Ebiquity Regulatory News (EBQ)

Ebiquity plc

Final results for the year ended 31 December 2017

Ebiquity plc, ("Ebiquity" or "the Company") a leading independent media and marketing analytics consultancy, announces final results for the year ended 31 December 2017. Ebiquity provides services to over 80 of the top 100 global advertisers, with 20 offices across 14 countries.

A transformational year for Ebiquity

· Anticipated £26m sale of Advertising Intelligence business to Nielsen Media Research Limited

· Clear progress against Growth Acceleration Plan, including expansion of Effectiveness practice in Continental Europe, U.S., and Singapore, culminating in the addition of a significant, multi-market consumer goods client in Q4 2017

· Announced restructure of our business into three core service offerings: Ebiquity Media, Ebiquity Analytics and Ebiquity Tech

· As previously reported, revenue performance from the U.S. MVM and MPO practices was disappointing and impacted the Group's revenue performance in 2017. With new practice leadership in place we expect to see an improved performance in 2018

· Continued service and tool development with launch of Ebiquity Portfolio Digital, Ebiquity Connect and Ebiquity Total View Attribution, and Ebiquity Tech

· Extension of digital analytics capability to Asia Pacific, with the acquisition of Digital Balance in September 2017 and acquired the remaining Minority Interest in French subsidiary

· Appointment to the Board of Chairman Designate Rob Woodward, who will replace Michael Higgins as Chairman in May 2018

· Appointment of U.S.-based Chief Operating Officer in January 2018

Faster revenue growth in H2. Performance outside of the U.S. in line with expectations

· Revenue up 4.6% to £87.4m (2016: £83.6m), with like‑for‑like constant currency revenue growth of 0.8%

· Excluding MI segment, revenue up 6.7% to £64.2m (2016: £60.2m), with like-for-like1, constant currency2 revenue growth of 2.3%, up 5.5% in the second half of the year

· On a like-for-like constant currency basis revenue up 5.8% excluding US MVM and MPO practice revenues

· Underlying3 operating profit at £12.0m (2016: £13.0m), and underlying PBT of £11.0m (2016: £11.8m)

· Statutory operating profit was £5.5m (2016: £7.8m) and statutory profit before tax was £4.5m (2016:£6.6m)

· Underlying diluted EPS 9.4p (2016: 11.3p)

· Underlying cash conversion from underlying operating profit of 93% (2016: 88%)

· Net debt at £28.9m (31 December 2016: £28.1m)

· Increase of 10% in proposed dividend to 0.71p (2016: 0.65p) per share reflecting maintained progressive dividend policy

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

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

3Alternative performance measures are set out in the summary of results section of this report

Outlook

Taking advantage of the rapid changes in media and marketing - driven by changes in technology, consumer behaviour, and data - requires players in the industry to adjust their business models. As many of our clients and partners have embarked on this journey, so have we. The sale of the Advertising Intelligence business now better focusses Ebiquity on service areas offering structural market growth.

The actions that have been taken in 2017, has positioned the business for faster revenue growth in 2018 and beyond. With an expectation of a turnaround in performance in the U.S. in 2018, together with continued revenue growth outside of the U.S., we remain confident of delivering against the financial goals we set out in the growth acceleration plan.

Michael Karg, CEO, commented:

"2017 was a year of change for Ebiquity. The planned sale of the Advertising Intelligence business, in particular, was significant and resource intensive. While our financial performance was held back by disappointing results the U.S., we achieved important milestones on our multi-year transformational journey. The underlying changes that we are driving throughout our business are designed to align our services with client-side trends - as well as competitive dynamics - which provide mid to long-term growth opportunities.

We are positioning Ebiquity to become the preferred, independent advisor to marketers at world-leading brands. We have a clear, focussed and differentiated destination and are implementing the relevant changes now and going forward."

21 March 2018

Enquiries:

Chairman's statement

In 2006, when I became Chairman of Ebiquity (then Thomson Intermedia), the Company operated from four offices - three in London and one in New York. At that time, three-quarters of our revenue came from clients headquartered in the U.K. I stand down from the Board this year with a business that spans the globe, with 20 offices in 14 countries, and proud to count 80 of the world's 100 largest advertisers among its clients.

The marketing industry has been through a period of substantial change during this time, bringing with it extraordinary complexity. In 2006, Facebook celebrated its second birthday and Twitter was born. Meanwhile, eight-year-old Google was already valued at $50bn. Now it's over 17 times that figure, and these three companies alone generated over $130bn of advertising revenue in 2017. Add to this the ever-evolving capabilities of technology and the creation of a totally pervasive online ecosystem, and the balance of relationships and the level of complexity within marketing today has fundamentally changed.

In 2006, Ebiquity was already focusing on transparency and accountability. One key issue then was the need to verify whether adverts that had been paid for had actually appeared in newspapers. We were able, in part, to apply technology to the old-style vouching process. From 2007 through 2015, the underlying platform for the business we have today was assembled - mainly through acquisition - and we established our market-leading position in media benchmarking internationally. We acquired additional skills to address some of the emerging opportunities, and our Marketing Performance Optimization segment was created. Since 2016, there has been substantial progress in defining our strategic direction and delivering a simplified and streamlined service offering as One Ebiquity around the world. This initiative is designed to ensure that our clients recognise us as one business with uniform capability and to reposition our service offering around our clients' needs. There have also been some important new hires of senior executives, individuals with both operational and industry-based skills who will help us capitalise on our position in the marketplace.

Transparency and accountability remain the most significant challenges for the marketing industry. The revelations and recommendations that came out of the 2016 ANA report were pivotal in creating advertisers' prevailing and enduring mindset. For Ebiquity, it not only put us at the heart of the debate. It also increased awareness of the need for an independent party with the right skills to help advertisers create clarity around the results that their investments in media deliver, and the returns they generate.

The Chief Executive's report sets out last year's financial performance in detail, as well as our developments and achievements throughout the year. It explains how we will be running our business going forward, by our Media, Analytics, and Tech practices. This aligns our business with the challenges that our clients face, and it follows the planned divestment of the Advertising Intelligence business.

On behalf of the Board, I must thank everyone who works at Ebiquity for the great commitment they show in deploying their skills for the benefit of our clients.

I would also like to thank my Board colleagues, and welcome Rob Woodward, my successor, to Ebiquity. Rob has a set of skills and experience ideally suited to our business as well as to today's opportunities and challenges.

Ebiquity is now well-positioned at the heart of the marketing industry. We have a significant opportunity to deploy our experience, skills, and talent for our clients' benefit from our uniquely independent position.

Michael Higgins

Chairman

21 March 2018

CEO's review

2018 starts with two pieces of significant news.

As previously announced, we have appointed a new Chairman, Rob Woodward, who joined Ebiquity on 1st March. Rob succeeds Michael Higgins who will retire after 12 years as Chairman of Ebiquity, following the AGM on 9th May.

Rob brings a wealth of both media and senior Board-level experience to Ebiquity. He was CEO of STV Group plc for nearly 11 years where he led their successful transformation into a preeminent digital media group. Prior to joining STV, Rob was Commercial Director at Channel 4 Television for four years and was previously a Managing Director with UBS Corporate Finance and lead partner for Deloitte's TMT industry Group in Europe. Rob is an experienced leader who has an inspiring track record in building teams and delivering successful outcomes. His approach and personality are a great fit for Ebiquity and I am looking forward to partnering with him.

I would like to express our deep gratitude to Michael Higgins for his significant contribution over the past 12 years, where his guidance has been invaluable in the successful development of the company. We wish him all the very best for the future.

Additionally, in February 2018, we announced that we had entered into an agreement to sell our Advertising Intelligence business to Nielsen. The sale is subject to UK Competition and Markets Authority approval, and completion is anticipated to take place in the second quarter of 2018, assuming the CMA provides clearance following its high-level Phase 1 examination. If the CMA instead refer the transaction for a more detailed Phase 2 investigation, the completion would likely take place in Q4 2018. The Advertising Intelligence business represents in excess of 90% of the reported revenue and underlying operating profit within the Market Intelligence ("MI") segment, and 25% of Group revenues and contributed £4.4m to operating profit before allocation of overheads, and for this reason we refer in places of this report to revenue growth excluding the MI segment.

2017 financial performance overview

Revenues for the year to 31 December 2017 grew 4.6% to £87.4m. With the majority of revenue denominated in non-sterling currencies, revenue was boosted by sterling being on average weaker against the Euro and the US Dollar in 2017 than in 2016. In total, currency movements benefitted revenue by 3.4%, with acquisitions further increasing revenue by 0.4%. This resulted in like-for-like, constant currency revenue growth of 0.8%.

Excluding performance of the Market Intelligence (MI) segment, which contains the Advertising Intelligence business, revenue growth was 6.7% and 2.3% on a like-for-like, constant currency basis. Revenue was more evenly phased across 2017 than in 2016, when revenue was front-half weighted. Like-for-like, constant currency revenue growth was 5.5% in the second half of 2017 compared with the second half of 2016.

As previously highlighted, revenue performance from the U.S. business was well below management expectations, and this impacted the Group's revenue growth year-on-year. In our US MVM segment (excluding Firm Decisions, our contract compliance business), the trend we observed in the first half of the year of clients facing cuts to their marketing and advertising budgets and consequently deferring Media benchmarking spending, continued into the second half.

In the U.S. MPO business unit, after delivering greater than 50% revenue growth between 2014 and 2016, revenue declined in 2017. The Stratigent business had a high concentration of revenue with a small number of clients. The two biggest clients reduced spend - mainly driven by internal reorganisations - which caused revenue to fall by 19.8% in 2017. U.S. MPO revenues were higher in H2 2017 than H1 2017, through the addition of new clients in Q4 2017. Given the scale of the U.S. advertising market, and our relative size, we feel positive about our mid to long-term opportunities. With new leadership of US MPO and US Media business units now in place we expect to see a sustained turnaround in 2018. Excluding the performance of the U.S. MVM and MPO segment (but including US FirmDecisions), the MVM and MPO segments grew by 10.0% and 7.4% respectively on a like-for-like, constant currency basis.

The MVM segment reported revenue up 9.3%, an increase of 5.2% on a like-for-like, constant currency basis. As clients focussed on the issue of media transparency, this significantly benefitted FirmDecisions, which recorded exceptional revenue growth in 2017. Outside of the U.S., MVM revenue was in line with management expectations, with continued good progress in Europe, South-East Asia, and Australia offsetting slightly weaker performance in China, resulting from a change in management post the end of the earn-out period.

In the MPO segment, reported revenue fell by 2.3% compared to 2016 and was down by 7.7% on a like-for-like, constant currency basis. Performance from the MPO segment was impacted by the significant decline in revenue from the U.S. MPO segment. Revenue from the MPO segment outside of the U.S. grew by 6.4%, with revenues from MPO Effectiveness services outside of the U.K. representing 10% of total revenue. The year saw a scaling up of our MPO Effectiveness services in Continental Europe and our MPO practice in APAC. The U.K. MPO business continued to deliver double-digit revenue growth of 17.1%, while revenue from our MPO team in Spain (acquired as part of Media Value in February 2016) declined in 2017, reflecting high staff turnover during the year.

Revenue from the MI segment declined by 0.9%, and declined by 3.1% on a like-for-like constant currency basis. Revenue from the Advertising Intelligence grew by 0.1% on a like-for like constant currency basis, with a slightly weaker second half. Revenues from our project based Reputation business declined as expected from £2.0m in 2016 to £1.2m in 2017. In March 2018 we entered into an agreement to sell the trade and assets of its Reputation business to Echo Research Holdings Limited. Completion will take place on 31 March 2018. 

Underlying operating profit was £12.0m. This represents a drop in operating margin from 2016 of 1.7pp to 13.8%. This reflects lower profitability from the U.S. MPO business, combined with planned investment in our growth acceleration plan - notably in investing in MPO Effectiveness resources in new markets. Investment in the growth acceleration plan was scaled back during 2017 and cost control measures were implemented in the U.S. MPO business during 2017, but these were not sufficient to offset the revenue decline.

Margins in the MVM segment were consistent with 2016, as strong performance from our Contract Compliance business offset lower profitability from our U.S. Media benchmarking business. Margins in the MPO segment declined sharply in 2016, reflecting the revenue decline in the U.S. MPO business, together with the investment in the expansion of the MPO segment in Europe and APAC. Central costs, which are not allocated to a segment, were in line with the prior year.

Underlying profit before tax was £11.0m. Statutory operating profit was £5.5m, down from £7.8m in 2016, and statutory profit before tax decreased to £4.5m, from £6.6m in 2016. The lower statutory operating profit and profit before tax reflect both lower underlying profitability as well as an increase highlighted items. Highlighted items are detailed in the CFO's report.

Changing structure, changing reporting

As the media industry is changing rapidly, so Ebiquity is transforming and developing to meet the needs of the world's marketers and brand custodians. When I joined Ebiquity as Group CEO in 2016, we launched a Growth Acceleration Plan designed to achieve a compound annual growth rate of 10% by 2021. This strategy is designed to make our business the best-equipped partner to help our clients to build accountability into their marketing investments.

The sale of our Advertising Intelligence business is clear evidence of our transformation in action. Creating a more operationally-aligned, streamlined business will allow us to respond better to our clients' needs and focus on our Growth Acceleration Plan moving forward.

Accordingly, we have now restructured our business into three core service offerings. This restructure better reflects both advertisers' needs and the reality of the media and marketing ecosystem today and for the years to come.

Operating under an agile, One Ebiquity consulting model, we have now structured ourselves as:

· Ebiquity Media - covering services such as media performance benchmarking, media agency management, and contract compliance

· Ebiquity Analytics - incorporates areas such as marketing effectiveness, market mix modelling, total view attribution, and data-driven customer experience optimisation

· Ebiquity Technology - comprising services such as strategy, vendor selection, and implementation for ad tech, martech, and data management

From 2018 onwards, we will also, therefore, move from segmental reporting as MPO, MVM, and MI, to reporting by 1) Media, 2) Analytics and Technology, and until such time as the sale of the Advertising Intelligence is completed, 3) Intel.

Summary of results

Performance outside of the U.S. in line with expectations

Highlights

· 4.6% revenue growth, 6.7% revenue growth excluding the Market Intelligence segment

· Underlying operating profit margin of 13.8%

· Underlying diluted EPS of 9.4p

· 10% increase in proposed dividend to 0.71p per share

· Underlying cash conversion of 93%

Alternative Performance Measures

In these results we refer to "underlying" and "statutory" results, as well as other non-GAAP alternative performance measures.

Alternative Performance Measures (APMs) used by the Group are:-

· Constant currency like-for-like revenue growth

· Underlying operating profit

· Underlying operating margin

· Underlying profit before tax

· Underlying effective rate of tax

· Underlying fully dilutive EPS

· Underlying operating cash flow conversion

Underlying results are not intended to replace statutory results but are presented by removing the impact of highlighted items in order to provide a better understanding of the underlying performance of the business. The above APMs are consistent with how business performance is measured internally by the Group.

Underlying profit is not recognised under IFRS and may not be comparable with underlying profit measures used by other companies.

Highlighted items comprise non‑cash charges and non‑recurring items which are highlighted in the consolidated income statement as separate disclosure is considered by the Directors to be relevant in understanding the underlying performance of the business. The non‑cash charges include share option charges and amortization of purchased intangibles.

The non‑recurring items include the costs associated with potential acquisitions (where formal discussion is undertaken), completed acquisitions and their subsequent integration into the Group, adjustments to the estimates of contingent consideration on acquired entities, asset impairment charges, management restructuring and other significant one‑off items. Costs associated with ongoing market landscaping, acquisition identification and early stage discussions with acquisition targets are reported in underlying administrative expenses.

Further detail of highlighted items are set out below as well as within the Consolidated Income Statement and notes 1 and 3 of the financial statements.

Disposal of Advertising Intelligence and Reputation businesses

On 13 February 2018 the Company announced the disposal of its Advertising Intelligence division to Nielsen Media Research Limited for consideration of £26 million plus customary adjustments for working capital. The disposal is subject to certain conditions, including approval from the Competition and Markets Authority.

The Directors consider that as at the 31 December 2017 the sale of the Advertising Intelligence division did not meet the definition of being highly probable, and therefore the division is not reported as a business held for sale in the financial statements.

The Advertising Intelligence division represents in excess of 90% of the revenue and operating profit of the MI segment. On a pro-forma basis, the impact of the disposal on the 2017 results would be to reduce revenue by £21.9m with a reduction of operating profit of £4.4m reflecting the contribution to profit from the business before allocated overheads.

On 19 March 2018 the Company entered into an agreement to sell the trade and assets of its Reputation business to Echo Research Holdings Limited. Completion will take place on 31 March 2018. The consideration payable is dependent upon the revenue performance of the business during the 12 months following completion. During 2017 the business contributed £1.2million of revenue and generated a £0.2million operating loss.

Acquisitions

On 1 September 2017, the Group completed the acquisition of Digital Balance Pty ("Digital Balance"), an independent digital analytics consultancy located in Perth, Australia. The acquisition of Digital Balance further extends the MPO segment in Asia Pacific, bringing capabilities in Tech and Analytics.

Digital Balance was acquired for an initial cash consideration of A$475,000 in cash. The maximum total consideration is A$5 million payable in cash depending on the performance of the acquired business up to 31 December 2020. Digital Balance contributed revenue of £424,000 and operating profit £123,000 in the period since acquisition.

P&L Overview

Commentary on segmental revenues are set out within the Chief Executive's Report.

Revenues grew to £87.4 million which represents 4.6% revenue growth over £83.6 million recorded over the 12 months ended 31 December 2016 ('2016'). Revenue grew by 1.2% on a constant currency basis and, removing the impact of acquisitions, by 0.8% on a constant currency like-for-like basis.

Underlying operating profit was £12.0 million compared with £13.0 million in 2016 reflecting a decrease in underlying operating profit margin from 15.5% to 13.8%. Operating profit margin declined in both the MPO and MI segments. Lower margins in the MPO segment reflect investment in the expansion of our Marketing Effectiveness services - as set out in the Growth Acceleration Plan - together with weaker revenue performance from our US analytics business. The MI segment operating profit margin decline reflects both a revenue decline from our project-based Reputation business and investment in our Portfolio platform within our Advertising Intelligence business.

Statutory operating profit decreased by £2.3m from £7.8 million in 2016 to £5.5million in 2017, reflecting a £1.0m reduction in underlying operating profit and a £1.3m increase in highlighted items. Highlighted items increased in 2017 reflecting costs associated with the sale of the Advertising Intelligence division together with severance costs and reorganisation changes. Highlighted items are set out in more detail below.

Net finance costs were £1.0 million in the year to December 2017 (2016: £1.1 million), the reduction reflects lower average gross debt in 2017 compared with 2016.

Underlying profit before tax was £10.9 million in the year to December 2017 (2016: £11.8 million). Reported profit before was £4.5million in the year to December 2017 (2016: £6.6 million), due to lower underlying operating profit and an increase in highlighted items compared with 2016.

Highlighted items

Highlighted items total £6.5 million in the year to December 2017, (2016: £5.2 million). Highlighted items comprised the following:

· £1.9 million related to purchased intangible asset amortization (2016: £1.9 million);

· £0.7 million share‑based payment expenses (2016: £0.6 million);

· £2.4million of severance and reorganisation costs including the cost of post-earnout management change in China, leadership change in France and severance costs across a number of markets in Europe;

· £1.4m in relation to acquisition and strategic costs including £1.0m of costs in relation to the disposal of the Adverting Intelligence business, £0.3m in respect of adjustments to contingent deferred consideration, and £0.1m associated to the acquisition of Digital Balance;

Taxation

The total tax charge for the year ended December 2017 is £2.0million (FY2016: £2.2 million) representing a current tax charge of £2.0 million (FY2016: £1.8 million) and a deferred tax charge of £19,000 (FY2016: £0.4 million).

The effective rate of tax on underlying profit before tax for the year ended 31 December 2017 is 26.4% (FY2016: 21.7%). The effective rate of tax is increased by a deferred tax liability booked in 2017 of £0.4m arising from differences between IFRS and German GAAP. Excluding the impact of the underlying effective tax rate for the year ended 31 December 2017 is 22.6% which is broadly in line with the prior year.

Earnings per share

Underlying diluted earnings per share was 9.4p in the year to 31 December 2017 (2016: 11.3p), reflecting a decrease in underlying profit before tax combined with an increase in the effective tax rate to 26.4% (2016: 21.7%).

Dividend

It is the Board's intention to pay a dividend of 0.71p per share for the 12 months ended 31 December 2017, (FY2016: 0.65p per share). This would represent an increase in dividend per share of 10% and would also represent the continuation of a progressive dividend policy which commenced with our maiden dividend paid in October 2015. The dividend will be recommended as a final dividend at the Company's AGM on 9 May 2018.

Equity

During the 12 months to December 2017, 397,710 shares were issued upon the exercise of employee share options and a further 600,000 were issued as deferred consideration for the acquisition of Stratigent LLC. As a result our share capital increased to 78,197,461 ordinary shares (31 December 2016: 77,199,751).

Cash conversion

Underlying cash from operations represents the cash flows from operations excluding the impact of highlighted items. The underlying net cash inflow from operations was £11.2 million in the year ended 31 December 2017 (FY2016: £11.3 million).

After highlighted items are considered, reported net cash inflow from operations for 2017 was £8.0million (FY2016: £10.8 million).

Cash conversion has improved over 2016 by 6 percentage points. We continue to improve policies and processes to further improve the management of working capital. This will become particularly important following the disposal of the subscription based Advertising Intelligence business.

Net debt and banking facilities

1. Bank debt in the statement of financial position at 31 December 2017 is shown net of £0.2million (31 December 2016: £0.1 million) of loan arrangement fees that have been paid and which are amortized over the life of the facility. The bank debt stated above excludes these costs.

All bank borrowings are held jointly with Barclays and Royal Bank of Scotland ('RBS'). The committed facility, totalling £45,000,000, comprises a term loan of £10,000,000 (of which £1,250,000 remains outstanding at 31 December 2017 (31 December 2016: £3,750,000)), and a revolving credit facility of £35,000,000 (of which £32,000,000 was drawn down at 31 December 2017 (31 December 2016: £29,000,000)).

During the year the Group extended the revolving credit facility through to 30 June 2019, and increased the facility to £35,000,000. The term loan remains repayable by 30 June 2018.

During the period, the Group continued to trade within each of its banking facilities and associated covenants. Net debt to EBITDA ratio was 2.12x at 31 December 2017 (31 December 2016: 1.94x).

Statement of financial position and net assets

A summary of the Group's balance sheet as at 31 December 2017 and 31 December 2016 is set out below:-

Net assets as at 31 December 2017 increased by £0.9 million to £53.0 million (2016: £52.0 million) due to an increase in Goodwill and intangible assets of £0.4m following the acquisition of Digital Balance and an increase in net working capital of £1.8m resulting from an increase in net trade receivables of £1.7m. These increases in asset values were offset by an increase in net debt of £0.9m.

Outlook

The actions that have been taken in 2017, has positioned the business for faster revenue growth in 2018 and beyond. With an expectation of a turnaround in performance in the U.S. in 2018, together with continued revenue growth outside of the U.S., we remain confident of delivering against the financial goals we set out in the growth acceleration plan.

By order of the Board

Andrew Noble

Chief Financial Officer

21 March 2018

Consolidated income statementfor the year ended 31 December 2017

Consolidated statement of comprehensive income

for the year ended 31 December 2017

Consolidated statement of financial positionas at 31 December 2017

Consolidated statement of changes in equityfor the year ended 31 December 2017

1. Includes £3,667,000 (31 December 2016: £3,667,000) in the merger reserve; a debit balance of £1,478,000 (31 December 2016: £1,478,000) in the ESOP reserve; a share-based payment reserve of £nil (31 December 2016: £634,000); and a gain of £2,688,000 (31 December 2016: £3,311,000 gain) recognized in the translation reserve. Refer to note 22 for further details.

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

3. A share-based payment reserve of £634,000 was created during the year ended 31 December 2016 and settled during the year ended 31 December 2017.

Consolidated statement of cash flowsfor the year ended 31 December 2017

Notes to the consolidated financial statements

for the year ended 31 December 2017

1. Accounting policies

General information

Ebiquity plc (the 'Company') and its subsidiaries (together, the 'Group') provide independent data‑driven insights to the global media and marketing community. The Group has 22 offices across 14 countries.

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

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and IFRS IC Interpretations (collectively 'IFRSs') issued by the International Accounting Standards Board ('IASB') as adopted by European Union ('Adopted IFRSs') and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements under Adopted IFRSs. The consolidated financial statements have been prepared on a going concern basis. The Group meets its day-to-day working capital requirements through its cash reserves and borrowings, described in note 17. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current cash reserves and borrowings, including continuing to meet the bank covenants therein. The Group therefore continues to adopt the going concern basis in preparing its financial statements. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss.

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

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

Basis of consolidation

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

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

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

Critical accounting estimates and judgements

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

Critical accounting estimates include the terminal growth rate used in impairment assessments, inputs to share option accounting fair value models and amounts to capitalise as intangible assets. These estimates are reached with reference to historical experience, supporting detailed analysis and, in the case of impairment assessments and share option accounting, external economic factors.

Critical accounting judgments include the treatment of events after the reporting period as adjusting or non-adjusting and the determination of segments for segmental reporting, based on the reports reviewed by the Executive Directors that are used to make strategic decisions. These judgments are determined at a board level based on the status of strategic initiatives of the Group.

Revenue recognition

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

Carrying value of goodwill and other intangible assets

Impairment testing requires management to estimate the value in use of the cash‑generating units to which goodwill and other intangible assets have been allocated. The value in use calculation requires estimation of future cash flows expected to arise from the cash‑generating unit and the application of a suitable discount rate in order to calculate present value. The sensitivity around the selection of particular assumptions including growth forecasts and the pre‑tax discount rate used in management's cash flow projections could significantly affect the Group's impairment evaluation and therefore the Group's reported assets and results. Further details, including a sensitivity analysis, are included in notes 6 and 7 to the consolidated financial statements.

Contingent consideration

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

Taxation

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

Provisions

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

Adoption of new standards and interpretations

On 1 January 2018, the Group will adopt the following amendments which are effective for accounting periods on or after 1 January 2018 and which have not yet been endorsed by the EU. Management is currently assessing the impact of these new pronouncements on the financial statements, which are not expected to be significant.

· IFRS 9 'Financial Instruments'. This standard addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost; fair value through other comprehensive income; and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income, not recycling. An expected credit losses model replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there are no changes to classification and measurement, except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright-line hedge effectiveness tests. To qualify for hedge accounting, it requires an economic relationship between the hedged item and hedging instrument, and for the 'hedged ratio' to be the same as the one that management actually uses for risk management purposes. Contemporaneous documentation is still required, but it is different from that currently prepared under IAS 39. There is an accounting policy choice to continue to account for all hedges under IAS 39. IFRS 9 is effective for accounting periods beginning on or after 1 January 2018. The Group is implementing IFRS 9 during the first half of 2018. The classification and measurement basis for the Group's financial assets and liabilities is expected to be largely unchanged by adoption of IFRS 9. Management's preliminary view based on work performed to date is that there will be no material impact on profit for future periods is expected. Management is in the process of assessing the impact on credit losses on receivables and past refinancings and this assessment is expected to be concluded during the first half of 2018.

· IFRS 15 'Revenue from Contracts with Customers'. This standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. Variable consideration is included in the transaction price if it is highly probable that there will be no significant reversal of the cumulative revenue recognised when the uncertainty is resolved. The standard replaces IAS 18, 'Revenue', and IAS 11, 'Construction contracts', and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018, and earlier application is permitted. The Group implemented IFRS 15 on 1 January 2018 and has carried out a review of existing contractual arrangements as part of this process. The directors anticipate there will be no material impact for the Media Value Measurement, Market Intelligence and Marketing Performance Optimization revenue streams, based on the outputs of that contract review in the context of IFRS 15's five step revenue recognition model. Under the existing accounting policy, revenue is recognised when the amounts can be reliability measured, which is considered to be when project milestones are reached. Under IFRS 15, revenue can only be recognised when the Group has an enforceable right to be paid for work completed. Management assessed the likelihood of contract cancellation mid-flight, noting minimal instances of this occurring in prior periods. The classification and measurement of revenue is largely unchanged following the adoption of IFRS 15. No material impact on profit for future periods is expected.

The following new standard has been published that is mandatory to the Group's future accounting periods but has not been adopted early in these financial statements.

· IFRS 16, 'Leases' (effective on or after 1 January 2019). This standard replaces IAS 17 'Leases' and related interpretations and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. The standard addresses the definition of a lease, recognition and measurement of leases, and it establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. In future periods, the operating lease charge would be replaced by a depreciation charge that, whilst lower over the life of the lease than the current operating lease charge, is not expected to be materially different. The directors are in the process of reviewing contracts to identify any additional lease arrangements that would need to be recognised under IFRS 16. IFRS 16 eliminates the two lease classifications that IAS 17 has (operating and finance leases) for the lessee, and instead all leases will have the same classification. Management will assess the impact on the Group of IFRS 16 prior to the effective date of implementation. Although the detailed impact has not yet been quantified, management expects that the adoption of IFRS 16 will impact the accounting for those leases currently classified as operating leases. The Group will apply IFRS 16 from 1 January 2019 and the quantitative impact will be included in the Group's 2018 interim results announcement.

2. Segmental reporting

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

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

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

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

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

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

The segment information provided to the Executive Directors for the reportable segments for the year ended 31 December 2017 is as follows:

Year ended 31 December 2017

Year ended 31 December 2016

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

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

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

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

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

3. Highlighted items

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

Amortization of purchased intangibles relates to acquisitions made in the current financial year of £28,000 and to acquisitions made in prior years of £1,924,000 (31 December 2016: £26,000 in the current financial year and £1,839,000 in prior years). Separate disclosure is considered relevant because amortization of purchased intangibles has no correlation to underlying profitability of the Group.

In the current year, a non‑cash IFRS 2 charge of £729,000 (31 December 2016: £652,000) was recorded. Separate disclosure is considered relevant to isolate charges and credits which are subject to volatility as a result of non-trading factors.

Total severance and reorganisation costs of £2,364,000 (31 December 2016: £nil) were recognized during the year, primarily consisting of £2,061,000 in relation to severances in the UK, France, Spain and China as part of one-off management restructuring in those countries. The remaining £303,000 relates to settlement of a client dispute. Separate disclosure is considered relevant as these charges are non-recurring and not reflective of the underlying operating costs of the business.

Total acquisition, integration and strategic costs of £1,437,000 (31 December 2016: £2,777,000) were recognized during the year, primarily consisting of £981,000 in relation to costs associated with the sale of the Ad Intel business (refer to note 30 for further detail); £330,000 in relation to earn-out costs associated with the CMCG acquisition and other contingent consideration adjustments, net of foreign exchange differences; £68,000 in relation to the Digital Balance Australia Pty Ltd acquisition; and £58,000 in relation to financial restructuring costs. Separate disclosure is considered relevant as these charges are non-recurring and not reflective of the underlying operating costs of the business.

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

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

As at 31 December 2017, £2,860,000 of the £3,711,000 cash highlighted items had been settled (31 December 2016: £1,197,000 of the £2,685,000 cash highlighted items had been settled).

4. Taxation charge/(credit)

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

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

Management considers that US tax reform substantively enacted by the date of these financial statements has not caused any material effect to the Group's financial statements.

5. Earnings per share

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

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

6. Goodwill

2. £1,552,000 of goodwill was recognized following the acquisition of Digital Balance Australia Pty Limited. Refer to note 11 for further details.

Goodwill has been allocated to the following segments:

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

1. At 31 December 2017, the balance included £1,552,000 of acquired goodwill recognized following the acquisition of Digital Balance Australia Pty Limited. Refer to note 11 for further details.

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

Under IFRS, an impairment charge is required for goodwill when the carrying amount exceeds the recoverable amount, defined as the higher of fair value less costs to sell and value in use. No impairment of goodwill was recognized in the year ended 31 December 2017 (year ended 31 December 2016: £nil).

Value in use calculations

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

Budgeted operating profit assumptions

To calculate future expected cash flows, management has taken the Board approved budgeted operating profit (EBIT) for each of the CGUs for the 2018 financial year. Additionally, management charges have been allocated from the unallocated central costs budget back into the CGUs and thereby reducing Board approved EBIT in each CGU by this amount. The management charge is allocated based on 2017 actual management charges.

For the 2019 and 2020 financial years, the forecast EBIT is as per management's three year plan. The forecast 2020 balances are taken to perpetuity in the model. Management's three year plan uses certain assumptions to forecast revenue and operating costs within the Group's operating segments beyond the 2018 budget.

Discount rate assumptions

The Directors estimate discount rates using rates that reflect current market assessments of the time value of money and risk specific to the CGUs. The three‑year pre‑tax cash flow forecasts have been discounted at between 7.0% and 8.6% (31 December 2016: between 7.2% and 8.7%).

Growth rate assumptions

Cash flows beyond the three‑year period are extrapolated at a rate of 2.25% (31 December 2016: 2.25%), which does not exceed the long‑term average growth rate in any of the markets in which the Group operates.

The excess of the value in use to the goodwill carrying values for each CGU gives the level of headroom in each CGU. The estimated recoverable amounts of the Group's operations in all CGUs significantly exceed their carrying values.

Sensitivity analysis

The Group's calculations of value in use for its respective CGUs are sensitive to a number of key assumptions. Other than disclosed below, management does not consider a reasonable possible change, in isolation, of any of the key assumptions, to cause the carrying value of any CGU to exceed its value in use. The considerations underpinning why management believes no impairment is required in respect of China are as follows, specifically what change in key assumptions would result in an impairment:

7. Other intangible assets

1. Purchased intangible assets consist principally of customer relationships with a typical useful life of 8 to10 years.

2. Customer relationships of £420,000 were recognized during the year ended 31 December 2017 as part of the Digital Balance Australia Pty Limited acquisition referred to in note 11. Customer relationships of £142,000 and a brand valuation of £83,000 were recognized during the year ended 31 December 2016 as part of the acquisition of Fairbrother Marsh Company Limited.

3. Amortization of £1,924,000 is charged within administrative expenses so as to write off the cost of the intangible assets over their estimated useful lives. The amortization of purchased intangible assets is included as a highlighted administrative expense.

4. Of the Net book value of Capitalized development costs £870,000] remains in development at 31 December 2017.

5. No impairment charge is required for the year ended 31 December 2017 (year ended 31 December 2016: £nil) following management's review of the carrying value of other intangible assets.

8. Financial liabilities

A currency analysis for the bank borrowings is shown below:

All bank borrowings are held jointly with Barclays and Royal Bank of Scotland ('RBS'). The committed facility, totalling £44,000,000, comprises a term loan of £10,000,000 (of which £1,250,000 remains outstanding at 31 December 2017 (31 December 2016: £3,750,000), and a revolving credit facility ('RCF') of £34,000,000 of which £32,000,000 was drawn down at 31 December 2017 (31 December 2016: £29,000,000). The term loan has a maturity date of 2 July 2018 and the RCF has a maturity date of 30 June 2019. The £10,000,000 term loan is being repaid on a quarterly basis to maturity, and the drawn RCF and any further drawings under the RCF are repayable on maturity of the facility. The facility may be used for contingent consideration payments on past acquisitions, to fund future potential acquisitions, and for general working capital requirements.

Loan arrangement fees of £205,000 (31 December 2016: £135,000) are offset against the term loan, and are being amortized over the period of the loan.

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

The undrawn amount of the revolving credit facility is liable to a fee of 40% of the prevailing margin, which is set depending on the Group's net debt to EBITDA ratio, as referred to above. The Group may elect to prepay all or part of the outstanding loan subject to a break fee, by giving five business days' notice.

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

Contingent consideration represents additional amounts that are expected to be payable for acquisitions made by the Group and is held at fair value at the statement of financial position date. All amounts are expected to be fully paid by April 2021.

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

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

9. Dividends

A dividend of £474,000 was paid during the current financial year (31 December 2016: £292,000). Dividends were paid to non‑controlling interests as shown in the consolidated statement of changes in equity.

10. Cash generated from operations

11. Acquisitions 

Digital Balance Australia Pty Limited

On 1 September 2017, the Group's wholly-owned subsidiary Digital Balance Australia Pty Limited acquired the assets and liabilities of Digital Balance Pty Limited, a trust of the Digital Balance Unit Trust. The acquisition was for an initial cash consideration of AU$ 475,000 (£278,000) and a further cash payment of AU$ 75,000 (£45,000) on 1 December 2017. AU$ 2,725,000 (£1,596,000) of contingent consideration was preliminarily recognized at acquisition however, the maximum total purchase consideration is up to AU$ 5,000,000 (£2,928,000), payable in cash, depending on the performance of the Digital Balance business during the period ending 31 December 2020.

The fair value of the purchase consideration for the acquisition of acquired the assets and liabilities of Digital Balance Pty Limited is as follows:

1. The fair value of contingent deferred consideration payable is based on EBIT for the years ending 31 December 2017, 31 December 2018, 31 December 2019 and 31 December 2020 with stage payments each year from 2018 onwards based on EBIT growth. The potential range of future payments that Ebiquity plc could be required to make under the contingent consideration arrangement is between £nil and £2,928,000 and will be paid in cash. All contingent deferred consideration payments are expected to be paid by June 2021.

1. The fair value adjustments relate to the finalisation of the allocation of the purchase consideration accounting for intangible assets (customer relationships) and deferred tax liabilities.

2. The goodwill recognized of £1,552,000 is attributable to the assembled workforce, expected synergies and other intangible assets, which do not qualify for separate recognition. None of the goodwill arising from the acquisition is expected to be tax deductible.

Ebiquity SAS

On 18 December 2017, the Group acquired the outstanding 20% interest in its subsidiary undertaking, Ebiquity SAS, from the minority shareholder for cash consideration of €1,500,000 (£1,322,000).

Fairbrother Marsh Company Limited

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

12. Events after the reporting period

On 13 February 2018 the Group agreed to sell its advertising intelligence business to Nielsen Media Research Limited for £26,000,000 in cash. This has been treated as a non-adjusting event since the advertising intelligence business was not available for sale in its present condition, nor was a transaction highly probable, as of 31 December 2017. This determination was made based on the status of the potential sale as of 31 December 2017, with no agreement reached, legal terms not finalised and several external regulatory and other approvals not having been cleared.

The sale is subject to approval by the UK Competition & Markets Authority which, if the regulator does not refer the transaction to a phase two investigation, management expects will be completed during the second quarter of 2018.

On 19 March 2018 the Group entered into an agreement to sell the trade and assets of its Reputation business to Echo Research Holdings Limited, part of the Market Intelligence segment. Completion will take place on 31 March 2018. The consideration payable is dependent upon the revenue performance of the business during the 12 months following completion.

13. Financial Information

The financial information included in this report does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and financial statements for the period ended 31 December 2017, on which an unqualified report has been made by the Company's auditors, PricewaterhouseCoopers LLP. Financial statements for the period ended 31 December 2017 have been delivered to the Registrar of Companies; the report of the auditors on those accounts was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The 31 December 2017 statutory accounts are expected to be published on 21 March 2018.