2 Foreign currency risk management
The Group operates globally and undertakes certain transactions
denominated in foreign currencies, predominantly in US dollars
(USD), Euros (EUR) and Japanese Yen (JPY), exposing the Group to
foreign currency risk. The Group's risk management policy is to
maintain natural hedges where possible, by matching foreign
currency revenue and expenditure. The Group does not enter into
forward exchange contracts to mitigate the exposure to foreign
currency risk as the Group's currency transactions are not
considered significant enough to warrant this.
Foreign currency denominated monetary assets and liabilities
which expose the Group to currency risk are disclosed below. The
amounts shown are those not denominated in the local functional
currency, translated into GBP at the closing rate.
Japanese Yen US Dollars Euros
============= ====================== ==================== ====================
2014 2013 2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============= ========== ========== ========= ========= ========= =========
Assets - - 2,240 777 886 623
Liabilities - - (199) (5) - (5)
============= ========== ========== ========= ========= ========= =========
All foreign currency financial assets and liabilities are
classified as current.
26.3 Foreign currency sensitivity analysis
The following table illustrates the sensitivity of profit and
equity in regards to the Group's financial assets and financial
liabilities and the USD/GBP, EUR/GBP and JPY/GBP exchange rates
'all other things being equal'. It assumes a +/- 5% change in the
GBP exchange rate against the relevant foreign currencies. The
percentages has been determined based on the average market
volatility in exchange rates in the previous 12 months.
The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the period end. A positive number indicates an increase in
profit and equity.
Japanese Yen US Dollars Euros
================== ==================== ==================== ====================
2014 2013 2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================== ========= ========= ========= ========= ========= =========
Effect of a 5% strengthening in
relevant exchange rate on:
Income statement (5) - 182 41 221 33
Equity (5) - 182 41 221 33
Effect of a 5% weakening in
relevant exchange rate on:
Income statement 5 - (201) (37) (244) (30)
Equity 5 - (201) (37) (244) (30)
------------------ --------- --------- --------- --------- --------- ---------
Exposure to foreign currency exchange rates vary during the
year, depending on the volume of transactions. Nonetheless, the
analysis above is considered to be representative of the Group's
exposure to currency risk.
26.4 Interest rate sensitivity
The Group's exposure to interest rate risk relates primarily to
the Group's variable rate bank loan facilities of GBP7.0 million
which is partially offset by cash held at variable rates. Interest
is payable at LIBOR plus 3% on the GBP5.0 million facility and
GBP4.0 million was outstanding at 31 December 2014 (2013: GBP3.5
million). Interest is payable at Bank of England base rate plus 3%
on the GBP2.0 million facility, which was fully drawn at 31
December 2014 (2013: GBPnil). Other bank loans are at a fixed
interest rate of 0.99%.
The following table illustrates the sensitivity of the net
profit of the Group for the year and equity to a reasonably
possible change in interest rates of +/-0.5%. These changes are
considered to be reasonably possible based on observation of
current market conditions. The calculations are based on a change
in the interest rate with effect from the beginning of the year and
the financial instruments held at the reporting date that are
sensitive to interest rate changes. All other variables are held
constant. A positive number indicates an increase in profit or
equity.
2014 2013
GBP'000 GBP'000
======================================= ========= =========
Effect of a 0.5% decrease in interest
rate on:
Income statement 23 17
Equity 23 17
Effect of a 0.5% increase in interest
rate on:
Income statement (23) (17)
Equity (23) (17)
----------------------------------------- --------- ---------
26.5 Credit risk analysis
Credit risk is the risk that a counterparty fails to discharge a
contractual obligation resulting in financial loss to the Group.
The Group's maximum exposure to credit risk is limited to the
carrying amount of financial assets recognised at the reporting
date, as summarised in note 26.8, which are principally cash and
cash equivalents and trade receivables.
Cash and cash equivalents are held at banks with good
independent credit ratings in accordance with the Group Treasury
policy. The Group continuously monitors defaults of customers and
other counterparties, identified either individually or by the
Group, and incorporates this information into its credit risk
controls. Where available at reasonable cost, external credit
ratings and/or reports on customers and other counterparties are
obtained and used. The Group's policy is to deal only with
creditworthy counterparties.
The Group's management considers that its financial assets that
are not impaired or past due for each of the reporting dates under
review are of good credit quality. All receivables are subject to
regular review to ensure that they are recoverable and any issues
identified as early as possible. In order to manage credit risk the
Directors set limits for customers based on a combination of
payment history and third party credit references. Credit limits
are reviewed by the credit controller on a regular basis in
conjunction with debt ageing and collection history. In addition
many of the Group's customers, and approximately 80% by balance at
any given time, are large utility companies and other blue-chip
companies that would be considered a low credit risk.
The amount of exposure to any single counterparty or a group of
counterparties having similar characteristics is subject to a
limit, which is reassessed periodically by management. At 31
December 2014, no customers individually accounted for more than
10% of the trade receivables balance.
None of the Group's financial assets are secured by collateral
or other credit enhancements.
Details of certain trade receivables at 31 December 2014 that
have not been settled by the contractual due date but are not
considered to be impaired are included in note 15.2.
26.6 Liquidity risk analysis
Liquidity risk is the risk arising from the Group not being able
to meet its obligations as they fall due. The Group seeks to manage
this risk by monitoring scheduled debt servicing payments for
long-term financial liabilities, regularly reviewing forecast
inflows and outflows due in day-to-day business and investing cash
assets safely and profitably. The data used for analysing these
cashflows is consistent with that used in the contractual maturity
analysis below.
Cashflow forecasting is performed at the subsidiary level and
aggregated by Group finance. Rolling cashflow forecasts are used by
the Group to monitor liquidity requirements to ensure it has
sufficient cash to meet operational needs, as well as maintaining
sufficient headroom so that loan covenants are not breached. The
Group policy throughout the year has been to remit surplus working
capital balances at the subsidiary level to Group treasury and
place on short-term deposit or interest bearing reserve accounts
and to draw down on borrowing facilities and distribute funds
locally when required. As disclosed in note 18, the Group has total
bank loan facilities of GBP8.1 million, of which GBP6.9 million was
drawn down at 31 December 2014 (2013: GBP5.0 million facility,
GBP3.5 million drawn down).
The Group considers expected cashflows from financial assets,
predominately cash and trade receivables, in assessing and managing
liquidity risk. The Group's cash and trade receivable resources at
31 December 2014 (see note 15) exceed the current cash outflow
requirements.
As at 31 December 2014, the Group's financial liabilities,
including interest payments where applicable, have contractual
maturities as summarised below:
Current Non-current
--------------------------- ----------------------- --------------------
Between Later
Between 1 than
Within 6 and and 5 5
6 months 12 months years Years
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- ----------- --------- ---------
As at 31 December 2014
Trade and other payables 9,465 351 120 -
Bank loan 927 - 6,000 -
Provision for liabilities - - 425 179
As at 31 December 2013
Trade and other payables 6,195 355 430 -
Bank loans - - 3,500 -
=========================== ========== =========== ========= =========
Financial assets used for managing liquidity risk
Cash flows from trade and other receivables are contractually
due within six months in the majority of cases. Extended credit
terms have been agreed with specific customers. Cash is generally
held in accounts with immediate notice. Where surplus cash deposits
are identified these are placed in accounts with access terms of no
more than three months.
26.7 Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concern whilst maximising
the return to stakeholders and to maintain an optimal capital
structure to reduce the long-term cost of capital. The capital
structure of the Group consists of cash and cash equivalents and
capital and reserves attributable to the owners of the Company, and
the Group's borrowing facilities.
In order to maintain or adjust the capital structure, the Group
may issue shares, take on debt, sell assets to raise cash, adjust
the amount of dividends payable to shareholders or return capital
to shareholders.
The capital structure is continually monitored by the Group. The
Group's strategy is to have a capital structure that allows
investment in long-term profitable growth, takes into account
prevailing trading conditions and seeks to improve balance sheet
efficiency over time. The Group is not subject to externally
imposed capital requirements.
The Group entered into a GBP5.0 million bank facility in 2013 of
which GBP4.0 million was drawn as at 31 December 2014 (2013: GBP3.5
million) in order to provide working capital capacity to fund
business growth. A further GBP3.1m of loan facilities were entered
into in 2014, GBP2.0m denominated in GBP and GBP1.1m denominated in
JPY. At the year end, GBP2.9m of these new facilities were drawn of
which GBP2.0m was denominated in GBP and GBP0.9m was Japanese Yen.
The Group may need to seek further capital, through equity or debt,
in the future in order to support the current growth plans.
26.8 Categories of financial instruments
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised in respect of each class of financial asset, financial
liability and equity instrument, are disclosed in the accounting
policies in note 3. The carrying amounts presented in the
Consolidated Statement of Financial Position relate to the
following categories of financial instrument:
2014 2013
Notes GBP'000 GBP'000
========================================= ====== ========= =========
Financial assets
Loans and receivables:
* Trade receivables 15 8,893 6,931
* Amounts recoverable on contracts 15 4,134 3,347
* Other receivables 15 2,514 285
* Cash and cash equivalents 16 3,697 3,964
========================================= ====== ========= =========
Total financial assets 19,238 14,527
========================================= ====== ========= =========
Financial liabilities
Amortised cost:
* Trade payables 17 4,021 3,570
* Trade accruals 17 2,020 1,748
* Other payables 17 3,775 705
* Deferred consideration 24.2 - 172
* Contingent consideration 24.2 414 785
* Provisions 19 190 -
* Bank loans 18 6,927 3,500
========================================= ====== ========= =========
Total financial liabilities 17,347 10,480
========================================= ====== ========= =========
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UNSBRVWAOAAR
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