Ebiquity Regulatory News (EBQ)

EBIQUITY PLC

 UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

Ebiquity plc, a leading independent marketing and media consultancy, today announces its unaudited preliminary results for the 12 months ended 31 December 2018. Ebiquity works with 70 of the world's top 100 advertisers served from 18 offices and by 550 staff.

Headline Results

Highlights

· Planned sale of Advertising Intelligence business completed on 2 January 2019. Business reported as "asset for sale" in 2018 financial statements

· Strengthened executive management team is focussed on driving performance of the continuing business

· Revenue of continuing business increased by 8% to £69.4m (7% on like-for-like, constant currency basis)

· Underlying operating profit fell to £6.3m (2017: £9.0m) due to planned investment in the year which did not fully deliver anticipated revenue growth

· Net debt at 31 December 2018 of £27.5m (31 December 2017: £28.9m) reduced by £20m in January 2019 following completion of Ad Intel sale

· Further improved operating cash flow conversion of 138% (2017: 99%)

· Proposed dividend maintained at 0.71p per share

· Continuing business now organised into two segments: "Media" and "Analytics and Tech"

Divisional highlights

· Media: Media Management, Media Performance and Contract Compliance

o Revenue increased 5% to £54.2m

o Strong growth in US Media practice: revenue up 26%

o Media Management enhanced its offering and gained incremental work from clients such as McDonald's, Fiat Chrysler Automobiles, L'Oreal and GlaxoSmithKline

o Contract Compliance growing well (up 12%) and further broadened its footprint in markets including US, India and Germany

o Operational efficiency enhanced through release of new automation tools in our Media practice and set-up of shared service media delivery centre in Spain - these will become fully operational in 2019

· Analytics and Tech: Advanced Analytics, MarTech and AdTech

o Revenue grew by 19% to £15.2m

o Advanced Analytics business appointed as multi-market partner for a global automotive brand and awarded a highly competitive assignment for one of the world's largest telecommunications groups

o Launched new AdTech advisory practice. While this practice is in its infancy, the team has started well with several high impact projects including a global digital advertising technology assessment for one of the world's largest mobile operators

We will set out the revised growth strategy at a Capital Markets Day later in 2019.

Note 1: Underlying operating profit is defined as the operating profit excluding highlighted items. These include share-based payments, amortisation of purchased intangibles and non-recurring items. Underlying profit before tax and earnings per share are calculated based on the underlying operating profit.

Michael Karg, CEO of Ebiquity said:

"2018 has been a challenging, transformational and transitional year. Against the background of revenue growth, the reduction in the continuing business operating profit was disappointing and was a result that clearly fell short of our goals. The Company now has greater financial flexibility, a more streamlined business and a strengthened management team. We are focussed on growing and expanding our Media and Analytics & Tech practices and improving our profitability. Ebiquity operates in a growing, dynamic and ever-evolving media market and is well-positioned to serve advertisers' needs and drive growth through the provision of specialist advice, proprietary tools and high-quality service. "

Enquiries:

An audio webcast recording of the results presentation will be available at https://www.ebiquity.com/about/investors/ 

Chairman's Statement

The financial year ended 31 December 2018, my first as Chairman, was both transformational and challenging for Ebiquity.

We were pleased to report just after the year-end (on 2 January 2019) that the sale of the Advertising Intelligence ("Ad Intel") business to Nielsen Media Research ("Nielsen") had been successfully completed.

The Ad Intel disposal has simplified the business, allowing us to focus on growing the core Media and Analytics & Tech practices. Receipts from the disposal have significantly improved the Group's financial position by reducing our net debt by some £20 million and consequently our finance costs have also been lowered. However, the Group's performance in 2018 was impacted by the protracted nature of the Ad Intel sale process following the UK Competition and Markets Authority's decision to conduct a full, two-phase investigation. This distracted and hampered the Group's management in finalising and executing plans for the continuing business.

Ebiquity is now focusing on becoming the leading global independent media and marketing consultancy. We are committed to delivering growth and to improving profitability across the more streamlined business through scale benefits and operational alignment. The market strength of the continuing Media and Analytics & Tech businesses is demonstrated by an 8% increase in revenue to £69.4m (2017: £64.2m). Within this, the longer established Media practice, which accounts for some three-quarters of Group revenue, grew by 5%, while the Analytics & Tech practice, which comprises several of the Group's newer consultancy and technology offerings, grew strongly, increasing revenue by 19% and share of total revenue to 22%.

However, the underlying operating profit of the continuing business fell to £6.3m, compared to £9.0m in 2017. The reduction was due, in part, to planned headcount increases and investments made in the year in key practices but this did not deliver the anticipated revenue growth in the year. A number of units failed to achieve their budgetary goals and some experienced revenue declines.

The Board realises that the Group needs to improve its profitability. It has already taken action to strengthen the Group's financial and operational management capabilities. To support this, the senior leadership team has recently been enhanced by three key appointments. Alan Newman, formerly CFO of YouGov plc, has been appointed as Chief Financial and Operating Officer with effect from January 2019. Towards the end of 2018, Richard Basil-Jones, formerly Managing Director Asia Pacific, was appointed into the new role of Global President, overseeing the operating units and Emma Winterson-Hayward, formerly Chief HR Officer of Dealogic, joined as Chief People Officer to develop and support the talent in our business as it grows.

Several of the programmes previously undertaken to automate the delivery of services and improve back office efficiencies are beginning to yield benefits. Dedicated teams have been established to drive new business generation and co-ordinate the management of key global client accounts. However, it will take time fully to adjust the overhead cost base following the Ad Intel disposal, especially as in the current year there will be a continuing need to fulfil certain service obligations to Nielsen as part of a transition agreement.

Ebiquity is a company with great strengths now operating in, and focused on, dynamic, growing markets and providing media and marketing consultancy advice to a significant number of the world's leading brands: advice that is independent, high quality, meaningful and makes a difference to their bottom line. There remain significant market opportunities through Ebiquity's ability to respond to advertisers' requirement for transparency, especially at a time of fundamental shifts in the media market-place. We start the year with the Ad Intel practice sold, a stronger balance sheet, and a new senior team in place, focused on delivering the next stage in the process of transformation.

I remain confident that Ebiquity is well-placed to achieve its long-term strategic ambition and deliver against our challenging goals.

Rob Woodward

Chairman

Chief Executive Officer's Review

Strategic Direction

The sale of our Ad Intel practice was a pivotal moment for Ebiquity. It fully aligns with our strategy for growth and enables us to focus our efforts on maximising our opportunity from the structural trends that are shaping the media and marketing industry. Our much stronger financial position gives us more flexibility to deliver our vision and manage a simpler and more focused, operationally aligned business and make targeted investments to support our growth strategy.

The demand from brands for independent media and marketing consulting services continues to grow. Ebiquity is in a unique position to be their leading provider and adviser enabling them to monitor, evaluate and maximise returns from their media spend.

There are few unbiased, expert-led, data driven consultancies in our marketplace. Independent, conflict free, high quality advice is sought by advertisers and Ebiquity's offer, through its portfolio of specialised consultancy services, matches advertisers' requirements.

With the digital revolution and resulting explosion of marketing channels and related data, the demands on Chief Marketing Officers ('CMOs') and their teams are growing exponentially. Increasing complexity and decreasing transparency especially in digital media have increased the need for more accountability. To command attention and credibility in the C-suite, marketers need increasingly to justify and explain with confidence and clarity the contribution of marketing spend to business performance.

We defined our vision some three years ago to become what we like to call the "left-brain advisor" to the CMO and be their go-to media and marketing consultancy.

In pursuit of that vision, we are constantly enhancing our capabilities and our reputation for applying the tools and techniques of data science and analytics to the complex challenges that our clients face. We have defined a strategic core from which we can own and generate value through our ability to analyse marketing and media data. Our access to unique client data sets, reinforced by our proprietary infrastructure increasingly allows us to handle data ever more efficiently and drive more granular analysis and insights.

Performance in the Year

In the year to 31 December 2018, revenue of our continuing Media, Analytic and Tech business grew by 8% to £69.4 m and by 7% on a like-for-like, constant currency basis.

Our Media segment, which accounted for 78% of our total revenue and comprises Media Performance, Media Management and Contract Compliance services, grew by 5% to £54.2m (2017: £51.7m) (5% on a like-for-like, constant currency basis). This continuing growth is being driven by greater scrutiny of digital media investments and continued focus on the issue of media transparency. These trends will continue. Our global network, one of the most extensive of its kind, is enabling us to win global as well as local assignments through the knowledge and data sets we have developed in individual media markets. In addition to assisting advertisers to assess and optimise their media buying performance, this practice has developed a market leading capability in advising clients on the management and selection of media agencies and setting of media buying objectives. The requirement for advertisers to ensure that agencies deliver their services as contracted has continued to benefit our Contract Compliance practice (branded as "FirmDecisions")' which achieved 12% revenue growth and expanded to several new markets during the year. The UK, which remains the largest and most established part of the Media segment, grew by 5%, while a number of our newer markets, where we have been investing to build our capabilities, grew more rapidly including the USA (by 26%), France (11%) and Singapore (41%) outlining the opportunity and potential globally.

Our Analytics and Tech segment comprises Advanced Analytics, MarTech and AdTech advisory services. We have been developing offerings that harness technological advances and the power of data to enable advertisers to ensure that their marketing decisions are effective and deliver the optimal return on investment.

This segment's revenue increased by 19% to £15.2m compared to £12.8m in 2017, representing 15% growth on a like-for-like, constant currency basis. This success reflects growing client demand driven by an increased focus on data-driven, evidence-based marketing and the desire to understand better the increased complexity in technology and advertising data. The largest contributor (53% of the total) to this segment continued to be the Advanced Analytics business which grew revenue by 21%. Its data science and modelling expertise is highly valued and is gaining increasing recognition for its thought leadership on media and marketing trends. During 2018, it won various industry awards for the "Profit Ability" study conducted with Thinkbox. The Australian-based MarTech business achieved double-digit growth and our new UK AdTech service launched successfully in 2018 and recorded its first revenues.

Against the background of revenue growth, the reduction in the continuing business operating profit to £6.3m from £9.0m in 2017, was disappointing and was a result that clearly fell short of the goals originally set for the year as well as our longer term expectations for profitability. By investing for the future, the company's staff and administrative costs ran ahead of revenue growth achieved in the year. As previously reported, we made planned investments in people and technology to scale our business and develop new services. Whilst some have yielded expected benefits, others are taking longer to generate the anticipated growth. In addition, the protracted Ad Intel sale process slowed the ability to re-scale cost structures during the year.

Foundations for future growth

We have become a smaller and more focussed business but recognise that while the company is now structurally fitter for the future, further work is needed to align our costs with the revenue base.

During the year, we invested more than £1.5m in talent, tools and technologies to make our offer more consistent on a global basis so as to improve our ability to deliver a better service to our clients and manage resources more cost-effectively across our network. As the Ad Intel business completes its transition out of the business during 2019, we see the opportunity further to reduce costs.

At the end of 2018, to support our growth, we established a dedicated new business team under the leadership of Stephen Broderick and we continue to appoint client relationship leaders to manage service delivery to our existing key global clients. While it is early days, we are seeing higher revenue growth for those managed clients. We are entering into multi-year contracts with these clients as well as cross-selling additional services from our Media, Analytics and Tech practices.

Developments in Media

Within Media, one of the key objectives is to help to re-establish trust between clients and agencies.

The Contract Compliance business has experienced strong growth over the last several years and we are seeing further opportunities for growth. In 2018, the decision was taken to enhance our local capability outside the UK in markets such as USA, India and Germany. The short term impact of this increased investment reduced profitability, but is expected to generate benefits in the current year.

The selection and management of media agency partners has become more complex for our clients. We have identified and taken advantage of this opportunity to broaden and standardise our service offering across key markets by appointing specialists in the US and UK to meet demand. This has enabled us to provide high quality strategic advice to a number of global clients such as Fiat Chrysler Automobiles, GlaxoSmithKline, L'Oreal and McDonald's.

We also accelerated our efforts to standardise and unify service delivery in our Media Performance practice with regards to our product portfolio and in delivery. Our expertise and leadership position has enabled us to retain existing clients and win new business. To illustrate this, we were reappointed as global independent media advisor for a Fortune 50 medical goods company with an enhanced scope of work and significant incremental revenue and we expanded our media services with a global FMCG to encompass extended market reach after a competitive multi-market pitch process.

We continued to invest and innovate in support of our automation strategy which led to the release of three key tools in 2018: EbiquityConnect™, EbiquitySelect™ and EbiquitySynch™. These are designed to facilitate data gathering, increase the speed and efficiency of analysis work and improve data security. We also established a shared services media delivery centre in Spain which will become fully operational in 2019. Centralising media analysis work in this way will reduce costs, standardise processes and free up our specialist consultants in local markets to spend more time on higher value added activities.

Developments in Analytics and Tech

In our Analytics and Tech practice we invested in support of growth and launched a new service offering. We recognised the opportunity to pursue multi-market analytics contracts and therefore enhanced the team to compete successfully for these. This is generating new business, examples of which are: the appointment to the roster of one of the world's largest food companies, the appointment as multi-market advanced analytics partner for a global automotive brand and the award of a highly competitive Advanced Analytics assignment for one of the world's largest telecommunications groups. We have also been recognised for our expertise through the prestigious IPA Channon Prize for 'Best New Learning', our pioneering Advanced Analytics long-term brand equity modelling work with Direct Line Group, two Gold and two Silver IPA awards and one Effie award for clients such as Direct Line Group, Lidl, Weetabix and Yorkshire Tea.

In 2018, we launched a standalone AdTech advisory business, initially based in the UK. This responds to the increased complexity and the multitude of choices amongst technology and service providers by advising clients on issues such as in-housing of programmatic media and alternative advertising technologies. Our independence is again a key differentiator. While this practice is in its infancy, the team has started well and successfully delivered several high impact projects including a global digital advertising technology assessment for one of the world's largest mobile operators.

Developments in Operations

We continued to enhance our operational abilities with further investment in our CRM system, financial management and other related tools, aligned our brand and website presence with our vision and published key thought leadership pieces to engage and connect with clients. Debbie Morrison, who worked for over 29 years at ISBA advising clients on key industry topics such as marketing transformation and media and marketing best practices, joined Ebiquity at the beginning of 2019 and is responsible for our partnership with trade bodies globally, our presence and speaking engagements at key industry conferences and our own client events.

Developments in Leadership Team

Towards the end of 2018 we significantly strengthened our leadership team with key appointments as outlined in the Chairman's Statement. We believe these will assist in the development of the Company and help to achieve our strategic goals.

We have set our leadership team seven key objectives to drive growth and profitability. These are to:

• Improve our financial discipline and operational capabilities

• Drive stronger revenue growth and improve margins

• Embrace a nimble sales focused culture

• Train and upskill our talent to enable us to successfully deliver against our values and vision

• Transform and implement a tiered client service operating model

• Establish true innovation in analytics, data, and digital

• Raise the level of standardisation and automation of our services globally

Outlook

The markets in which we operate have great potential and the Group has been establishing foundations for growth. We are evaluating our cost base to align it with the reduced size of the Group as a result of the disposal of Ad Intel. However, it will take time to make the necessary adjustments during this transition period.

Trading in the current year has started in line with the Board's expectations, and while we are mindful of the political and economic uncertainties which may impact advertisers' budgets, we are confident that Ebiquity is well-positioned to make progress towards our ambition of becoming the leading independent media and marketing consultancy.

Michael Karg

Chief Executive Officer

Chief Financial Officer's Review

Operational Review

Within the Media segment, the UK business which accounts for 45% of the total, grew by 5%. A number of newer markets recorded strong growth including USA whose revenue increased by 26%, Singapore by 41%, France by 11% and Italy by 9%. However, in Germany revenue fell by 7% due to a break-away by part of the team and in Australia revenue fell by 5% as some clients did not renew due to their media spend falling. In China, where a new manager was appointed at the end of 2017, the previous revenue decline was significantly reduced and the business returned to growth in the second half. The operating profit of the Media segment was £1.9m lower than the prior year at £12.1 million, compared to £14.0 million and the operating margin reduced to 22% from 27%. This was due as highlighted in the CEO's review to the significant investments made in the year across the Media practices as well as a revenue decline in some markets.

Within the Analytics and Tech segment which grew by 19% overall, the UK is also the largest revenue contributor with 54% of the total and grew by 37% largely due to the success of the Advanced Analytics practice along with an initial contribution from Ad Tech. Iberia's Advanced Analytics practice grew by 20%. MarTech in Australia (acquired in 2017) grew revenue by 36% (on a like-for-like, constant currency basis) but the US MarTech practice reported a revenue decline as the nature of the market demand for its data management services changed. A new manager was appointed early in 2019 to re-orient this business which is expected to stabilise this year. The segment's operating profit reduced slightly to £1.4 million. Within this, Advanced Analytics increased its profits in line with revenue growth although this was offset by the investments made to launch the AdTech business and by lower profits in US MarTech.

Financial Review

Continuing Business

The continuing operations revenues for the year ended 31 December 2018 increased revenue by £5.2 million, or 8% to £69.4 million.

Underlying operating profit (statutory operating profit excluding highlighted items) for the continuing business for 2018 was £6.3 million, a decrease of £2.7 million or 29% over 2017. Cost of sales (which comprise external partner and production costs and direct project staff costs) increased by 15% to £37.6m from £32.6m. Administrative expenses grew by 12% to £25.4m from £22.6m. These cost increases reflected investments in people and systems during the year. As a result the operating margin dropped from 14% in 2017 to 9% in 2018.

Underlying profit before tax fell in line with operating profit to £5.2 million in 2018 (2017: £7.9 million). Net finance costs were £1.2 million in 2018 compared with £1.0 million in 2017. The increased cost reflects higher average gross debt in 2018 compared with 2017.

There was a statutory operating loss (after highlighted items) of £1.4 million compared to a profit of £3.8m in 2017. In addition to the underlying profit decline, highlighted costs increased by £3.3 million as detailed below. This led to a reported loss before tax of £2.5 million compared to a profit of £2.7 million in 2017.

Discontinued Operations

Revenues for the discontinued operations were £20.3 million, a decrease of £2.9 million (12%) from 2017. Ad Intel revenues fell by £1.8 million or 8% to £20.1 million reflecting the structural decline in the Ad Intel market and the prolonged disposal process. Consequently, the underlying operating profit for the Ad Intel business fell by £2.1 million (67%) to £1.1 million compared to 2017.

Reputation whose results were only included for 4 months in 2018, reported revenues of £0.2 million, compared to £1.3 million for the full year in 2017. It achieved an operating loss of £0.1 million compared to £0.2 million in 2017.

The underlying loss after tax from discontinued operations was £0.8 million, a reduction of £2.2 million from 2017 which reflected the operating performance.

Highlighted items

Highlighted items for the continuing business total £7.9 million in the year to December 2018, (2017: £4.6 million).

Highlighted items during the year comprised the following:

· £1.2 million for purchased intangible asset amortisation (2017: £1.2 million);

· £0.2 million for share‑based payment expenses (2017: £0.6 million);

· £1.2 million for severance and reorganisation costs including senior management changes in Europe, HR, Marketing and Operations (2017: £2.3 million);

· £2.6 million relating to the impairment of goodwill of the China operation (2017: nil)

· £2.0 million in relation to the professional and related costs incurred for the disposal of Ad Intel;

· £0.3 million relating to an onerous lease provision for the Hamburg and Sydney offices vacated by Ad Intel

Highlighted items in the discontinued operations totalled £1.8million, compared to £1.3million in 2017. The increase was mainly due to retention bonuses of £0.9million offset by reductions in other items.

Taxation

The underlying tax charge for the year for the continuing operations in 2018 is £1.8 million (2017: £2.4 million). This reflected the reduction in underlying profit before tax together with a reduction in the effective tax rate which was 28% compared to 32% in 2017.

The total tax charge including on highlighted items was £2.0 million compared to £1.8 million in 2017.

Earnings per share

Underlying diluted earnings per share for 2018 was 3.5p (2017: 6.2p) for the continuing operations. The reduction reflected the fall in underlying profitability. There was a statutory diluted loss per share of 6.4p compared to an earnings per share of 0.7p in 2017.

Dividend

The Board is recommending the payment of a dividend maintained at 0.71p per share for the year ended 31 December 2018. If shareholders approve the dividend at the AGM on 4 June 2019 it will be paid on 24 June 2019 to all shareholders whose name appears on the register of members at the close of business on 30 May 2019.

Equity

During 2018, 915,729 shares were issued upon the exercise of employee share options. As a result, the number of shares in issue increased to 79,113,190 (31 December 2017: 78,197,461).

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 £8.8 million during 2018 (2017: £8.9 million).

Cash conversion was 138% in 2018 (2017: 99%) reflecting continued improvements in the management of working capital.

Net debt and banking facilities

1. Bank debt in the statement of financial position includes £0.1 million (2017: £0.1 million) of loan arrangement fees that have been paid and which are amortised over the remaining life of the facility. The bank debt and net debt figures above exclude these costs.

All bank borrowings are held jointly with Barclays and Royal Bank of Scotland ("RBS"). The committed facility at 31 December 2018 consisted of a revolving credit facility of £35.0 million, of which £34.0 million was drawn (2017: £32.0 million). The facility expires on 30 June 2020.

During the year, the Group continued to trade within the limits of its banking facilities and associated covenants.

The disposal of the Ad Intel business in January 2019 generated net proceeds of £20 million (after costs and taxes) which will reduce the Group's net borrowings by that amount.

Statement of financial position and net assets

A summary of the Group's balance sheet as at 31 December 2018 and 31 December 2017 is set out below:

Net assets as at 31 December 2018 decreased by £5.5 million to £47.5 million (2017: £53.0 million). This principally reflects a £3.5 million reduction in goodwill and intangible assets through the impairment of goodwill in China, the annual amortisation charge on the intangibles and a reduction in net working capital of £1.2 million.

Alan Newman

Chief Financial and Operating Officer

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 earnings per share

· Underlying operating cash flow conversion

Underlying results are not intended to replace statutory results but remove 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 their 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 amortisation of purchased intangibles.

The non‑recurring items include the costs associated with potential and completed acquisitions and disposals, adjustments to the estimates of contingent consideration on acquired entities, asset impairment charges, management restructuring and other significant one‑off items. Costs associated with acquisition identification and early stage discussions with acquisition targets are reported in underlying administrative expenses.

Further detail of highlighted items are set out within the financial statements and the notes to the financial statements.

Consolidated income statement

for the year ended 31 December 2018

*Prior year comparatives have been adjusted for discontinued operations.

Consolidated statement of comprehensive income

for the year ended 31 December 2018

Consolidated statement of financial position

as at 31 December 2018

Consolidated statement of changes in equity

for the year ended 31 December 2018

(1) Includes £3,667,000 (31 December 2017: £3,667,000) in the merger reserve; a debit balance of £1,478,000 (31 December 2017: £1,478,000) in the ESOP reserve; and a gain of £2,955,000 (31 December 2017: £2,688,000 gain) recognised in the translation reserve.

(2) 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 flows

for the year ended 31 December 2018

Notes to the consolidated financial statements

for the year ended 31 December 2018

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 18 offices.

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 10.

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.

Credit approval has been obtained to defer the covenant assessment from December 2018 to January 2019 and to amend the interest cover covenant from January 2019. In light of this amendment, there are no concerns that the bank covenants will be comfortably met.

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.

On 13 February 2018, the Group agreed to sell its Advertising Intelligence business to Nielsen Media Research Limited, the transaction was approved as at 31 December 2018. On 19 March 2018, the Group entered into an agreement to sell the business assets of its Reputation division, completion took place on 31 March 2018. Collectively these divisions formed the Intel segment. Accordingly, the results of this segment have been presented within discontinued operations in both the current and comparative year in the Income Statement. The assets and liabilities of the Advertising Intelligence business are reported as held for sale in the Statement of Financial Position.

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 judgements 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 judgements are determined at a Board level based on the status of strategic initiatives of the Group.

Revenue recognition

Revenue from providing services is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. This is determined based on the actual labour hours spent relative to the total expected labour hours.

Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the services rendered by the Company exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised.

Carrying value of goodwill and other intangible assets

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

Contingent 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 recognised in the income statement within administrative expenses as a highlighted item.

Taxation

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

Provisions

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

Adoption of new standards and interpretations

On 1 January 2018, the Group adopted the following amendments which are effective for accounting periods on or after 1 January 2018.

· 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 largely unchanged by the adoption of IFRS 9. No material impact on profit for future periods is expected.

· 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 concluded there will be no material impact for the Media and Analytics & Tech 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 are assessing the impact on the Group of IFRS 16.

· 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 2019 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, Analytics and Tech and Discontinued operations:

· Media includes our media performance, media management, and contract compliance services;

· Analytics and Tech consists of our advanced analytics, martech and adtech services.

Discontinued operations comprise Intel, the advertising monitoring service and the reputation management and research services.

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

The segment information provided to the Executive Directors for the reportable segments for the year ended 31 December 2018 is as follows:

Year ended 31 December 2018

Unsatisfied long term contracts

The following table shows unsatisfied performance obligations results from long-term contracts:

1 As permitted under the transitional provisions in IFRS 15, the transactional price allocated to (partially) unsatisfied performance obligations as of 31 December 2017 is not disclosed.

It is expected that 68% of the transaction price allocated to the unsatisfied contracts as of 31 December 2018 will be recognised during the next reporting period, the remaining 32% will be recognised in the 2020 financial year.

Significant changes in contract assets and liabilities

Contract assets have reduced from £8,706,000 to £8,003,000 and contract liabilities have reduced from £7,105,000 to £3,979,000 due to the carve out of the Ad Intel balances from the group.

Year ended 31 December 2017

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 items which are highlighted in the income statement because separate disclosure is considered relevant in understanding the underlying performance of the business.

Amortisation of purchased intangibles relates to acquisitions made in the current financial year of £nil and to acquisitions made in prior years of £1,240,000 (31 December 2017: £28,000 in the current financial year and £1,203,000 in prior years). Separate disclosure is considered relevant because amortisation of purchased intangibles has no correlation to underlying profitability of the Group.

In the current year, a non‑cash IFRS 2 charge of £350,000 (31 December 2017: £573,000) was recorded. Separate disclosure is considered relevant to isolate charges and credits which are subject to volatility as a result of non-trading factors.

Impairment of goodwill of £2,607,000 is in relation to the impairment of goodwill held in China. The impairment was determined by the excess of the carrying value of goodwill in relation to China over and above the calculated value in use.

Total severance and reorganisation costs of £1,157,000 (31 December 2017: £2,305,000) were recognised during the year, primarily consisting of £1,017,000 in relation to severances in the UK, France, Germany, US and Spain as part of management restructuring in those countries. The remaining £140,000 costs incurred in relation to senior recruitment. 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 £2,469,000 (31 December 2017: £1,100,000) were recognised during the year, primarily consisting of £2,005,000 in relation to costs associated with the sale of the Ad Intel business (refer to note 31 for further detail); £324,000 for onerous lease provisions for properties in Hamburg and Sydney on there being vacant space on the Intel staff relocating, £94,000 in relation to earn-out costs associated with the Digital Balance Australia Pty Ltd and the Ebiquity Marsh Limited acquisitions and other contingent consideration adjustments, net of foreign exchange differences; £25,000 in relation to financial restructuring costs and £21,000 costs relating to prior year acquisitions. Separate disclosure is considered relevant as these charges are non-recurring and not reflective of the underlying operating costs of the business.

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.

Highlighted items on discontinued operations comprise a share option charge of £19,000, amortisation of purchased intangibles of £617,000, costs in relation to the sale of the Ad Intel business of £1,172,000, severance costs of £71,000, a profit on disposal of the Reputation business of £34,000 and a current tax credit of £356,000.

As at 31 December 2018, £1,043,000 of the £2,749,000 cash highlighted items had been settled (31 December 2017: £2,860,000 of the £3,711,000 cash highlighted items had been settled).

4. Taxation charge/(credit)

The difference between tax as charged 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.

5. Discontinued Operations

As of the balance sheet date, the disposal of the Ad Intel business was anticipated to complete in January 2019. The Board, therefore, considered this business to be an asset held for sale and would represent a complete withdrawal from this service line for the Group. Accordingly, this division is reported as discontinued operations in the 2018 financial statements. The prior year results been restated so that the results of this division for the year ended 31 December 2017 have also been reported as discontinued operations, for ease of comparison.

On 19 March 2018, the Group entered into an agreement to sell the business assets of its Reputation division to Echo Research Holdings Limited. Completion took place on 31 March 2018. Accordingly, this division is reported as discontinued operations in the 2018 financial statements, with comparatives restated accordingly.

The table below summarises the income statement for the discontinued business units for both the current and the prior year:

Below is a table summarising the cash flows from discontinued operations:

6. 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.

7. Goodwill

1 £1,552,000 of goodwill was recognised following the acquisition of Digital Balance Australia Pty Limited. Refer to note 13 for more details.

2 £140,000 of goodwill was recognised following the revaluation of contingent consideration payable for the acquisition of Digital Balance Australia Pty Limited.

3 Goodwill in relation to the Intel segment of £22,299,000 has been reclassified to assets held for sale in the statement of financial position. Refer to note 9 for more details.

4 An impairment of £2,607,000 was recognized in relation to goodwill held in China Media (Shanghai) Management Consulting Company Limited so that the carrying value was adjusted to be in line with the value in use.

Goodwill has been allocated to the following segments:

1 Goodwill in relation to the Intel segment of £22,299,000 has been reclassified to assets held for sale in the statement of financial position. Refer to note 9 for more details.

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:

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. An impairment of £2,607,000 of goodwill was recognised in the year ended 31 December 2018 in relation to China (year ended 31 December 2017: £nil), this was determined with reference to the calculated value in use of the China CGU of £3,265,000 compared to the carrying value of goodwill of £5,872,000.

Value in use calculations

The key assumptions used in management's value in use calculations are budgeted operating profit, pre‑tax discount rate and the long‑term growth rate.

To calculate future expected cash flows, management has taken the Board approved budgeted operating profit ('EBIT') for each of the CGUs for the 2019 financial year.

For the 2020 and 2021 financial years, the forecast EBIT is as per management and market expectations. The forecast 2021 balances are taken to perpetuity in the model. The forecast for 2020 and 2021 uses certain assumptions to forecast revenue and operating costs within the Group's operating segments beyond the 2019 budget.

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 12.1% (31 December 2017: between 7.0% and 11.0%).

Cash flows beyond the three‑year period are extrapolated at a rate of 2.25% (31 December 2017: 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 with the exception of China and Analytics USA.

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 Analytics USA are as follows, specifically what change in key assumptions would result in an impairment:

1 These changes have been applied to 2020 and 2021 projected information

An impairment of £2,607,000 was recognised in relation to goodwill held in China Media (Shanghai) Management Consulting Company Limited so that the carrying value was adjusted to be in line with the value in use. No further sensitivities have been calculated.

8. Other intangible assets

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

2 Customer relationships of £420,000 were recognised during the year ended 31 December 2017 as part of the Digital Balance Australia Pty Limited

3 Amortisation of £1,240,000 (year ended 31 December 2017: £1,952,000) is charged within administrative expenses so as to write off the cost of the intangible assets over their estimated useful lives. An impairment charge of £125,000 is required for the year ended 31 December 2018 (year ended 31 December 2017: £nil) following management's review of the carrying value of other intangible assets.

4 The amortisation of purchased intangible assets is included as a highlighted administrative expense.

5 Of the net book value of capitalised development costs £1,212,000 remains in development at 31 December 2018.

9. Assets and liabilities held for sale

In 2017, the Board concluded that the most probable route to realising future economic benefit through its Ad Intel business was through a sale rather than continuing to operate it as part of the larger Group. Accordingly, it commenced a sale process to see if this business could be sold at an acceptable price.

On 12 February 2018, the Group agreed to dispose of the Ad Intel business to Nielsen Media Research Limited, a subsidiary of Nielsen Holdings plc (together "Nielsen") for gross consideration of £26 million. This transaction was subject to certain conditions, including approval from the Competition and Markets Authority ("CMA") who immediately commenced a Phase 1 examination. This led to a Phase II examination that was not concluded until November 2018. This disposal to Nielsen was completed on 2 January 2019.

The deal was structured assuming a normalised level of working capital. There is a mechanism under which the ultimate consideration will be adjusted based on the actual level of working capital as of the date of disposal. The Board do not believe that any ultimate adjustments made based upon fluctuations in working capital will materially change the consideration received.

Under the terms of the disposal, the Group will provide certain services to Nielsen to facilitate the acquisition and integration of the Ad Intel business. These services include the provision of office space, financial administration and IT support for a period of up to eighteen months post completion.

In accordance with IFRS 5, the Ad Intel business has been treated as an asset held for sale. As at the balance sheet date, the sale was deemed to be probable, and the disposal of Ad Intel will signal a complete exit from this service line. Accordingly it has also been treated as a discontinued operation in these financial statements.

The net assets of the Ad Intel business as at 31 December 2018, which have been presented net on the Group balance sheet, are shown below: